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Glenview Capital ups its stake in Mohawk Industries

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Feb. 27 2015, Updated 12:05 p.m. ET

Glenview Capital and Mohawk Industries

In 4Q14, Glenview Capital Management increased its position in Mohawk Industries, Inc. (MHK). The fund holds 2,328,002 shares of MHK, which accounts for 1.81% of the fund’s total 4Q14 portfolio. This is up from 0.64% of the fund’s 3Q14 portfolio with 906,000 shares.

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About Mohawk Industries

Mohawk Industries (MHK) is a leading global flooring manufacturer. It creates products to enhance residential and commercial spaces around the world.

Mohawk has vertically integrated manufacturing and distribution processes. The company provides competitive advantages in carpet, rugs, ceramic tile, laminate, wood, stone, and vinyl flooring. It has the three following operating segments:

  1. Carpet
  2. Ceramic
  3. Laminate and Wood

Mohawk to acquire IVC Group

On January 13, 2015, Mohawk agreed to acquire IVC Group for $1.2 billion in cash and stock transaction. IVC is a manufacturer of sheet vinyl, luxury vinyl tile (or LVT), and laminate. IVC is operational in Europe and the United States. IVC has revenue of $700 million. The transaction is expected to be completed by 1Q15.

Jeff Lorberbaum, Mohawk’s chairman and chief executive officer, stated, “In the U.S., LVT now represents about 5% of the total flooring market, and sales are projected to grow more than 15% annually through the end of the decade.”

IVC will help Mohawk rapidly grow its LVT market.

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Mohawk’s Q414 profit beats estimates

Mohawk Industries’ (MHK) 4Q14 earnings per share (or EPS) was $2. Adjusted EPS grew 27% to $2.27. It includes a $0.09 per share impact of foreign exchange.

Mohawk’s revenue grew 1.4%, or 5% on a constant currency basis year-over-year, to $1.95 billion. The carpet segment’s revenue grew 4% to $780 million, driven by the commercial segment. Adjusted operating income grew 32% to reach 11%.

Ceramic sales grew 1%, or 7% on a constant currency basis, to $744 million. It was driven by the North America and Mexico regions.

In the Laminate and Wood segment, revenue was up 4% on a constant currency basis or down 2% to $459 million.

Mohawk’s peers Tempur Sealy International Inc. (TPX) and Interface (TILE) also experienced currency impacts on their respective revenues. Currency affected TPX’s sales by $20 million in 4Q14. Due to currency headwinds, TILE experienced a $7 million negative impact on sales for 4Q14 compared to 4Q13.

Expanded product offering drives 2014

For 2014, revenue was up 7% on a constant currency basis or 2.5% excluding acquisitions to $7.8 billion. Adjusted EPS was up 24% to $8.15. The company expanded its product offerings with differentiated, innovative, and superior performance products in all its segments.

Improvements in the US economy and the flooring market will help Mohawk earn first quarter earnings of $1.54 to $1.63 per share, excluding any restructuring charges and new acquisitions.

You can gain exposure to Mohawk Industries (MHK) by investing in the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB). MHK accounts for 3.17% and 2.02% of XHB and ITB, respectively.

In the next part of this series, we’ll cover Glenview Capital Management’s position increase in CBS Corporation (CBS).

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