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Mohawk (MHK) Beats Q4 Earnings, International Business Solid

Zacks

Mohawk Industries, Inc.’s MHK fourth-quarter adjusted earnings per share (EPS) of $3.42 beat the Zacks Consensus Estimate of $3.33 by 2.7%. Earnings also increased 5% year over year on higher sales and improved productivity.

Total revenues of $2.37 billion missed the Zacks Consensus Estimate of $2.38 billion. Revenues, however, increased 8.5% year over year on higher sales across all segments. Also, the company’s international business contributed significantly to its revenue growth as the economies of those countries expanded. These positives have offset the adverse impact of higher material-costs and reduced patent revenue.

Operating Highlights

Adjusted gross profit of $753.6 million increased 9.1% year over year. Adjusted selling, general and administrative (SG&A) expenses increased 6.4% to $406.3 million from the prior-year quarter.

Operating income of $343 million grew 13% year over year, even after absorbing start-up costs of approximately $10 million and the decline of income from patents. Adjusted operating income rose 11.6% to $358.7 million.

Segment Details

Global Ceramic: Net sales at this segment amounted to $824.1 million, increasing 10% year over year on a reported basis and 8% on the basis of constant days and currency. Solid contributions from its ceramic business in Russia and Mexico, as well as acquisitions in Italy and Poland, contributed to the upside.

Flooring North America: Net sales in this segment totaled $999.3 million, up 3% year over year on strong price, mix and productivity improvement that offset the increases in raw materials and other inflation.

Flooring Rest of the World: Net sales increased 18% year over year to $545.9 million. On a constant currency basis, sales improved 9%, attributable to the improvement of local economies and strengthening of Euro.

2017 Highlights

Mohawk’s earnings came in at $13.61 per share, up 8% year over year. Revenues were $9.5 billion, reflecting an increase of 6% from the 2016 level on a reported and on a constant days and currency basis.

Mohawk completed four acquisitions during 2017 to expand its product offering and to improve the cost structure. These include bolt-on ceramic businesses in Italy and Poland, a U.S. talc mine for ceramic and a nylon polymerization plant to further integrate carpet manufacturing.

Q1 Guidance

Mohawk expects earnings (excluding one-time charges) in the first quarter to be in the range of $2.93-$3.02 per share.

The company expects its sales from all of its segments to improve in the quarter from innovative new products, synergies of past acquisitions and strong Euro. The company expects the acquisition of Godfrey Hirst to get completed later this year and it anticipates it to be accretive to EPS by 35 cents to 40 cents per share in the first 12 months.

2018 Guidance

Mohawk remains focused on enhancing its long-term growth and profitability this year by investing $60-$70 million in starting up new operations, thereby expanding its market position and geographical scope. Of these investments, about one-third is non-cash depreciation due to limited utilization, one-third is for the marketing division to expand its distribution and one-third is for the cost of ramping up new production.

Meanwhile, the company will invest an added $750 million in its existing businesses in 2018, to complete projects that have started in 2017 and to commence new initiatives. Mohawk’s largest projects during this two-year period have been the expansion of LVT in the United States and Europe; ceramic capacity increases in the United States, Mexico, Italy, Poland, Bulgaria and Russia; luxury laminate in the United States, Europe and Russia; carpet tile in Europe; sheet vinyl in Russia; countertops in the United States and Europe; and carpet and rugs in the United States.

Zacks Rank

Mohawk Industries carries a Zacks Rank 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

Other top-ranked stocks in the Consumer Discretionary sector that deserve a look include, Churchill Downs Incorporated CHDN, Eldorado Resorts, Inc. ERI and Las Vegas Sands Corp. LVS.

Churchill Downs sports a Zacks Rank #1 and its expected earnings growth is 57.5% in 2018.

Eldorado Resorts carries a Zacks Rank #2 (Buy). Earnings estimates for Eldorado Resorts have moved 30.5% north over the last 30 days for 2018.

Las Vegas Sands, also a Zacks Rank #2 stock, is likely to witness 9.5% earnings growth in 2018.

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

Mohawk Industries, Inc. Price, Consensus and EPS Surprise | Mohawk Industries, Inc. Quote


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