Mohawk spikes on Q2 earnings topper; double upgraded to Buy at BofA (NYSE:MHK)

Mohawk Industries (NYSE:MHK) +15.2% in early trading Friday after easily beating Q2 adjusted earnings expectations and issuing upside guidance for Q3 earnings.

Q2 net income rose to $157.4M, or $2.46/share, from $101.2M, or $1.58/share, in the year-earlier quarter, while sales slipped 5% Y/Y to $2.8B, but cost of sales fell 6.3% to $2.08B, as commodity inflation eased.

The company issued guidance for Q3 adjusted EPS of $2.80-$2.90, above $2.71 analyst consensus estimate but warned that high interest rates and inflation and weak home sales likely will continue to weigh on results.

Mohawk (MHK) also said it is initiating additional restructuring actions that will generate $100M annualized savings, with $20M-$25M to be recognized this year.

Bank of America double upgraded shares to Buy from Underperform with a $177 price target, up from $120, reflecting “an outlook for continued margin recovery, attractive valuation and improving capital allocation.”

BofA said it is more confident that margins will continue to improve despite the challenging macro backdrop, anticipating a recovery in Mohawk’s (MHK) North America and Global Ceramic segment margins off depressed levels and stabilization in the Rest of World segment.

The bank expects volume will remain sluggish through 2024 given weak consumer demand for high-ticket discretionary home improvement projects and low housing turnover, but Mohawk’s (MHK) flooring volume in North America already is 14% below 2019 levels and could stabilize against easy comparisons.