Mohawk Industries, Inc. MHK recently entered into an agreement to acquire a leading flooring company in Australia and New Zealand, Godfrey Hirst Group. The deal is expected to close in the first half of 2018 and prove accretive to EPS in the first 12 months.

Buyout Synergies

Godfrey Hirst provides broadloom, modular carpet and hard surface products for residential and commercial applications. Godfrey Hirst’s modern operations and distribution assets are the most vertically integrated in the region. The company’s products are sold under the Godfrey Hirst, Feltex and Hycraft brands through specialty retailers, home centers, architects and designers. Recently, the company expanded its range of offerings to include a wide variety of globally-sourced hard surface products, including LVT, wood and laminate.

Godfrey Hirst’s marketing, manufacturing and distribution management will complement Mohawk’s current hard surface distribution. Mohawk will focus on leveraging its global flooring resources and talent to support Godfrey Hirst’s management and accelerate their growth strategies.

The acquisition will also enhance Mohawk’s global presence. The company already operates a warehouse and sales network in Australia and New Zealand for the distribution of wood, laminate, LVT, vinyl and carpet products.

With the addition of Godfrey Hirst, which reported sales of about $334 million in the fiscal ending Jun 30, 2017, Mohawk is expected to become a leading provider of flooring products in Australia and New Zealand.

Inorganic Drive Strong

Acquisitions form a vital part of Mohawk’s growth strategy. These acquisitions broaden Mohawk’s product portfolio and expand its geographic footprint and market share. Since the beginning of 2017, the company has made four acquisitions, lending it manufacturing advantages.

In April, the company completed the purchase of a ceramic company in Italy, valued at approximately $186.1 million. The buyout is expected to enhance Mohawk’s cost position, strengthen its combined brand and distribution in Europe. It also acquired three additional businesses in the second quarter of 2017 for approximately $63.9 million.

Notably, the company’s shares have gained 20.5% in the past six months, outperforming the 19.5% gain of its industry. Earnings estimates for the fourth quarter and full year have increased by 0.9% and 0.4%, respectively, over the last 30 days. In the fourth quarter, the company expects business improvement on innovative new products, increased volume and recent acquisitions.

 

Zacks Rank & Stocks to Consider

Mohawk carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Consumer Discretionary sector include NutriSystem Inc NTRI, SodaStream International Ltd. SODA and Genius Brands International, Inc. GNUS.

SodaStream’s 2017 earnings are expected to improve 42.8%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NutriSystem, a Zacks Rank #2 (Buy) stock, is expected to witness 62.6% growth in 2017 earnings.

Genius Brands, also a Zacks Rank #2 company, is expected to see 68.2% growth in 2017 earnings.

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