MW This massive flooring company says the housing market will get better - next year

By Claudia Assis

Consumers are trading down and new construction outpaces higher-value remodeling, Mohawk Industries says

Mohawk Industries Inc. shares dropped more than 9% in the extended session Thursday, as the maker of carpet, hardwood and other floor coverings said its market was "slower than anticipated" due to high interest rates, lingering inflation and lower consumer confidence, and that things won't get better until next year.

Mohawk $(MHK)$, which calls itself the world's largest flooring company, reported better-than-expected third-quarter earnings but called for lower current-quarter profit. Investors also appeared to focus on the far-reaching and mostly negative comments accompanying results, including the mention of hurricanes Helene and Milton eating away at sales.

"We expect that recent interest-rate cuts in the U.S., Europe and Latin America will strengthen housing markets and increase flooring sales next year," it said.

"Global conflicts, political uncertainty and inflation are weighing on consumer confidence and discretionary spending around the world. Short-term macroeconomic conditions remain unpredictable, and we do not anticipate an industry improvement this year."

Mohawk earned $162 million, or $2.55 a share, in the third quarter, versus a loss of $760 million, or $11.94 a share, in the year-ago quarter. Adjusted for one-time items, the company earned $2.90 a share.

Sales dropped 2% to $2.72 billion, from $2.77 billion a year ago, the company said.

Analysts polled by FactSet expected Mohawk to report adjusted earnings of $2.89 a share on sales of $2.70 billion.

The company's product mix has been hit by consumers trading down and by new construction outpacing higher-value remodeling, it said.

"We are responding to current conditions with sales and restructuring actions, operational improvements and cost-containment initiatives to strengthen our business," Mohawk said.

With some products, however, raw-material inflation will increase costs in the fourth quarter. The company also said it will slow down its manufacturing levels to manage inventory, which will increase its overhead.

Mohawk said it expects the recent U.S. hurricanes to negatively impact fourth-quarter sales by $25 million to $40 million, although there will be "offsetting benefits from rebuilding next year."

The company guided for fourth-quarter adjusted EPS between $1.77 a share and $1.87 a share, which compares with FactSet consensus for adjusted EPS of $2.24.

-Claudia Assis

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October 24, 2024 17:36 ET (21:36 GMT)

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