We expect Mohawk Industries, Inc. MHK to beat expectations when it reports second-quarter 2015 results on Aug 6. Last quarter, the company posted a positive earnings surprise of 5.59%.
In fact, this GA-based flooring products manufacturer has surpassed earnings estimates all the trailing four quarters, with an average earnings surprise of 2.28%.
Why a Likely Positive Surprise?
Our proven model shows that Mohawk Industries is likely to beat earnings estimates because it has the right combination of two key ingredients.
Zacks ESP: Mohawk Industries currently has an Earnings ESP of +0.77%. This is because the Most Accurate estimate stands at $2.63, while the Zacks Consensus Estimate is pegged lower at $2.61.This indicates a likely positive surprise for the company.
Zacks Rank: Mohawk Industries carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 and 3 (Hold) have a significantly higher chance of beating estimates.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
The combination of Mohawk’s Zacks Rank #2 and +0.77% ESP makes us confident about an earnings beat on Aug 6.
What's Driving the Better-than-Expected Earnings?
Mohawk has significant exposure in the U.S. residential sector where construction activity picked up in the spring/summer months backed by improving economic environment and better employment scenario. This should boost the revenues in the to-be-reported quarter.
Quarterly results are expected to be driven by overall economic improvement and growth in the flooring market in the U.S. Further, the European market is slowly recovering from a downturn, and sales in the to- be reported quarter should improve slightly.
Additionally, Mohawk’s strategy to enhance productivity, efficiency and inventory management should boost profits in the to-be-reported quarter, especially when the cost of raw materials – like wood and petroleum-based products – is on the rise.
However, the company’s extensive presence in the international markets would make it susceptible to the negative effects of foreign currency translations.
Stocks to Consider
Here are some companies from the consumer staples sector that can be considered as our model shows that they have a favorable combination of elements:
Campbell Soup Company CPB, with an Earnings ESP of +2.38% and a Zacks Rank #2.
Dean Foods Company DF, with an Earnings ESP of +3.85% and a Zacks Rank #2.
Interface Inc. TILE, with an Earnings ESP of +3.33% and a Zacks Rank #1.
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