Alternatively, leading manufacturer and distributor of floorcovering products Mohawk Industries Inc. (MHK, Financial) detracted from relative returns in the quarter. MHK has consistently demonstrated its ability to deliver sales growth and generate strong cash flow despite significant inflation, rising interest rates, and geopolitical instability. However, this quarter was an inflection point as the slowing U.S. housing market began to change consumer discretionary spend. Higher natural gas prices and constrained supply in Europe presented another headwind. Given these factors, MHK guided to softening demand and increasing pressure on margins moving forward. Management initiated corrective actions across the enterprise including implementing further price increases, enhancing service levels and restructuring to reduce costs. In our view, MHK’s track record of success managing through economic cycles and healthy balance sheet have the company well-positioned to benefit from long-term growth in residential remodeling, new home construction and commercial projects. At current levels, MHK is trading at a -67% discount to our estimate of private market value.
From John Rogers (Trades, Portfolio)' Ariel Fund third-quarter 2022 commentary.
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