Can Mohawk Industries (MHK) Pull A Surprise In Q1 Earnings?

Mohawk Industries, Inc. (NYSE:MHK) is set to report first-quarter 2017 results on Apr 27.

Last quarter, the company posted a positive earnings surprise of 1.2%. Meanwhile, it reported positive earnings surprises in all of the past four quarters, the average being 1.96%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

We are encouraged by Mohawk Industries’ increased internal investments to boost capacity and enter new markets. In 2016, the company’s capital investments were the highest at approximately $670 million, which is expected to increase to $750 million in 2017.

Moreover, Mohawk Industries is well poised to gain traction on the current positive housing scenario, as it has heavy exposure to the U.S. residential sector. Steady job and wage growth, a recovering economy, affordable interest/mortgage rates, rapidly increasing household formation and a limited supply of inventory hint at strong demand in 2017.

In order to achieve long-term growth, the company is expanding its differentiated product line, introducing distinctive collections, aggressively implementing productivity improvements across all businesses and bringing new capacity online to support growth. It is currently exploring numerous investment options to drive expansion, including green field opportunities and acquisitions. Such initiatives can be expected to contribute in the to-be-reported quarter.

Taking these factors into account, the earnings per share guidance for the first quarter is projected at $2.64 to $2.73, which represents an 11% to 15% increase over the first-quarter 2016 figure.

However, we are apprehensive about the persistent pressure from adverse foreign currency movement, since Mohawk Industries generates almost one-third of its revenues from customers outside the U.S.

Notably, for the first quarter, the Zacks Consensus Estimate for earnings is pegged at $2.71, reflecting a 13.8% year-over-year increase. Meanwhile, our estimate for revenues is $2.26 billion, implying a 4.1% increase.

Earnings Whispers

Our proven model does not conclusively show that Mohawk Industries will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $2.71. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Mohawk Industries, Inc. Price and EPS Surprise

Zacks Rank: Mohawk Industries carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader Consumer Discretionary sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Hilton Worldwide Holdings Inc. (NYSE:HLT) , with an Earnings ESP of +10.71% and a Zacks Rank #3, is scheduled to release its quarterly numbers on May 2.

Charter Communications, Inc. (NASDAQ:CHTR) , with an Earnings ESP of +6.06% and a Zacks Rank #3, is expected to report its quarterly numbers on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Comcast Corporation (NASDAQ:CMCSA) , with an Earnings ESP of +3.39% and a Zacks Rank #3, is slated to report its quarterly results on May 3.

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