Mohawk Industries, Inc.‘s (MHK - Free Report) business has been riding high on the portfolio expansion strategy, given notable acquisitions and cost-saving initiatives. Notably, the company — being one of the largest flooring manufacturers in the global market — enjoys a leading position in the home furnishings industry.
Shares of the company have outperformed the industry in the year-to-date period.
The global ceramic market is highly fragmented and is experiencing tough situations over the past two years. The recent coronavirus outbreak, which originated in the Wuhan city in China, has caused many manufacturers to shut down their units throughout the world.
Lets delve into the factors substantiating its Zacks Rank #3 (Hold). You can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Industry-Leading Flooring Business to Drive Growth
Mohawk holds a dominant market share in the extremely fragmented and competitive flooring industry. The company commands a competitive advantage in the laminate flooring channel backed by the Laminate and Wood segment’s industry-leading design, patented technologies and brands.
The company has undertaken various strategic initiatives like aligning ceramic production with demand in the United States, realigning its North American carpet operations, optimizing LVT manufacturing and ramping up new plants. Also, it is expanding product categories through acquisitions, introducing innovative product extensions and optimizing the recent buyouts.
Apart from these, the company is streamlining operations to enhance efficiencies, and leveraging automation and process enhancements to lower costs.
Soft Ceramic Business & COVID-19 Shutdowns Ail
Mohawk’s ceramic business has been witnessing a decline in product mix, soft retail demand, a stronger dollar, shift of customers to LVT and excess inventories in the channel. China’s imposition of 104% tariffs and anti-dumping duties are dampening the company’s profitability. In fact, total U.S. ceramic imports declined 17%, with China’s ceramic imports falling 90% year over year in fourth-quarter 2019.
Moreover, the coronavirus pandemic has resulted in the shutdown of production units. The company sources certain products from China, including some LVT products. The supply chain of Mohawk and other industry partners like Interface, Inc. (TILE - Free Report) , Culp, Inc. (CULP - Free Report) and Select Interior Concepts, Inc. (SIC - Free Report) is expected to negatively impact near-term results.
Owing to the above-mentioned headwinds, 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.
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