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Mohawk Industries (MHK) Down 27.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Mohawk Industries (MHK - Free Report) . Shares have lost about 27.3% in that time frame, underperforming the S&P 500.

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

Mohawk Q4 Earnings Surpass Estimates, Decline Y/Y

Mohawk Industries, Inc. reported better-than-expected fourth-quarter 2019 results. However, the top and bottom lines declined on a year-over-year basis due to softness in retail demand, greater competition and reduced production volume. In the near term, it expects the product categories to remain under pressure in most of the markets served.

Inside the Headlines

During the quarter, Mohawk reported adjusted earnings per share of $2.25, which surpassed the consensus mark of $2.20 by 2.3%. However, the metric declined 11.1% year over year.

Net sales of $2,424.5 million surpassed the Zacks Consensus Estimate of $2,407 million by 0.7%. However, the reported figure marginally fell 1% from the year-ago figure of $2,448.6 million. On a constant-currency and days basis, net sales were down 1.7% year over year.

Operating Highlights

Gross profit during the quarter came in at $622.8 million, down nearly 3.7% year over year. Adjusted selling, general and administrative expenses increased 9.6% from the prior-year level to $463.3 million. Adjusted operating income totaled $204.8 million, which declined 14.9% year over year.

Segment Details

Global Ceramic: Sales in the segment totaled $858.3 million, down 0.3% year over year. Also, the metric declined 1.5% on a constant currency and days basis.

Operating margin of 6% declined from the prior-year level due to inflation and lower production rates, partially offset by productivity.

Flooring North America: Net sales in the segment came in at $936.4 million, down 3.8% year over year (declining 5% on a constant days basis). The segment's adjusted operating income of $69.2 million also dropped 19.9% from the prior-year level due to lower volume, price and mix.

Flooring Rest of the World: In the segment, net sales grew 2.6% year over year to $629.8 million. On a constant-currency and days basis, sales grew 4% from the year-ago level. Adjusted operating income in the segment increased 14.1% on a year-over-year basis to $89.5 million, courtesy of volume growth, reduced start-up cost and lower inflation, partially offset by price and mix.

Financial Highlights

As of Dec 31, 2019, it had cash and cash equivalents of $134.8 million compared with $119.1 million at 2018-end.

In 2019, operating cash flow was roughly $1,418.8 million, up from 1,181.3 million a year ago.

Under the company’s current stock repurchase program, it repurchased approximately $23 million in the fourth quarter for a total of about $375 million.

2019 Highlights

Adjusted earnings came in at $10.04 per share in the year, reflecting a decrease of 18.6% year over year. Total sales of $9,970.7 million also decreased 0.1% from the 2018 level.

Q1 View

The company continues to witness a tough business environment, given soft demand, greater competition and reduced production volume. To combat the above-mentioned headwinds, Mohawk has been undertaking many initiatives to boost sales and reduce costs. It has enhanced LVT manufacturing in the United States and Europe, and realigned its U.S. carpet operations.

Meanwhile, it has slashed ceramic production and inventories, and is taking out wood flooring plants in the United States and Europe. The company has been reducing the complexity of operations and increasing automation to improve efficiencies. Additionally, it has been focusing on improving productivity and volume of its new LVT, U.S. countertop, Russian sheet vinyl and European carpet tile investments.

Given the above-mentioned tailwinds, Mohawk expects first-quarter 2020 earnings (excluding one-time charges) in the range of $1.90-$2.00 per share, indicating a decline from $2.13 reported in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Mohawk Industries has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

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


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