Mohawk Industries, Inc. MHK reported strong third-quarter 2024 results (ended Sept. 30). Its earnings surpassed the Zacks Consensus Estimate and improved from the prior year despite pricing pressures and a negative mix.
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On the other hand, net sales declined on a year-over-year basis but marginally beat the consensus mark. Mohawk noted that market conditions were slower than anticipated across the regions due to high interest rates, lingering inflation and lower consumer confidence. Commercial channel has also lost some momentum yet outperformed residential.
MHK's stock plunged 9.6% in the after-hours trading session on Thursday. As global conflicts, political uncertainty and inflation are weighing on consumer confidence and discretionary spending around the world, MHK does not see an industry improvement this year. It also expects recent U.S. hurricanes to negatively impact its fourth-quarter sales by $25-$40 million.
Nonetheless, it expects recent interest rate cuts in the United States, Europe and Latin America will strengthen housing markets and increase flooring sales next year.
Inside the Numbers
Mohawk reported adjusted earnings per share (EPS) of $2.90, which marginally topped the consensus mark of $2.89. The metric increased from $2.72, reflecting a rise of 6.6% year over year, backed by the positive impact of the sales initiatives, productivity and restructuring actions and lower input costs, partially offset by pricing and mix pressure.
Mohawk Industries, Inc. Price, Consensus and EPS Surprise
Mohawk Industries, Inc. price-consensus-eps-surprise-chart | Mohawk Industries, Inc. Quote
Net sales of $2.72 billion topped the consensus estimate of $2.71 billion by 0.5% but decreased 1.7% from the year-ago figure of $2.77 billion. On a legacy and constant currency and days basis, net sales were down 2.1% year over year.
Adjusted gross margin was up 40 basis points (bps) year over year to 26.2%. Adjusted selling, general and administrative expenses, as a percent of net sales, declined 80 bps to 17.3% from the year-ago period. Our model expected gross margin to grow 60 bps and SG&A to increase by 20 bps.
Adjusted operating margins expanded 40 bps to 8.8% from a year ago.
Segment Details
Global Ceramic: Sales in the segment totaled $1.06 billion, down 3.1% year over year and 2.2% on a legacy and constant currency and days basis. We expected segment sales to decline 2.2% year over year. Adjusted net sales were $1.07 billion in the reported quarter. Yet, adjusted operating income increased to $90.8 million from $87.6 million a year ago. The segment's adjusted operating margin also rose to 8.6% from 8% a year ago due to increased productivity and lower material and energy costs, which offset labor and freight inflation.
Flooring North America: Net sales in the segment amounted to $974 million, up 1.2% year over year compared with our expectations of a decline of 2.2%. The segment registered an adjusted operating profit of $88.9 million, up from $77.6 million reported in the prior-year period. Adjusted operating margin was 9.1% compared with 8.1% a year ago.
Flooring Rest of the World: Net sales in the segment decreased 3.5% year over year to $687 million, higher than our projections of a decline of 3%. On a constant currency basis, sales were down 6.3% from the year-ago level. Adjusted net sales were $746.4 million in the reported quarter. Adjusted operating income was $71.8 million, down from $77.3 million reported a year ago. The segment's adjusted operating margin was 10.5%, down from 10.9% year over year.
Financial Highlights
As of Sept. 28, 2024, it had cash and cash equivalents of $424 million compared with $518.5 million on Sept. 30, 2023. The long-term debt, less the current portion, was $1.72 billion at third-quarter 2024-end compared with $1.68 billion at the end of third-quarter 2023.
In the reported quarter, net cash from operating activities was $319.6 million compared with $512 million a year ago. The company generated a free cash flow of $204.2 million in the third quarter compared with $384.6 million a year ago.
Q4 View
MHK expects adjusted EPS in the range of $1.77-$1.87, excluding restructuring and other charges, compared with the year-ago figure of $1.96.
MHK's Zacks Rank & Recent Consumer Discretionary Releases
Mohawk currently carries a Zacks Rank #3 (Hold).
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