Mohawk (MHK) Q4 Earnings Surpass Estimates, Decline Y/Y

Mohawk Industries, Inc. (NYSE:MHK) 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.

Zacks Rank

Mohawk, which shares its space with Crown Crafts, Inc , Culp, Inc (NYSE:CULP) and Interface, Inc (NASDAQ:TILE) and Masonite International Corporation (NYSE:DOOR) in the Zacks Consumer Discretionary sector, carries a Zacks Rank #4 (Sell).

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

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