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Mohawk (MHK) to Report Q1 Earnings: What's in the Offing?

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Mohawk Industries, Inc. (MHK - Free Report) is expected to report first-quarter 2019 results on Apr 25. In the last reported quarter, the company’s adjusted earnings and net sales topped the Zacks Consensus Estimate by 1.6% and 0.3%, respectively.

However, the bottom line declined 26% year over year due to input cost inflation, higher start-up costs and softening market conditions for luxury vinyl tile (“LVT”).  Additionally, changing product and price mix, lower production units, and unfavorable foreign currency translation added to the woes.

Nevertheless, Mohawk’s top line grew 3% year over year, given higher contribution from the Flooring ROW segment.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for Mohawk’s first-quarter earnings is pegged at $2.11 per share, indicating a decrease of 29.9% from the prior-year reported figure of $3.01. The consensus estimate for total revenues is pegged at $2.5 billion, suggesting a 3.8% increase from the year-ago reported figure.

Mohawk Industries, Inc. Price and EPS Surprise

Let’s See How Things are Shaping Up for This Announcement

Mohawk’s first-quarter results are expected to be affected by rising material and start-up costs, along with softer demand across the markets served by the company.

Rising material costs have been denting its margins over the last few quarters. Again, labor, energy and fuel-related costs have been negatively impacting results. The company expects these costs to impact its bottom line in the to-be-reported quarter as well. In the to-be-reported quarter, Mohawk intends to reduce production rates due to softer demand in most of the markets served by the company.

Although it has been executing price increases in many of its products in order to offset the above-mentioned costs, this move has been impacting its top line.

Apart from the above-mentioned headwinds, the company’s Flooring North America segment has been experiencing soft shipments due to slower housing demand and activity, along with lower customer orders. This trend is likely to impact first quarter as well. The Zacks Consensus Estimate for the segment’s net sales is pegged at $942 million, indicating a decline of 0.3% from the year-ago reported figure of $950.4 million.

Additionally, unfavorable foreign currency translation is expected to impact the company’s Flooring ROW business in the first quarter, as a significant portion of Mohawk’s business operates outside the United States. The Zacks Consensus Estimate for operating income from the Flooring ROW business is pegged at $84 million, suggesting a 5.7% decline from the prior-year reported figure.

Meanwhile, the consensus mark for sales from the company’s Flooring ROW and Global Ceramic segments is pegged at $652 million and $931 million, respectively. The said estimates imply 11.4% and 9.5% growth from the year-ago reported figures.

Overall, due to the above-mentioned headwinds, Mohawk expects first-quarter earnings (excluding one-time charges) in the range of $2.02-$2.12 per share, which is lower than the year-ago level of $3.01.

Nonetheless, the company’s innovative products across its portfolio, price increases and improved manufacturing processes are likely to offset the headwinds to some extent.

Here is What Our Quantitative Model Predicts:

Our proven model does not conclusively show that Mohawk is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. 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 #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Apergy Corporation (APY - Free Report) has an Earnings ESP of +0.81% and a Zacks Rank #1.

Construction Partners, Inc. (ROAD - Free Report) has an Earnings ESP of +52.38% and a Zacks Rank #2.

D.R. Horton, Inc. (DHI - Free Report) has an Earnings ESP of +0.52% and a Zacks Rank #3.

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