Mohawk lowers earnings guidance, agrees to pay to settle securities suit
The world’s biggest flooring manufacturer said higher interest rates and a weakening global economy have brought a bigger-than-expected drop in earnings, pushing the company’s stock down 6.3% in trading on the Nasdaq exchange on Tuesday.
Mohawk Industries Inc. announced Monday it was lowering its earnings guidance for the fourth quarter after the company temporarily idled some of its factories when sales failed to meet projections and profit margins shrank. Mohawk said it now expects its adjusted fourth-quarter earnings to drop to between $1.27 and $1.31 per share, excluding one-time charges. Previously, the Calhoun, Georgia-based floorcovering maker had said it expected fourth-quarter profits would be between $1.40 and $1.50 per share.
In the fourth quarter of 2021, Mohawk earned $2.95 per share, or more than twice what the company now projects it will earn in the final three months of 2022. Mohawk plans to issue its fourth-quarter earnings results on Feb. 9.
Since Mohawk issued its last earnings guidance in October, the U.S. Federal Reserve has twice raised its target interest rate, pushing up borrowing costs for home and construction loans that help propel floorcovering sales.
“These increases, combined with continuing high inflation and lagging consumer confidence in the U.S. and Europe, resulted in the global residential flooring business softening more than the company expected in the fourth quarter,” Mohawk said in a statement.
Mohawk also announced Monday that it has agreed to pay $60 million to settle a 3-year-old securities complaint brought against the company by Mississippi’s biggest pension fund and other Mohawk shareholders. The lawsuit filed in federal court in 2020 claimed Mohawk falsely booked revenue through a scheme to make deliveries on the last Saturdays of each fiscal quarter when customers were closed and couldn’t decline product they didn’t need yet or that Mohawk knew was defective.
“Mohawk believes that this Securities Class Action is without merit and that it has substantive defenses to the claims of liability and damages; however, Mohawk has concluded that further litigation would be protracted, burdensome and expensive,” the company said in a statement Monday.
To settle the lawsuit, Mohawk agreed to pay $60 million. The company said “a significant portion is covered by insurance.”
Mohawk also announced it has settled a dispute with the Belgian Tax Authority regarding the tax treatment of royalty income arising from intellectual property by paying $3.2 million U.S. dollars. In April 2022, Belgium issued a tax assessment of nearly $202 million U.S. dollars for what they claim Mohawk should have paid from 2013 through 2018.
In response to the announcement, shares of Mohawk fell by $7.47 per share in trading on the Nasdaq exchange to close at $111.18 per share. Mohawk shares are still up by 8.7% so far this year, but Mohawk’s stock is down 30.1% from where it was a year ago.