EUR 850.00 For Business Accounts Only

Morningstar | MHK Updated Forecasts and Estimates from 08 Oct 2018

Mohawk Industries is a leading global flooring products manufacturer with a particularly enviable position in the U.S., where it participates in the near duopolistic carpet market (along with Berkshire Hathaway-owned Shaw Industries) and enjoys leading share in most other product categories. Acquisitions have been a key component of Mohawk’s growth strategy, and the firm has completed 42 since 1992, first consolidating the U.S. carpet market in the 1990s and later using acquisitions to expand into adjacent flooring categories and new end markets. Organic reinvestment has been another priority, and Mohawk has invested heavily in productivity and capacity expansion projects to drive better growth and improved profitability. Mohawk’s annual capital expenditures have increased at more than a 30% five-year CAGR, and the company expects to spend nearly $800 million on capital projects in 2018to support over $1 billion in new sales capacity across a wide range of product categories, including high-growth and higher-margin luxury vinyl tile, or LVT. Mohawk’s productivity initiatives have had a meaningful impact on the firm’s improving profitability. Indeed, we calculate that productivity projects accounted for over $600 million of the $975 million increase in GAAP operating income between fiscal 2012 and 2016, as adjusted operating margins improved from 6.9% in 2012 to 14.9% in 2017.We remain bullish on the longer-term outlook for U.S. housing, which bodes well for Mohawk because 63% of sales are generated in the U.S., and an outsize portion of that is driven by residential replacement and new construction. The U.S. flooring industry mix is 58% residential replacement, 26% commercial, and 16% residential construction. Our U.S. housing forecast projects housing starts reaching 1.6 million units by 2022 before fading to a demographically sustainable run rate of 1.4 million annual starts. We also expect healthy housing turnover, which is a key driver of flooring replacement.