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Mohawk's (MHK) Q4 Earnings Beat, Stock Falls on Tepid Q1 View

Mohawk Industries, Inc. MHK reported mixed results for fourth-quarter 2022. The top line surpassed the Zacks Consensus Estimate. However, the metric declined year over year.

Net sales also missed the consensus mark and declined from the prior year owing to prevailing industry headwinds. Mohawk Industries’ shares dropped 2.12% in the after-hours trading session on Feb 9.

Jeffrey S. Lorberbaum, chairman and CEO of Mohawk, said, “The flooring industry is slowing due to higher interest rates, sustained inflation and low consumer confidence. Visibility of the depth and duration of this cycle is limited, and conditions differ across the world. Mohawk has a strong record of managing through these downturns by proactively executing the necessary actions. We are adjusting our business for the current conditions by reducing production levels, inventory, cost structures and capital expenditures. We are implementing restructuring actions in both Flooring North America and Flooring Rest of the World to streamline operations, reduce SG&A and rationalize higher cost assets.”

Inside the Numbers

Mohawk reported adjusted earnings of $1.32 per share, which topped the consensus mark of $1.29 by 2.3%. The metric plunged from $2.95 per share, reflecting a fall of 55.3% year over year. The decline was due to intense inflation, higher interest rates and lower volume.

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

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Net sales of $2.65 billion lagged the consensus estimate of $2.72 billion by 2.6% and decreased 4% from the year-ago figure of $2.76 billion. On a constant-currency basis, net sales were down 1.3% year over year. Price increases and strength in the commercial channel, which benefited from ongoing remodeling and new construction projects, were offset by a slowdown in residential flooring sales. Residential flooring sales contracted due to rising interest rates, declining home sales and lower consumer confidence.

Operating Highlights

Adjusted gross profit of $594.4 million was down 19.7% year over year. Adjusted selling, general and administrative expenses improved 1.3% from the year-ago period. Adjusted operating income totaled $119.2 million, which declined 53.9% year over year.

Segment Details

Global Ceramic: Sales in the segment totaled $987.7 million, up 4% year over year. Also, the metric improved 5.2% on a constant-currency basis. Adjusted operating income increased to $70.1 million from $60.4 million a year ago. The segment’s adjusted operating margin was 7.1%. The upside was primarily due to improved pricing and product mix as well as productivity gains, partially offset by inflation and lower volumes.

Flooring North America: Net sales at the segment amounted to $946 million, down 6.8% year over year on a reported basis. The segment registered an adjusted operating loss of $0.78 million for the quarter versus adjusted operating income of $92.9 million reported in the prior-year period. Operating margin was negative 3.1% and adjusted operating margin was flat in the quarter. Favorable price and mix were partially offset by inflation, temporary plant shutdowns and lower volumes.

Flooring Rest of the World: Net sales in the segment decreased 9.9% year over year to $717 million. On a constant-currency basis, sales were down 1.9% from the year-ago level. Adjusted operating income was $55.5 million, down from $117.4 million reported a year ago. The segment’s operating margin was 5% and 7.7% on an adjusted basis. Pricing and mix improvements were offset by inflation, lower volumes and temporary plant shutdowns.

2022 Highlights

Adjusted earnings came in at $12.85 per share, down 13.5% from $14.86 a year ago. Net sales were $11.7 billion, up 4.8% on a reported basis and 8.8% on a constant currency and days basis. Operating income for the year totaled $244.2 million and adjusted EBITDA was $254.4 million.

Financial Highlights

At 2022-end, MHK had available liquidity of approximately $1.8 billion and a low net debt to EBITDA of 1.3x.

As of Dec 31, 2022, it had cash and cash equivalents of $509.6 million compared with $268.9 million at 2021-end. The long-term debt — less current portion — at 2022-end was $1.98 billion compared with $1.7 billion at December 2021-end.

For 2022, the company generated free cash flow of $595.5 million, slightly up from $591.7 million a year ago.

First-Quarter 2023 View

For the first quarter, MHK anticipates more pressure on pricing and mix due to low industry volumes, thanks to elevated inventory costs in most product categories. The company will not raise production as normal in the first quarter to prepare for future demand.

Moreover, reduced energy costs will likely benefit MHK’s global margins in the future. The company expects second quarter results to be strong sequentially, with seasonally higher sales, increased production and lower material costs.

For first-quarter 2023, Mohawk expects adjusted earnings to be $1.24-$1.34 per share, excluding restructuring, acquisition and other charges. This indicates a significant decline from the year-ago figure of $3.78. The Zacks Consensus Estimate for first-quarter adjusted earnings is pegged at $1.68 per share.

Zacks Rank

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

Adtalem Global Education Inc. ATGE reported impressive results for second-quarter fiscal 2023.

ATGE’s earnings and revenues surpassed their respective Zacks Consensus Estimates, given the continued benefit from initiatives taken and cost synergies.

Leggett & Platt, Incorporated LEG reported tepid results for the fourth quarter of 2022. Both the earnings and net sales missed their respective Zacks Consensus Estimates and decreased on a year-over-year basis.

The downtrend was caused by weak demand in residential end markets and dynamic macroeconomic and geopolitical pressure. The company anticipates 2023 to be a challenging year due to these headwinds.

Hilton Worldwide Holdings Inc. HLT reported solid fourth-quarter 2022 results, with both earnings and revenues beating the respective Zacks Consensus Estimates and rising year over year.

While the HLT’s bottom line beat the Zacks Consensus Estimate for the fifth straight quarter, the top line surpassed the same for the seventh consecutive time.

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