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Flooring manufacturer Mohawk Industries (NYSE:MHK) announced better-than-expected results in Q1 CY2024, with revenue down 4.5% year on year to $2.68 billion. It made a non-GAAP profit of $1.86 per share, improving from its profit of $1.75 per share in the same quarter last year.
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Mohawk Industries (MHK) Q1 CY2024 Highlights:
- Revenue: $2.68 billion vs analyst estimates of $2.64 billion (1.4% beat)
- EPS (non-GAAP): $1.86 vs analyst estimates of $1.68 (11% beat)
- Gross Margin (GAAP): 24.2%, up from 24% in the same quarter last year
- Free Cash Flow of $96.9 million, up 73.2% from the previous quarter
- Market Capitalization: $7.11 billion
Established in 1878, Mohawk Industries (NYSE:MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Home FurnishingsA 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 GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Mohawk Industries's annualized revenue growth rate of 1.9% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Mohawk Industries's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 2.4% over the last two years.
This quarter, Mohawk Industries's revenue fell 4.5% year on year to $2.68 billion but beat Wall Street's estimates by 1.4%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Mohawk Industries has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 4.3%, subpar for a consumer discretionary business.
Mohawk Industries's free cash flow came in at $96.9 million in Q1, equivalent to a 3.6% margin and down 24.8% year on year. Over the next year, analysts predict Mohawk Industries's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 6.2% will increase to 7.3%.
Key Takeaways from Mohawk Industries's Q1 Results It was good to see Mohawk Industries beat analysts' revenue and adjusted EPS expectations this quarter. On the other hand, its free cash flow and operating margin missed Wall Street's estimates. Management didn't provide any guidance but noted macroeconomic weakness. Specifically, the demand for residential remodeling is falling as inflation is suppressing discretionary spending. Overall, we think this was still a mixed quarter, and the company's commentary makes us uneasy. The stock is flat after reporting and currently trades at $110.27 per share.