Flooring manufacturer Mohawk Industries (NYSE:MHK) fell short of analysts' expectations in Q2 CY2024, with revenue down 5.1% year on year to $2.80 billion. It made a non-GAAP profit of $3 per share, improving from its profit of $2.76 per share in the same quarter last year.
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Mohawk Industries (MHK) Q2 CY2024 Highlights:
- Revenue: $2.80 billion vs analyst estimates of $2.84 billion (1.2% miss)
- Adj EBITDA: $405.8 million vs analyst estimates of $388.9 million (4.3% beat)
- EPS (non-GAAP): $3 vs analyst estimates of $2.75 (9.1% beat)
- EPS (non-GAAP) Guidance for Q3 CY2024 is $2.85 at the midpoint, above analyst estimates of $2.71
- "To reduce costs and align our business with current conditions, we are initiating additional restructuring actions that will generate annualized savings of $100 million, of which $20-$25 million will be recognized this year. The cash cost of these actions is about $40 million, with a total cost of approximately $130 million"
- Gross Margin (GAAP): 25.8%, in line with the same quarter last year
- Free Cash Flow of $142.2 million, up 46.7% from the previous quarter
- Market Capitalization: $8.12 billion
Commenting on the Company’s second quarter results, Chairman and CEO Jeff Lorberbaum stated, “Our performance in the quarter reflected our focus on the controllable factors of our business, including sales initiatives, cost containment and restructuring actions. Our adjusted earnings per share rose as a result of productivity initiatives and restructuring as well as lower energy and material costs, partially offset by market pressure on pricing, mix and foreign exchange headwinds. We generated free cash flow of approximately $142 million during the quarter, for a total of $239 million year to date. In the quarter, we purchased approximately 755 thousand shares, or 1.2%, of our stock for approximately $90 million.
Established in 1878, Mohawk Industries (NYSE:MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Home Furnishings
A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Mohawk Industries's sales grew at a weak 1.6% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Mohawk Industries's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.9% annually.
This quarter, Mohawk Industries missed Wall Street's estimates and reported a rather uninspiring 5.1% year-on-year revenue decline, generating $2.80 billion of revenue. Looking ahead, Wall Street expects sales to grow 1.9% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Mohawk Industries has shown weak cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 5.1%, subpar for a consumer discretionary business.
Mohawk Industries's free cash flow clocked in at $142.2 million in Q2, equivalent to a 5.1% margin. This quarter's margin was in line with the comparable period last year.
Over the next year, analysts' consensus estimates show they're expecting Mohawk Industries's free cash flow margin of 6.3% for the last 12 months to remain the same.
Key Takeaways from Mohawk Industries's Q2 Results
Revenue missed but both adjusted EBITDA and EPS beat in the quarter, showing that profitability is strong. We were also impressed by Mohawk Industries's optimistic earnings forecast for next quarter, which exceeded analysts' expectations. Despite a challenging market environment driven by higher interest rates and consumers' deferral of home remodeling and improvement projects, the market seems to be cheering the company restructuring actions. "To reduce costs and align our business with current conditions, we are initiating additional restructuring actions that will generate annualized savings of $100 million, of which $20-$25 million will be recognized this year. The cash cost of these actions is about $40 million, with a total cost of approximately $130 million" Overall, we think this was a really good quarter that should please shareholders. The stock traded up 9.7% to $147.75 immediately after reporting.
Mohawk Industries may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.