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Mohawk (MHK) Q3 Earnings & Sales Beat, Operating Margin Falls

Mohawk Industries, Inc. MHK reported better than expected results for third-quarter 2023, wherein its top and bottom lines surpassed the Zacks Consensus Estimate.

However, earnings and net sales declined on a year-over-year basis. The company witnessed continued pressures across all regions, primarily due to constrained residential investments and further tightening of consumer discretionary spending. It was also seasonally impacted by vacations in Europe and foreign exchange headwinds. Lower material and energy costs offset the decline in both price and mix.

Shares of this leading global flooring manufacturer plunged 1.99% in the after-hours trading session on Oct 26.

Inside the Numbers

Mohawk reported adjusted earnings of $2.72 per share, which topped the consensus mark of $2.65 by 2.6%. The metric plunged from $3.34 per share, reflecting a fall of 18.6% year over year.

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

 

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

 

Net sales of $2.77 billion topped the consensus estimate of $2.73 billion by 1.2% but decreased 5.2% from the year-ago figure of $2.92 billion. On a legacy and constant currency and days basis, net sales were down 8.1% year over year to $2.68 billion.

Adjusted gross margin was up 100 basis points (bps) year over year to 26.6%. Adjusted selling, general and administrative expenses, as a percent of net sales, increased 180 bps to 18.1% from the year-ago period.

Adjusted operating margins contracted to 8.4% from 9.3% a year ago.

Segment Details

Global Ceramic: Sales in the segment totaled $1.092 billion, down 0.5% year over year and 6% on a legacy and constant currency and days basis. Adjusted net sales were $1.31 billion in the reported quarter. Adjusted operating income decreased to $87.6 million from $132.2 million a year ago. The segment’s adjusted operating margin was down to 8% from 12.1% a year ago. Unfavorable price and product mix, temporary plant shutdowns, lower volumes and foreign exchange headwinds, partially offset by productivity gains, ailed the segment.

Flooring North America: Net sales at the segment amounted to $962.2 million, down 11.7% year over year on a reported basis and 12.2% on a legacy basis. Adjusted net sales were $957 million in the reported quarter. The segment registered an adjusted operating profit of $77.7 million, down from $87.7 million reported in the prior-year period. Adjusted operating margin was 8.1% compared with 8% a year ago. Unfavorable pricing and product mix, reduced volume and lower productivity due to the underutilization of plant assets were partially offset by lower inflation.

Flooring Rest of the World: Net sales in the segment decreased 2.6% year over year to $712.3 million. On a legacy and constant currency and days basis, sales were down 10.2% from the year-ago level. Adjusted net sales were $694.7 million in the reported quarter. Adjusted operating income was $77.3 million, up from $62.3 million reported a year ago. The segment’s adjusted operating margin was 10.9%, up 240 bps year over year. The upside stemmed from benefits received from raw materials, energy and less downtime, partially offset by unfavorable price, mix and foreign exchange.

Financial Highlights

As of Sep 30, 2023, it had cash and cash equivalents of $518.5 million compared with $327 million on Oct 1, 2022. The long-term debt, less the current portion, was $1.68 billion compared with $1.02 billion at the end of third-quarter 2022.

For the third quarter, the company generated a free cash flow of $384.6 million versus $74.7 million a year ago.

Fourth-Quarter 2023 View

MHK expects continued pressure from foreign exchange rates in the fourth quarter. It expects adjusted earnings to be $1.80-$1.90 per share, excluding restructuring, acquisitions and other charges. This indicates a significant improvement from the year-ago figure of $1.32.

Zacks Rank & Recent Consumer Discretionary Releases

Mohawk currently carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hasbro, Inc. HAS reported mixed third-quarter fiscal 2023 results, wherein earnings came in line with the Zacks Consensus Estimate, but revenues missed the same. The top line fell short of the consensus estimate after beating it in the preceding two quarters.

Disappointing Consumer Products and Entertainment revenues hurt the company’s top line in the quarter under discussion.

Royal Caribbean Cruises Ltd. RCL reported third-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate.

The top and bottom lines increased on a year-over-year basis. The upside in RCL’s result was primarily driven by solid cruising demand, improvements in load factors and onboard spending momentum.

Hilton Worldwide Holdings Inc. HLT reported third-quarter 2023 results, wherein earnings came in line with the Zacks Consensus Estimate, but revenues surpassed the same.

Revenues beat the consensus estimate for the tenth straight quarter. HLT’s top and bottom lines increased on a year-over-year basis.

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