Mohawk Industries (MHK)

Flooring manufacturer Mohawk Industries (NYSE:MHK) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 5.7% year on year to $2.53 billion. Its non-GAAP profit of $1.52 per share was 8.2% above analysts’ consensus estimates.

Company Overview

Established in 1878, Mohawk Industries (NYSE:MHK) is a leading producer of floor-covering products for both residential and commercial applications.

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.

Mohawk Industries' primary competitors include Shaw Industries (owned by Berkshire Hathaway NYSE:BRK.A), Armstrong Flooring (NYSE:AFI), Tarkett (EPA:TKTT), Interface (NASDAQ:TILE), and private company Mannington Mills.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Mohawk Industries’s 1.7% annualized revenue growth over the last five years was weak. This was below our standards 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 performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.7% annually.

This quarter, Mohawk Industries missed Wall Street’s estimates and reported a rather uninspiring 5.7% year-on-year revenue decline, generating $2.53 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.2% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Mohawk Industries’s operating margin has been trending up over the last 12 months and averaged 1.7% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

In Q1, Mohawk Industries generated an operating profit margin of 3.8%, down 1.7 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Mohawk Industries’s flat EPS over the last five years was below its 1.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q1, Mohawk Industries reported EPS at $1.52, down from $1.86 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 8.2%. Over the next 12 months, Wall Street expects Mohawk Industries’s full-year EPS of $9.36 to grow 9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Mohawk Industries has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.4%, subpar for a consumer discretionary business.

Mohawk Industries burned through $85.4 million of cash in Q1, equivalent to a negative 3.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts’ consensus estimates show they’re expecting Mohawk Industries’s free cash flow margin of 4.7% for the last 12 months to remain the same.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Mohawk Industries historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.5%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Mohawk Industries’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Mohawk Industries reported $702.5 million of cash and $2.79 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.38 billion of EBITDA over the last 12 months, we view Mohawk Industries’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $27.3 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Mohawk Industries beat analysts’ EPS expectations this quarter. On the other hand, its EPS guidance for next quarter missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $106.60 immediately after reporting.

Updated: July 10, 2025 at 10:03 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Mohawk Industries.

We cheer for all companies serving everyday consumers, but in the case of Mohawk Industries, we’ll be cheering from the sidelines. First off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. On top of that, Mohawk Industries’s organic sales performance has disappointed, and its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Mohawk Industries’s P/E ratio based on the next 12 months is 11.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $127.31 on the company (compared to the current share price of $113.83).