Mohawk Industries Gains Through Acquisitions, Competition Is Strong

Mohawk Industries, Inc.MHK’s innovative product launches and acquisition synergies are encouraging. However, the highly competitive flooring industry and negative currency translation continue to drag on earnings.

Key growth factors

As one of the largest flooring manufacturers in the global market, Mohawk holds a dominant position in a highly fragmented and competitive industry. In addition, the company is constantly making internal investments to enter new markets and increase efficiency. In fact, for 2017, the company plans to invest approximately $900 million to optimize long-term results by entering new product categories and expanding its market.

The company expects its combined capital expenditures in 2016 and 2017 to contribute to an increase in new production capacity of approximately 1.4 billion. By introducing differentiated products, the company expects to improve productivity in 2017 compared to 2016.

In addition, acquisitions are an integral part of Mohawk’s growth strategy. These acquisitions have strengthened the company’s product portfolio and expanded its geographic reach and market share. Since the beginning of 2017, the company has made four acquisitions. It entered the European carpet tile and countertop market, as well as the Russian sheet vinyl market. In April, Mohawk completed the acquisition of two small ceramic manufacturers in Europe and a nylon carpet polymerization plant in the United States.

Additionally, given the recovery in the real estate market with historically low interest/mortgage rates, rising rents, rapidly increasing household growth and a tight housing supply, Mohawk can be expected to grow on the back of higher revenues.

Meanwhile, the company’s pricing actions effectively mitigated the effects of general inflation and rising material costs in the third quarter of 2017. In fact, during the quarter, the company’s process improvements led to an increase in productivity of about $49 million. The company’s pricing strategies and increased productivity helped the company increase profits.

In fact, over the last 60 days, earnings estimates for the current quarter and year have risen by 0.9% and 0.2%, respectively, reflecting analysts’ optimism about the stock’s prospects.

Worries

Given Mohawk’s strong international position and the fact that the company generates more net sales outside the United States, the company is exposed to negative currency effects.

Interestingly, Mohawk shares are up in line with industry stocks year-over-year. The company’s shares are up 38% versus the industry’s 38.1%.

However, with industry-leading designs, patented technologies and brands, this Zacks Rank #3 (Hold) company is poised for future growth.

Actions to consider

Some of the better-rated stocks in the consumer discretionary sector include Deckers Outdoor Corp. DECK, Skechers USA, Inc. SKX and Interface, Inc. TILE.

Deckers Outdoor and Skechers USA boast a Zacks Rank of #1 (Strong Buy). Interface has a Zacks Rank of #2 (Buy). You can see complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Deckers’ profits are forecast to rise 11.9% this year.

Skechers’ profits are expected to rise 8.6% this year.

Interface’s revenues are expected to grow by 11.9% this year.

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