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Mohawk Industries (MHK) Down 6.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Mohawk Industries, Inc. (MHK - Free Report) . Shares have lost about 6.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MHK due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

First-Quarter 2018 Results

Mohawk’s first-quarter 2018 adjusted earnings per share (EPS) of $3.01 were in line with the Zacks Consensus Estimate. However, the bottom line grew 11% year over year on higher sales and improved productivity.

Total revenues of $2.41 billion came in line with the consensus mark but increased 9% year over year on higher sales across all segments. The positives were somewhat offset by the adverse impact of higher-than-expected material and freight costs.

The company’s first-quarter 2018 results benefited from its diverse geographical footprint and product portfolio. Mohawk registered solid growth in LVT in its largest markets. The company’s top and bottom lines witnessed robust growth in ceramic business outside the United States.

Operating Highlights

Adjusted gross profit of $753.6 million increased 5.4% year over year. Adjusted selling, general and administrative (SG&A) expenses increased 6% to $428.7 million from the prior-year quarter’s level.

Adjusted operating income of $291.9 million improved 4.6% year over year.
Segment Details

Global Ceramic: Net sales in this segment amounted to $876.5 million, up 12% year over year on a reported basis and 8% on a constant-currency (cc) basis. Solid contributions from its ceramic business in Russia and Mexico, as well as acquisitions in Italy and Poland, aided the upside.

Flooring North America: Net sales in this segment totaled $950.4 million, up 1% year over year on strong residential carpet sales.

Flooring Rest of the World: Net sales increased 18% year over year to $585.3 million. On a constant currency basis, sales improved 4%, attributable to the improvement of local economies and strengthening of Euro.

Q2 Guidance

Mohawk expects earnings (excluding one-time charges) in the quarter to be in the range of $3.89-$3.98 per share.

2018 Guidance

For the rest of 2018, the company expects sales growth to improve with the increase of the use of its new production, introduce additional products and complete the acquisition of Godfrey Hirst. Meanwhile, Godfrey Hirst acquisition is estimated to boost revenue by $180 million and EPS by 25 cents.

In the third quarter, higher prices, mix and productivity is anticipated to enhance adjusted operating income even as the company registers a lower operating margin. In the fourth quarter, adjusted operating income and margin is expected to be more than the level in 2017, as the impact from start-ups and patents decline.

Meanwhile, the company anticipates 2018 operating income to be adversely impacted by $30-35 million from higher start-up costs and $40 million from patents that expired in 2017. In total, the company’s operating income will be reduced by $70-75 million. Adjusted tax rate will be at 21% compared with 26% in 2017.

In 2019, with higher utilization and lower start-up costs, Mohawk anticipates improvement in its top and bottom lines

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been eight revisions lower for the current quarter.

VGM Scores

At this time, MHK has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, MHK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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