Mohawk's (MHK) Q1 Earnings & Revenues Meet Expectations

Mohawk Industries, Inc.’s (NYSE:MHK) first-quarter 2018 adjusted earnings per share (EPS) of $3.01 were in line with the Zacks Consensus Estimate. However, the bottom line grew 11% year over year on higher sales and improved productivity.

Total revenues of $2.41 billion also came in line with the consensus mark but increased 9% year over year on higher sales across all segments. The positives were somewhat offset by the adverse impact of higher-than-expected material and freight costs.

The company’s first-quarter results benefited from its diverse geographical footprint and product portfolio. Mohawk registered solid growth in LVT in its largest markets. The company’s top and bottom lines witnessed robust growth in ceramic business outside the United States.

Operating Highlights

Adjusted gross profit of $753.6 million increased 5.4% year over year. Adjusted selling, general and administrative (SG&A) expenses increased 6% to $428.7 million from the prior-year quarter.
Adjusted operating income of $291.9 million improved 4.6% year over year.

Segment Details

Global Ceramic: Net sales at this segment amounted to $876.5 million, increasing 12% year over year on a reported basis and 8% on a constant currency basis. Solid contributions from its ceramic business in Russia and Mexico, as well as acquisitions in Italy and Poland, aided the upside.

Flooring North America: Net sales in this segment totaled $950.4 million, up 1% year over year on strong residential carpet sales.

Flooring Rest of the World: Net sales increased 18% year over year to $585.3 million. On a constant currency basis, sales improved 4%, attributable to the improvement of local economies and strengthening of Euro.

Q2 Guidance

Mohawk expects earnings (excluding one-time charges) in the quarter to be in the range of $3.89-$3.98 per share.

2018 Guidance

For the balance of 2018, the company expects sales growth to improve with the increase of the use of its new production, introduce additional products and complete the acquisition of Godfrey Hirst. Meanwhile, Godfrey Hirst acquisition is estimated to boost revenue by $180 million and EPS by 25 cents.

In the third quarter, higher prices, mix and productivity is anticipated to enhance adjusted operating income even as the company registers a lower operating margin. In the fourth quarter, adjusted operating income and margin is expected to be more than 2017, as the impact from start-ups and patents decline.

Meanwhile, the company anticipates 2018 operating income will be adversely impacted by $30-35 million from higher start-up costs and $40 million from patents that expired in 2017. In total, the company’s operating income will be reduced by $70-75 million in the year. Adjusted tax rate will be at 21% this year compared with 26% in 2017.

In 2019, with higher utilization and lower start-up costs, Mohawk anticipates improvement in its top and bottom lines.

Zacks Rank

Mohawk carries a Zacks Rank 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the Consumer Discretionary sector that deserve a look include, Sony Corporation (NYSE:SNE) , Interface, Inc. (NASDAQ:TILE) and Iconix Brand Group, Inc. (NASDAQ:ICON) .

Sony, a Zacks Rank #1 stock, is expected to witness earnings growth of 668.6% this year.

Interface carries a Zacks Rank #2 (Buy). Its earnings are anticipated to grow 20.3% this year.

Iconix Brand carries a Zacks Rank #2. Earnings estimates for 2018 for the company have moved north by 166.7% over the last 60 days.

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