Mohawk Industries Inc.

 

Mohawk is a large manufacturer of flooring for residential and commercial purposes, they produce carpets, rugs, ceramic tile, laminate, wood, stone, and vinyl.  They continue to invest in expanding capacity and innovating differentiated products and they continue to have a compelling long-term growth opportunity.

 

P=212.98, TTM EPS=10.66 P/E=20X, FY21 P/E=18X, D/C 14%, NWC>debt by $13.31/sh (6% of MC)

 

1Q21   3.49 vs 1.66 +110%, est 2.81 up from 2.11 

  • Apr 29, 2021, P=212.98, TTM EPS 10.66, P/E=20X, FY21 P/E=18X

  • Revs +16.8% to 2.67bn, GM 29.7% vs 27%, adj OM 12.3% vs 7.2%, adj OpInc +101.3% 

  • Flooring NA +14.3% to 969.3m (+9% ex fx), OM 8.4% vs 4.3%

  • Global Ceramic +9.6% 929.9m (+5.4% ex fx) , OM 9.4% vs 5.7%

  • Flooring ROW +30.7% 769.9 (+14.6% ex fx) , OM 20.7% vs 12.9%

  • Demand strengthened, backlog remains robust but their inventories are lower than they’d like

  • Record sales and 1Q earnings, seeing moderate improvement in commercial demand 

  • Outlook: 2Q EPS 3.57-3.67, est 3.11

  • Fantastic results, still room to grow/improve, valuation starting to reflect more normalized operations but estimates are still low (recent results plus 2Q guidance puts the company on pace to deliver EPS>$14)

  • Conference call comments to follow.

4Q20   3.54 vs 2.25 +57%, est 2.87 up from 1.99, FY20 adj EPS 8.83 vs 10.04

  • Feb 11, 2021, P=160.11, TTM EPS=8.83, P/E=18X, FY21 P/E=16X

  • Revs +9% to 2.64bn, adj GM 28.8% vs 27.6%, adj OM 11.6% vs 8.5%, adj OpInc +49% 

  • Flooring NA +2.9% to 963.4m OM 9.5% vs 7.7%, adj Opinc +27%

  • Global Ceramic +7% to 919.7m, OM 9.5% vs 6.2%, adj OpInc +64.7% 

  • Flooring ROW +20% +20.5% to 758.7m, OM 18.2% vs 14%, adj OpInc +56.7%

  • All markets saw stronger residential purchases lead by laminate, Luxury Vinyl Tile (LVT), sheet vinyl, commercial remains weak, seeing inflationary pressure in many product categories, raising prices, achieved 50m of est 100-110m cost savings 

  • Commercial expected to improve from trough but not to hit prior levels this year, commercial margins>residential, impacting NA Flooring and Global Ceramic 

  • Highest quarterly sales, highest 4Q EPS, debt leverage at “historic low”, D/C=14%, net debt 1.39bn but NWC>debt by 733m, didn’t build inventories as expected (+4% q/q) due to high demand, service levels and productivity improved, continuing to invest in new products (such as waterproof wood flooring with better durability characteristics)

  • 1Q Outlook: adj EPS 2.69-2.79, vs 1.66, est 2.11, FY comments: 1Q stronger than seasonal, 5% more days plus 3-8% price hikes, absenteeism and sully-chain disruptions, 2Q vs weak comps, 2H facing tougher comps, 4Q will have 6% fewer days.

  • High water mark for EPS is 13.90, current results are at or near that earnings power, current stock price is 11.5X that EPS power, estimates look too low.

3Q20   3.26 vs 2.75 +18.5%, 3.29 in 3Q18, est 2.14

  • Oct 29, 2020, P=93.05, P/E=12X FY20 Guidance of $8.06 (TTM 5.31 + 2.75) 

  • Revs +2.2% to 2.58bn, GM 28.3% vs 27.8%, adj OM 11.5% vs 9.9%, adj OpInc +18%, adj EBITDA +20.5%, adj tax rate 17% vs 18%

  • Global Ceramic -0.6% to 911.3m, OM 10.3% vs 9.2%, OpInc +11%, 

  • Flooring NA -2% to 982.3m, OM 8.2% vs 8.7%, OpInc -7.6%

  • Flooring ROW +13% to 681.3m, OM 19.3% vs 14.5%, OpInc +50%

  • FCF 529.4m vs 287.2m, Gross cash 1.19bn, Net debt 1.4bn, D/C=15%

  • Demand>prodn, inventory down by 80m

  • Expect higher-margin commercial business will continue to be slow, project completions to exceed new starts, restructuring to reduce costs as expected

  • Some restructuring projects delayed to meet current demand, implementing some price increases to offset raw material inflation

  • Guidance: Assuming current economic trends continue, 4Q EPS 2.75-2.87 w 5% tax rate (vs 2.25, est 1.99)

  • Lots of room to recover assuming restructuring can sustainably reduce costs and return profits to 2017 levels 

  • Restructuring: closed 2 tile mfng plants, consolidated distribution points, realized about 25% of expected savings 

 

1Q20   1.66 vs 2.13, est 1.66

  • May 4, 2020, P=84.99

  • Revs -6% to 2.3bn

  • mgmt. expects operating loss in 2Q est 1.11, low est (.13)

  • 2.7bn debt, 263m in cash at end of 1Q, subsequently added 500m in new debt, have 1.3bn in available liquidity.

 

Exited position October 26th, 2018 following weak results and bad guidance as I can no longer say the stock is cheap because I can’t say how much damage will be done before their business stabilizes.

3Q18   3.29 vs 3.75, -12%, est 3.58 down from 4.29

  • Oct 25, 2018, P=151.07, TTM EPS=12.23, P/E=11X

  • Revs +4% to 2.5bn, GM 29% vs 32.5%, OM 12.3% vs 16.2%, OpInc -21%

  • Global ceramic -1%, OM 13.4% vs 16.8%

  • NA Flooring +1.5%, OM 9.9% vs 16.7%

  • ROW Flooring +17%, +4.6% ex Godfrey Hirst, OM 15.8% vs 16.2%

  • Results below mgmt’s expectations again, lower than expected sales growth, lower benefit from price increases and higher cost inflation that expected, higher transportation costs, reduced manufacturing activity to control inventories, margins negatively impacted by weaker mix as customers traded down (as I feared could happen).

  • Mgmt expects 4Q to be impacted by same trends, expect 4Q EPS 2.45-2.60 (-28 to -24%, est 4.51) and expect to see some q/q improvement in 1Q19

  • Results again very disappointing, solid company but weakness spreading beyond U.S., tariffs, currency, competition all working against the company.   

2Q18   3.51 vs 3.72, -5.6%, est 3.90 down from 4.13

  • July 25, 2018, P=217.37, TTM EPS=13.69, P/E=16X, FY19 P/E on 17.07 EEPS=13X, est too high.

  • Revs+5% to 2.6bn, GM 30.2% vs 32.7%, OM 13.3% vs 15.5%, OpInc -10.2%

  • Results missed mgmt’s expectations, taking action to improve U.S. business, seeing inflation in input costs, transportation costs, stronger dollar, weaker product mix and productivity and tight labour market. Mgmt is raising prices and expanding in growing channels, new products and geographies. Business outside of U.S. improved. Completed Godfrey Hirst acquisition on July 2nd, 1 month later than expected.

  • Global Ceramic +3%, OpInc -14.2%

  • NA Flooring +2%, OpInc -21.6%

  • ROW Flooring +16%, +8% ex fx, OpInc +15%

  • In U.S., do not expect actions to bear fruit before next year, expect continued strength in EU and Russia,

  • 3Q Guidance: EPS 3.54-3.64, -2.9% to -5.6%, est 4.29

  • Results clearly disappointing, estimates for FY18 and FY19 are both too high, stock is weak after hours and the stock could be weak for a considerable period of time if the U.S. issues are prolonged. Stock is trading down to Oct 2016 levels, as these issues are just starting to negatively impact results and could do so for a number of quarters. That said, a short-term moderate decline in earnings is not the end of the world for the company which is historically well-run and has solid growth potential and an attractive valuation, mgmt. believes they will be positioned for improvement next year. Must be mindful that price increases to offset inflation could eventually be negative.

1Q18   3.01 vs 2.72, est 3.00

  • Revs +9% to 2.4bn, GM 30% vs 30.8%, OM 12.1% vs 12.6%, OpInc +4.6%

  • Global Ceramic +12%, OpInc +0.6%

  • NA Flooring +1%, OpInc -3.7%

  • ROW Flooring +18%, +4% ex fx, OpInc +19%

  • Guidance: 2Q EPS 3.89-3.98, +4.6-7%, est 4.13

  • While guidance is below estimates, still decent considering they expect higher rev growth rates but margin headwinds of higher start-up costs, lower income from patents, and higher depreciation from newer facilities that are not yet being fully absorbed. Expect closing of Godfrey Hirst to contribute 180m in revs and 0.25 in EPS for this year (still .35-.40 annualized). Investments in capacity should accelerate sales growth and eventually earnings growth.

1Q18   3.01 vs 2.72, est 3.00

  • Revs +9% to 2.4bn, GM 30% vs 30.8%, OM 12.1% vs 12.6%, OpInc +4.6%

  • Global Ceramic +12%, OpInc +0.6%

  • NA Flooring +1%, OpInc -3.7%

  • ROW Flooring +18%, +4% ex fx, OpInc +19%

  • Guidance: 2Q EPS 3.89-3.98, +4.6-7%, est 4.13

  • While guidance is below estimates, still decent considering margin headwinds of higher start-up costs, lower income from patents, and higher depreciation from newer facilities that are not yet being fully absorbed. Expect closing of Godfrey Hirst to contribute 180m in revs and 0.25 in EPS for this year. Investments in capacity should accelerate sales growth and eventually earnings growth.

  • Conference call comments to follow.

4Q17   3.42 vs 3.26, est 3.32, FY17 EPS 13.61 vs 12.61

  • Revs +8.5% to 2.4bn, GM 32.3% vs 32.2%, OM 15.1% vs 14.7%, OpInc +11.6%

  • Global Ceramic +10%, OpInc +11.5%

  • NA Flooring +3%, OpInc +14.3%

  • ROW Flooring +18%, OpInc +8.2%

  • Guidance: 1Q EPS 2.93-3.02, est 2.95, expect Godfrey Hirst acquisition to contribute 0.35-0.40 in first 12 months once it closes.

  • Decent results considering capacity restraints and headwinds from lower income from patents, capacity constraints should diminish.

3Q17     3.75 vs 3.50, est 3.74

  • Revs +7% to 2.4bn, adj OpInc +8.4%, Revs outside of US was strongest

  • Now investing $900m, up from $750m

  • Global ceramic +9%, +7% ex fx, U.S. ceramic softer due to hurricanes, OpInc +9.7%

  • NA Flooring +2%, OpInc +11.4%

  • ROW Flooring +13%, +8% ex fx, OpInc -0.8%

  • Guidance: 4Q EPS 3.25-3.34 est 3.31 incl hurricane impacts and 15m start-up costs

2Q17   3.72 vs 3.47, est 3.60 down from 3.73

  • Revs +6% to 2.5bn, +8% ex fx

  • Global ceramic +9% (2 eu acquisitions contributed 6%), OpInc +16%

  • NA flooring +6%, OpInc +12%

  • ROW Flooring +2% but +8.5% ex fx, OpInc -12% due to fx and cost increases

  • Guidance: 3Q EPS 3.70-3.79, est 3.74

1Q17   2.72 v 2.38

  • Revs +2% to 2.22bn, +4% organic, GM 30.8% vs 29.7%, OM 12.6 vs 11.6%, OpInc +12%

  • Investing >$750m to expand prodn facilities across most product groups, entering EU carpet tile and counter-top markets, and Russian sheet vinyl. Implementing price increase to cover increasing costs for 3Q.

  • Global ceramic +2%, OpInc +16% to 15% OM, growth was lower due to inventory adjustments, product transitions, weather, and a weaker Mexican peso; purchasing returning to normal. Opening 18-20 ceramic tile or stone centres to expand distribution.

  • NA Flooring +4%, OpInc +22% to 10% OM, implementing price increases to cover costs in 3Q.

  • ROW Flooring +1%, OPM decreased to 15% due to higher costs and f/x, also raising prices.

  • Expect capital investments and process improvements to enhance profitability

  • Guidance: 2Q EPS 3.53-3.62, decent quarter with slight rev miss and 2Q guidance a bit below ests, stock down about 2.9% in the after-market, growth outlook still looks good.

 

4Q 16 3.26 vs 2.82

  • Revs +9% to 2.2bn, +7% ex fx

  • FY Revs +11% to to 9.0bn, +5.5% ex fx

  • Global ceramic +5%, OpInc +17% to 14% OM, NA ceramic improved with construction, new larger sizes and contemporary shapes and proprietary “Reveal Imaging” contributing to growth. Greenfield plant in Tennessee became operational in 4Q and should reach planned efficiency in 1Q, will be introducing higher value products into the plant. Mexico grew significantly but constrained until Salamanca expansion is completed later in 2017. EU ceramic sales and margins improved with enhanced product offering. Russia continues to outperform and adding capacity.

  • NA Flooring +10%, OpInc +18.5%, residential carpet sales improved despite lower ASPs, applying 3-5% price increase in 1Q. commercial grew faster than residential.

  • ROW Flooring +14%, OpInc +20%

  • Expect FY17 top line growth similar to +5.5%, slight OM expansion. Looking at other acquisitions and believe balance sheet can be further levered (currently 1.4X EBITDA)

  • Guidance: 1Q 2.64-2.73, +11-15%, est 2.7, FY +4.6%