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Will Soft Sales & Higher Cost Hurt Mohawk (MHK) Q1 Earnings?

Zacks Equity Research

Mohawk Industries, Inc. MHK is scheduled to report first-quarter 2020 results on May 4, after market close.

In the last reported quarter, the company’s adjusted earnings and net sales topped the Zacks Consensus Estimate by 2.3% and 0.7%, respectively. However, on a year-over-year basis, the metrics declined 11.1% and 1%, respectively, due to softness in retail demand, greater competition and reduced production volume.

Trend in Estimate Revision

The Zacks Consensus Estimate for Mohawk’s first-quarter earnings is pegged at $1.70 per share, indicating a 20.2% decline from the prior-year reported figure of $2.13. The consensus estimate for net sales is pegged at $2.33 billion, suggesting a 4.8% decrease from the year-ago reported figure.

Mohawk Industries, Inc. Price and EPS Surprise

Mohawk Industries, Inc. Price and EPS Surprise

Mohawk Industries, Inc. price-eps-surprise | Mohawk Industries, Inc. Quote

Factors to Note

Mohawk has been witnessing a tough business environment, given soft demand, greater competition and reduced production volume. Although it took several initiatives to boost sales and reduce costs to combat the above-mentioned headwinds, these may have persisted in the first quarter.

Segment-wise, the U.S. ceramic market performance has been impacted by a decline in product mix, soft retail demand, a stronger dollar, shift of customers to LVT and excess inventories in the channel.

The consensus mark for revenues from the Global Ceramic unit is pegged at $857 million, implying a 4.6% year-over-year decrease and 0.1% fall from fourth-quarter 2019.

The Flooring North America or NA business has been witnessing intense inflationary pressure. Further, anti-dumping duties and China tariffs added to the woes. Although the company has started reducing inventory levels, expanding product offerings and entering new categories, the benefits from the same are not likely to reflect on first-quarter 2020 results.

The consensus estimate for the Flooring NA segment’s net sales is pegged at $893 million, indicating a decline of 3.1% from the year-ago reported figure and 4.6% sequentially.

The consensus mark for revenues from Flooring ROW is pegged at $630 million, suggesting a 1.3% improvement from the year-ago quarter.

Coming to bottom-line projections, adjusted operating income from Flooring NA and Global Ceramic units is expected to fall 6.7% and 26.7% on a year-over-year basis, respectively. Nonetheless, the same from the Flooring ROW business is likely to grow 3.2% year over year.

Management expects first-quarter adjusted earnings in the range of $1.90-$2.00 per share, which indicates 6.1-10.8% decline from the year-ago reported figure. The lower projections are mainly due to the above-mentioned weakness, and higher costs and expenses related to labor, sales and marketing.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Mohawk this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.76%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mohawk currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are some companies in the Zacks Consumer Discretionary sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Glu Mobile Inc. GLUU has an Earnings ESP of +600.00% and holds a Zacks Rank #3.

GP Strategies Corporation GPX has an Earnings ESP of +58.33% and carries a Zacks Rank #3.

Casa Systems, Inc. CASA has an Earnings ESP of +19.36% and carries a Zacks Rank #3.

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Mohawk Industries, Inc. (MHK) : Free Stock Analysis Report
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Casa Systems, Inc. (CASA) : Free Stock Analysis Report
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