Mohawk (MHK) Releases Earnings for Q2 and First Half of 2018

Calhoun, GA, July 26, 2018-Mohawk reported net earnings fell 24.5% in Q2 2018 and 12% for the first six months on a year over year basis.

Net sales increased 4% for the quarter YOY and 6% for the first half of 2018 YOY.

For Q2, sales in the Global Ceramic Segment increased by 3% and for the first half of 2018 by 7%.

Flooring North America sales increased 2% for Q2 and 1% for the first half of 2018.

Flooring Rest of World sales increased 16% for Q2 2018 and 17% for the first six months.

Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "Our results fell short of our expectations, and we are taking actions to improve the performance of our U.S. businesses. With the overall economy, our results were negatively impacted by input inflation, higher transportation costs, a stronger dollar and a tight labor market. We were also affected by changing product mix, timing of price increases, lower production units, start-up of new projects and the delayed Godfrey Hirst closing. To address these, we are raising prices, expanding in growing channels and participating in new products and geographies. In the U.S. market, we are increasing our LVT production and sourcing, as LVT continues gaining market share.

“Our businesses outside North America showed significant improvement and our results improved more without start-up costs and expired patents.

"Our company and industry are absorbing significant inflation. This year, we have had two carpet price increases and recently followed those with a third increase to offset additional material and freight inflation. We are taking pricing actions in most product categories impacted by inflation, including our higher value ceramic products.

"During the quarter, our new expansion projects had start-up expenses of $15 million as we continued investing to broaden our product offering and geographic penetration. These investments will enhance our sales and profitability, with most of the impact occurring in 2019 and beyond.”

Says John Baugh of analyst Stifel, “We walk through the variety of cost pressures driving the earnings shortfall below. The stock is indicated down approximately 15% in after hours trading which is not far off what we think will wind up being the EPS reduction.”

The analyst lists the following reasons for Mohawk’s performance:

* Inflation got worse on both raw materials and transportation

* Carpet increases were accepted at a slower pace than expected given the numerous back-back increases in the past year

* Sales growth was modestly lower than expected, partly due to a disruption of supply of sourced LVT

* Inventories were planned to go down in Q2 so the combination of sales being somewhat lower and a plan to reduce inventories curtailed production

* Productivity gains were not as prevalent given the reduced utilized capacity rates

* Godfrey Hirst acquisition moved to a Q3 close, not in Q2

* The dollar strengthened hurting translation figures

Mohawk’s stock price futures dropped 32.4 points on Wednesday evening after its earnings were released.