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High Costs & Seasonality to Ail Mohawk's (MHK) Q4 Earnings

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Mohawk Industries, Inc. (MHK - Free Report) is slated to report fourth-quarter 2021 results on Feb 10, after market close.

In the last reported quarter, the company’s adjusted earnings topped the Zacks Consensus Estimate by 0.3% and increased 21.2% year over year. Net sales lagged the consensus estimate by 4.4% but increased 9.4% from the year-ago quarter. The upside was driven by robust housing sales and remodeling activities across the world.

Trend in Estimate Revision

The Zacks Consensus Estimate for Mohawk’s fourth-quarter earnings is pegged at $2.90 per share, indicating an 18.1% decrease from the prior-year reported figure of $3.54. The consensus estimate for net sales is pegged at $2.74 billion, suggesting a 3.6% increase from the year-ago reported figure of $2.64 billion.

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

MHK is expected to have registered improved sales during fourth-quarter 2021 owing to robust demand trends. Continued government stimulus, low interest rates, new home construction and improvement of the commercial space are likely to have benefited its performance in the to-be-reported quarter.

Owing to higher market demand and increased sales in residential remodeling and new construction markets, Mohawk's U.S. ceramic business has been witnessing improved customer traffic. The company expects the expansion of ceramic capacities in the fourth quarter and beyond. The consensus mark for revenues from the Global Ceramic unit is pegged at $956 million, implying a 3.9% year-over-year increase.

The Flooring NA business has also been seeing strong growth in the residential channel. Its commercial channel has been recovering and seeing more investments in new projects. The consensus estimate for the Flooring NA segment’s net sales is pegged at $1,019 million, indicating an improvement of 5.8% from the year-ago reported figure.

Within Flooring ROW, the company has been witnessing strong demand in most categories and geographies. Especially, the insulation business has been experiencing strong demand backed by government incentives for energy savings. The consensus mark for revenues from Flooring ROW is pegged at $787 million, suggesting a 3.7% improvement from the year-ago quarter.

Mohawk has been witnessing inflation in most of the product categories and hence raising prices. Also, the availability of material, labor and transportation has been challenging, thereby inflating costs. Especially, tight chemical supplies are hurting the output of LVT, carpet, laminate and board panels. These inflationary pressures are likely to weigh on fourth-quarter bottom-line results.

During third-quarter call, MHK noted that owing to supply shortages, government regulations and political issues, natural gas costs in Europe have risen significantly. This temporary challenge to European businesses is likely to have reflected in gas, electricity and material-related costs in the fourth quarter.

The consensus mark for adjusted operating income from Global Ceramic is $68 million, indicating a 22.7% decrease from $88 million reported a year ago. The same for Flooring NA units is pegged at $89 million, suggesting a decline of 2.2% from $91 million in the prior year. The consensus estimate for Flooring ROW business’ adjusted operating income is $120 million, which suggests a fall of 13% from $136 million a year ago.

During the third-quarter earnings call, management stated that it expects fourth-quarter adjusted earnings (excluding restructuring charges) in the range of $2.80-$2.90 per share, indicating a decline from the year-ago figure of $3.54.

What the Zacks Model Unveils

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. Unfortunately, this is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Currently, it has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.41%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some stocks from the Zacks Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat for the to-be-reported quarter:

Oxford Industries, Inc. (OXM - Free Report) has an Earnings ESP of +2.97% and a Zacks Rank #2.

In the trailing four quarters, OXM’s earnings topped the consensus mark thrice but missed the same on one occasion, with the average surprise being 96.7%.

Cedar Fair, L.P. (FUN - Free Report) has an Earnings ESP of +6.02% and a Zacks Rank #1.

Over the trailing four quarters, FUN’s earnings topped the consensus mark thrice but missed the same on one occasion, with the average surprise being 16.5%.

PlayAGS, Inc. (AGS - Free Report) has an Earnings ESP of +42.71% and a Zacks Rank #2.

In the last four quarters, AGS’ earnings have topped the consensus mark thrice but missed the same on one occasion, with the average surprise being 33.3%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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