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Mohawk Industries Grapples with Multiple Headwinds


On Oct 13, we issued an updated research report on Mohawk Industries, Inc. MHK – a leading global manufacturer of flooring products for residential and commercial spaces.

Mohawk Industries enjoys a leading position in the home furnishings industry. Also, the company’s strategic acquisitions are encouraging. The company holds a dominant position in the hugely fragmented and competitive industry. In addition, Mohawk Industries enjoys a competitive edge in the laminate flooring channel backed by the Laminate and Wood segment’s industry leading design, patented technologies and brands.

In spite of being well-positioned in the sector, Mohawk Industries’ second-quarter 2016 revenues were affected by unfavorable currency translations, plant disruptions and some large customers postponing their product launches and lowering their inventory levels in the quarter. Total revenue of $2.31 billion missed the Zacks Consensus Estimate of $2.35 billion by 1.58%.

Currency Unfavorable

Currency continues to be a major concern since Mohawk Industries generates almost one-third of its revenues from customers outside the U.S. Currency headwinds have hurt sales by $42 million in the first half of 2016. Though the unfavorable currency impact has lessened in 2016 and is expected to improve through the rest of the year, the net impact of currency headwinds remains significant.

The company believes that it will continue to face headwinds in the country through 2016, due to low oil prices. While European Central Bank’s quantitative easing program and low interest rates are stimulating growth in the region, only a modest improvement is expected for the Euro Zone in 2016.

Emerging Markets a Concern

Mohawk Industries has a significant presence in emerging markets. Strong performance of the Global Ceramic segment in Russia, North America and Europe and the flooring (rest of the world) segment, was not enough to offset the impact of the slowing economic growth in China and the recession in Russia.

Meanwhile, despite moderate improvement in economic growth in the domestic market, consumers are increasing their spending only modestly, as the surge in job growth is yet to translate into significantly higher wages.

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

Stocks to Consider

Better-ranked stocks in the broader consumer discretionary sector include The Dixie Group, Inc. DXYN, Smith & Wesson Holding Corporation SWHC and Callaway Golf Co. ELY.

The Dixie Group – a Zacks Rank #2 (Buy) stock – is expected to witness a 100.00% rise in 2016 earnings.

Smith & Wesson is expected to witness a 35.2% rise in fiscal 2017 earnings. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Callaway Golf carries a Zanks Rank #2 (Buy). Full-year earnings growth is projected at 169.9% for the company.

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