Turnaround Letter Buy-rated Mohawk Industries (MHK) reported revenues that were unchanged from a year ago and in-line with consensus expectations. Adjusted net income per share fell 16% but was about 4% ahead of consensus estimates. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization (a measure of cash operating profits), fell 11% from a year ago but was in-line with estimates.
MHK shares jumped about 10% in late morning trading as investors were encouraged by the earnings “beat” and the company’s resilience in sluggish end-markets.
Free cash flow increased compared to a year ago, and the balance sheet was slightly stronger with higher cash and lower debt. Inventories were modestly higher than a year ago. Mohawk repurchased $91 million in shares during the quarter.
Mohawk lowered its 4Q19 adjusted EPS guidance to about 4% below consensus estimates. The company continues to struggle with a weakish flooring market. Sluggish demand in the United States, combined with growing demand for luxury vinyl tile (LVT) which is displacing carpeting and tile, a strong dollar and excess industry inventories of ceramic tiles, all weighed on growth and profits.
However, the company is making good progress on a range of initiatives to address these issues and indicated that next year’s profits and balance sheet should improve.
Overall, the Mohawk story remains on track.
Mohawk Industries Press Release: 3Q 2019 Earnings
We continue to rate shares of Mohawk Industries a Buy with a $220 price target.
Disclosure Note: One or more employees of the Publisher own MHK shares.