TRG | The Bottom Line – 7/26
Against a widely vacillating U.S. political landscape over the past two weeks, TRG companies this week kicked it into high gear with Q2’24 earnings. As was the case with Mohawk Industries (MHK) earnings from Friday, it’s all about outperforming low expectations. MHK reported a Q2’24 EPS beat of $3.00 vs. consensus of $2.75 and our $2.73. The primary difference between ours and reported numbers were higher Flooring North America (NA) adj EBIT contribution ($82MM vs. TRG’s $72.1MM) and higher Flooring ROW adj EBIT contribution ($91.4MM vs. TRG’s $79.1MM), somewhat offset by lower Global Ceramic EBIT ($94.8MM vs. TRG’s $101.9MM). Based on feedback from the field, we believe MHK benefited from market share gains in the Flooring NA market in the quarter, a trend we believe may carry into Q3. A continuation of belt tightening as higher rates hamper consumer sentiment, MHK in conjunction with earnings announced additional cost cutting initiatives, which in total is expected to yield $100MM in annualized savings (of which $20-25MM to be realized in 2024). MHK provided Q3 EPS guidance of $2.80-2.90 , above at-the-time consensus of $2.71 and in-line with TRG’s estimate of $2.86. Despite the litany outlined of various cost cutting initiatives and continued consumer woes, ultimately MHK outperformed both with Q2 results (beating expectations) and Q3’24 guidance (again, above expectations). The stock traded up ~15%+ intraday vs. an S&P 500 up ~1%.