Mohawk (MHK) Q2 Earnings Beat, Sales Miss, Shares Slip

Mohawk Industries, Inc. MHK reported mixed results for second-quarter 2022, with earnings surpassing the Zacks Consensus Estimate but net sales missing the same. On a year-over-year basis, net sales grew buoyed by higher pricing, enhanced product mix and improvements in commercial and acquisitions. However, earnings fell from a year ago due to material, energy and transportation inflation.

MHK’s shares slipped 1.2% in the after-hours trading session on Jul 28.

Pertaining to the market conditions, Jeffrey S. Lorberbaum, chairman and CEO of Mohawk, said, “During the quarter, sales grew in all of our segments, with our top line results benefiting from price increases, enhanced product mix, improvements in commercial and contributions from our small acquisitions. As the quarter progressed, the global economic environment became increasingly challenging, and our organization implemented additional actions to support our performance. Our operating income for the quarter was in line with our expectations, even as material, energy and transportation inflation remained a significant headwind and our translated results were impacted by the strengthening U.S. dollar.”

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

Mohawk Industries, Inc. price-consensus-eps-surprise-chart | Mohawk Industries, Inc. Quote

Inside the Numbers

Mohawk reported adjusted earnings of $4.41 per share, surpassing the consensus mark of $4.35 by 1.4% but decreasing 0.9% year over year. The results were impacted by material, energy and transportation inflation as well as by strengthening the U.S. dollar.

Net sales of $3.15 billion, however, missed the Zacks Consensus Estimate of $3.19 billion by 1.4% but increased 6.7% from the year-ago figure. On a constant-currency basis, net sales were up 11.1% year over year. The upside was driven by price increases, enhanced product mix, improvements in commercial and contributions from small acquisitions.

Operating Highlights

Adjusted gross profit of $874.1 million was down 3.7% year over year. Adjusted operating income totaled $370 million, which declined 10.1% year over year, owing to the above-mentioned headwind.

Segment Details

Global Ceramic: Sales in the segment totaled $1.2 billion, up 11.5% year over year. Also, the metric improved by 14.6% on constant days and currency basis. Adjusted operating income increased to $154.3 million from $137.2 million a year ago. The segment’s reported operating margin was 13.3%. Productivity, pricing and mix improvements were offset by the inflation.

Flooring North America: Net sales in the segment amounted to $1.1 billion, increasing 1.7% year over year on a reported basis. The segment registered an adjusted operating income of $99.8 million for the reported quarter, reflecting a decline from $115.9 million reported in the prior-year period. The operating margin was 9.1% in the quarter. Favorable price, mix and productivity improvements were offset by higher inflation and lower volumes.

Flooring Rest of the World: Net sales in the segment increased 7.4% year over year to $0.9 billion. On a constant-currency basis, sales were up 18.8% from the year-ago level. Adjusted operating income was $126.4 million, down from $164.3 million reported a year ago. The segment’s operating margin was 13.9%, impacted by lower volumes and higher inflation.

Financial Highlights

As of Jul 2, 2022, Mohawk had cash and cash equivalents of $224 million compared with $268.9 million at 2021-end. Long-term debt — less current portion — at the second-quarter end was $1.05 billion compared with $1.72 billion at December 2021-end.

Second-Quarter 2022 View

Higher interest rates have been moderating demand for homes thereby impacting housing sales. Also, inflation is causing changes in consumer discretionary spending. Meanwhile, residential remodeling is softening as consumers have been deferring their home improvement projects. Nonetheless, new home and multifamily flooring channels remain strong, and the commercial sector continues to improve as new and deferred projects are initiated. Though interest rates are lower in Europe, dramatically higher natural gas prices and constrained supply are reducing economic growth. Given these factors, MHK expects softening demand and higher pressure on margins going forward.

On the positive side, introduction of more value products, reducing expenses and initiating new process improvements, implementation of multiple restructuring projects across the company to reduce costs should help the company combat ongoing headwinds and drive growth. Given these factors, it anticipates third quarter adjusted EPS to be $3.33 to $3.43, excluding any restructuring charges. The Zacks Consensus Estimate for the third quarter is currently pegged at $4.14 per share.

Zacks Rank

Mohawk currently carries a Zacks Rank #4 (Sell).

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

Some Better-Ranked Stocks in the Sector

Some better-ranked stocks in the Consumer Discretionary sector are Stride, Inc. LRN, Universal Technical Institute, Inc. UTI and Marriott International, Inc. MAR.

Stride sports a Zacks Rank #1 at present. LRN has a trailing four-quarter earnings surprise of 28.8%, on average. Shares of the company have gained 32.3% year to date.

The Zacks Consensus Estimate for Stride’s current financial year EPS suggests growth of 48% from the year-ago period.

Universal Technical Institute carries a Zacks Rank #2 at present. UTI has a trailing four-quarter earnings surprise of 998.2%, on average. Shares of the company have gained 1.7% year to date.

The Zacks Consensus Estimate for UTI’s current financial year EPS suggests growth of 118.5% from the year-ago period.

Marriott carries a Zacks Rank #2. MAR has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has decreased 4.3% year to date.

The Zacks Consensus Estimate for MAR’s current financial year EPS indicates growth of 90.9% from the year-ago period.

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