Mohawk Industries Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Lovallo - UBS - Analyst : Maybe starting with the tariffs. You guys talked about an annualized cost impact of $50 million. I mean how should we sort of think about the timing of that coming through in 2025? I mean is there anything embedded in 2Q, or it's just more kind of a second half? And then you sort of mentioned your intention is to offset the impact with pricing actions and supply chain adjustments. I mean any additional color there between the split of those buckets particularly considering that the pricing environment right now is fairly challenging. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, MHK.N - Q1 2025 Mohawk Industries Inc Earnings Call

Question: John Lovallo - UBS - Analyst : Understood. And then the second question would be, if I remember correctly, about 40% of LVT came in from China last year. To the extent that the tariffs actually raised some of those import prices. I mean, how do you guys think about using your domestic capacity to either take some share or raise prices along with the rest of the industry? How do you sort of think about the balance there?

Question: Matthew Bouley - Barclays Investment Bank - Analyst : I guess sticking on that same topic of pricing power. I just wanted to press a little bit on kind of balancing that -- the environment that promotional, right, when you have slower demand in the industry. And you mentioned that the top sort of potential for more pricing pressure across geographies and at the same time you're announcing price increases going forward. So how do you think about that balance there? Is there a mix impact that can happen in that scenario, or maybe are there different categories that may see better pricing power relative to others? Just any more color on that.

Question: Matthew Bouley - Barclays Investment Bank - Analyst : Got it. Okay. And then secondly, back on the $50 million of higher cost, I just wanted to get a little more detail. I guess that implies maybe you import sort of $500 million from other countries besides China. So just any color on what specifically, you do import which countries that may be because obviously, we just want to understand what can happen given what may change with each individual country's tariffs?

Question: Rafe Jadrosich - Bank of America - Analyst : I think last quarter, you guys spoke about sort of hoping to be able to grow EPS year-over-year, obviously, excluding the impact of the ERP issue in the first quarter. With the $50 million tariff hit, like how do you think about that playing out? And then like what are the puts and takes there?

Question: Rafe Jadrosich - Bank of America - Analyst : That's helpful. And then just on the price cost outlook from here, I think it was a $40 million headwind in the first quarter. You've spoken about some price increases here and it looks like some of the input costs have declined more recently. Just how do we think about the price cost as we go through the year?

Question: Susan Maklari - Goldman Sachs - Analyst : My first question is maybe just building on the outlook for 2025. Can you talk a bit more how you're thinking of the sequential lift from first quarter to the second quarter for both the top line and the margins. And then as we do think to the back half of the year, any thoughts on the margin expectations there especially as you think about Flooring North America and some of the various factors around some of the new products gaining momentum, the productivity initiatives relative to some of those headwinds that you've spoken about?

Question: Susan Maklari - Goldman Sachs - Analyst : Okay. That's helpful, Jeff. And then it was good to hear and see that you bought back some stock again this quarter. Can you talk a bit to your thoughts on capital allocation in this environment? And maybe with that to Mohawk's ability to continue to generate really strong free cash flows even in a tougher macro.

Question: Collin Verron - Deutsche Bank - Analyst : For North America sales, they were down modestly in the quarter, but when you start to parse out sort of the system conversion impact, it looks like sales could have been up low single digits. First, is that the right way to think about it? And if it is, can you just talk about what's driving that improvement, either by end markets or product categories? And do you think you saw any pull forward just as customers got ahead of the tariffs here.

Question: Collin Verron - Deutsche Bank - Analyst : Great. That's helpful color. And I guess just following up on that, how sustainable are those trends in commercial just given sort of the uncertain backdrop. Have you seen any changes sort of in customer behavior as you look out into sort of projects that might hit in the back half of the year, or is it still pretty strong relative to the other end markets?

Question: Keith Hughes - Truist - Analyst : I think in prepared statements, you said that price mix was up in both Ceramic and Flooring North America. I think that's the first time in a couple of years, but we've seen that. Can you talk about what's going on in those sectors driving that up?

Question: Keith Hughes - Truist - Analyst : Second question, as you look in North America, specifically on LVT, the vast majority is imported. The United States somewhat asked asked earlier, when do you think the price is the price result of everything that's going on? And how long is that going to take to hit the industry?

Question: Keith Hughes - Truist - Analyst : Is there enough inventory out there to kind of carry through the second quarter before the impact, or are we going to say it before then?

Question: Timothy Wojs - Baird - Analyst : Maybe just to kind of of hop on the Keith's question. Just -- is there a way that you could kind of give us some color on just what those competitive price increases are in terms of percentages or dollars and kind of what you're thinking, various kind of import competitors are going to have to raise prices? I mean, is there a way that you can just kind of frame how much imports might have to go up in terms of price relative to domestically manufactured products?

Question: Timothy Wojs - Baird - Analyst : Okay. And would you raise price by less and focus on volume? I mean, is there -- would there be a real opportunity for you to pick up placements and pick up share, especially in retail. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, MHK.N - Q1 2025 Mohawk Industries Inc Earnings Call

Question: Timothy Wojs - Baird - Analyst : Okay. Okay. And then just thinking about productivity, I mean, it seems like just given the general pressure on price kind of ex tariffs that if you continue to see sluggish demand, I mean we're going to get to a point where pricing keeps going down maybe and you have to kind of do bigger, chunkier productivity kind of improvements again. I mean is there something three to six months from now where the volume environment still hasn't improved, and there's another kind of reassessment of the footprint. Or have you taken as many actions as you can in this environment and everything else is going to be kind of smaller.

Question: Adam Baumgarten - Zelman & Associates - Analyst : Just on the positive price mix in Flooring North America and Global Ceramic, it sounds like it was mix driven. Can you give us some color on how pricing behaves, was it down or maybe closer to flattish?

Question: Adam Baumgarten - Zelman & Associates - Analyst : Okay. Got it. And then just on the cost side, just with oil prices down, I think that's historically the benefit from a cost perspective in areas like Flooring North America. Do you expect that to flow through at some point later in the year as well? I know you mentioned nat gas costs in being a positive, but maybe as it relates to oil and the timing there?

Question: Brian Biros - Thompson Research Group - Analyst : Can you expand on the earlier question about balancing your market share versus price and margin? And I guess between the two options, are you more inclined to take share or protect margins and keep your current market share?

Question: Brian Biros - Thompson Research Group - Analyst : Got it. And secondly, can you talk about, I guess, your inventory levels, and I guess really the levels in the channel. Is there any work down that needs to be done there? You talked about some advanced imports on your part we heard there was some maybe pre activity in the retail channel in advance of the price increases as well. So just wondering kind of how that all sits now with the weaker market facility, and how that might flow back through the supply chain. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, MHK.N - Q1 2025 Mohawk Industries Inc Earnings Call

Question: Michael Rehaut - JPMorgan - Analyst : First, I just wanted to get a little more granularity on -- in Flooring North America, where you've put across some incremental pricing. What type of impact from a percent revenue basis should we be thinking about for 2Q and 3Q as it currently stands with what you've announced so far?

Question: Michael Rehaut - JPMorgan - Analyst : Okay. I guess secondly, on the roughly $500 million of imports that you expect the $50 million tariff hit. Just circling back to that, if you could break down, it would be appreciated, which countries those come from either order of magnitude or a rough down of the top two, three, four countries that you're getting that $500 million from that would be very helpful.

Question: Stephen Kim - Evercore ISI - Analyst : Kind of two issues kind of working in opposite directions. On the one hand, you obviously have less tariff exposure than probably a lot of your competitors. And on the other side, you also have been leaning into the premium kind of product selection, particularly in North America. But I believe most of those products are imported and so maybe a little more exposed to the tariffs. So let me start with that part first. So on the higher-end products in Flooring North America and ceramic, how much is imported? Would you say the majority of it is important. And is it your view that the tariffs and the necessary pricing to cover the tariffs, would crimp demand there, or is it your view that, that customer is pretty immune. And so you're just going to continue to target the higher end consumer there. You continue to lead into it and just figure lean into it and just figure you'll just drive pricing to cover that, and that really will not suffer from a demand perspective due to price?

Question: Stephen Kim - Evercore ISI - Analyst : My understanding, though, I think you showed the Karastan Black, and I think there was also the Karastan LVT, if I'm not mistaken, the WCC product. And those are those imported products?

Question: Stephen Kim - Evercore ISI - Analyst : Okay. Yes, that makes sense. Okay. Then the second question relates to sort of the opportunistic pricing opportunity. I guess that maybe some others have touched on. So you talked about the fact that you have FIFO accounting and that, therefore, it's going to take a certain amount of time. I think you said late 3Q before the impact flow through from any potential tariffs. And yet, the -- your competitors are not all on FIFO, obviously. And so they're putting through pricing, it seems like probably a little bit earlier than you might need, is it reasonable to think, therefore, that you might actually see REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, MHK.N - Q1 2025 Mohawk Industries Inc Earnings Call price/cost be a near-term positive perhaps in late 2Q, Q3 into 3Q. And then you would have the offset to that on the back end, maybe sometime in the future when pricing decelerates. But in the near term, you would actually potentially see a price cost benefit. Is that a reasonable possibility?

Question: Trevor Allinson - Wolfe Research - Analyst : First one, I just want to follow up on some of the energy commentary with nat gas prices coming down here. Can you quantify what do you expect the energy cost headwind to be that's assumed in your 2Q guide? And then you're talking about some benefits of lower nat gas by the fourth quarter. Are you talking about just less inflation from nat gas in the fourth quarter? Are you actually expecting nat gas to turn into a tailwind on

Question: Trevor Allinson - Wolfe Research - Analyst : Okay. Got you. Makes sense. And a question on Europe and perhaps maybe the knock-on effects of US tariffs on China. If US competitors who are currently importing LVD from China specifically, if they begin sourcing from other countries, do you see a risk of Chinese LVT finding its way into the European market and perhaps weighing on pricing in Europe? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, MHK.N - Q1 2025 Mohawk Industries Inc Earnings Call

Question: Philip Ng - Jefferies - Analyst : Curious to get your thoughts on intra-quarter trends in 1Q, and how April has kind of progressed by geography. Certainly, North America is particularly hard hit with consumer confidence coming down. with tariffs and whatnot. But curious to get your thoughts on just broadly, broadly worldwide, how you're seeing trends kind of progress in your quarter and into April?

Question: Philip Ng - Jefferies - Analyst : Jeff, I'm trying to gauge just like April. I mean, certainly March and February softened, but did April get worse, or has it kind of stabilized? I'm just trying to get a gauze from that standpoint.

Question: Philip Ng - Jefferies - Analyst : Okay. So some level of stability. And then for Jim, a lot of moving pieces. The FIFO piece gives you some line of sight on (inaudible) But based on what you know today, would you expect (inaudible) to kind of in terms of year-over-year inflation peaking in 2Q? Or that could actually get materially worse in the back half and certainly from a price cost standpoint, lot of moving pieces on pricing. How do you see that equation kind of evolving from a price cost standpoint as well. I kind of your biggest pinch point quarter, or it actually could get worse in the back half?

Question: Laura Champine - Loop Capital - Analyst : I'm wondering if there's a material amount of product that you're going to resource into your US facilities? And if so, what the short-term costs might be of moving that production, and what the longer-term sort of capacity utilization benefits might be?

Question: Laura Champine - Loop Capital - Analyst : Yes. Ceramic, I guess it's a good question for ceramic too because I know you make some in Mexico that you import here. I'm not sure what the plan is there.

Question: Laura Champine - Loop Capital - Analyst : Got it. And then a quick follow-up on the your comments on Chinese production impacting the European business. I'm aware that you're already there, but an influx impact your pricing there, and are you already accounting for that in your plans for this year?

Question: Michael Dahl - RBC Capital Markets - Analyst : I want to circle back on channel inventories. I know you mentioned, Jeff, you haven't necessarily seen a meaningful difference in customer activity, but 1 of the large foreign retailers last night seemed to suggest that they had done a material amount of prebuy specifically with some Chinese product. And our sense has been home centers have done some. So do you just not have the level of intelligence in the market to at a market level to get granular into your customers and see those inventory positions, or are you seeing something different there?

Question: Michael Dahl - RBC Capital Markets - Analyst : Okay. Got it. Maybe misinterpreted your answer then. Appreciate the clarification. Second comment or a question. I think, Jim, in response to Rick's question about earnings, you suggested for the potential for earnings to be up year-on-year. Here's what I'm wondering, seasonally speaking, your 3Q is usually flat to down versus 2Q and 4Q is almost always down a decent amount seasonally. And so with demand weak and the incremental pressures that could come in the second half, it would take an typically seasonally strong second half to get anywhere close to flat to up for the full year, even ex ERP. So I'm just trying to understand that bridge. It seems like the base case should be that