Mohawk Industries Inc Q4 2024 Earnings Call Summary

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

Question: Trevor Allinson - Wolfe Research - Analyst : Congratulations to Chris on the retirement. It appears 1Q earnings guidance looks like it's roughly in line with normal seasonal trends that you guys saw prior to the pandemic between 4Q and 1Q, excluding the impact of the order management system. As we think about the moving parts of this year moving forward. Should we think that 1Q to 2Q then also exhibits normal seasonality moving forward, again, excluding any of the impacts from the order management system?

Question: Mike Dahl - RBC Capital Markets. - Analyst : Just sticking with the Flooring North America issue, maybe it would help us could break out to the extent you can, like if you call it, $25 million to $30 million hit on income between the extraordinary costs and the sales impact. How much of that $25 million to $30 million is kind of this onetime cost versus the sales and sales leverage impact?

Question: Mike Dahl - RBC Capital Markets. - Analyst : Got it. Okay. That's helpful, Jim. And then I appreciate kind of the context and qualitative pieces around thinking beyond 1Q. I think it would it'll probably be really helpful if there's any way, like there's always a lot of these moving pieces. When you add all this

Question: Eric Bosshard - Cleveland Research Company - Analyst : You talked a bit about competition, your competition as a limiting factor, competition in U.S. tile as a limiting factor. And I know there's always competition in these markets. But I'm just curious, is there anything different from a competitive dynamic that is limiting either pricing or share and then also add into this, any influence of tariffs in consideration of that in the same vein?

Question: Susan Maklari - Goldman Sachs Group, Inc. - Analyst : Taking a longer-term type of view, you've talked in the past about getting the business to a 10% margin. And then even moving higher from there. As you just think about all the cost actions and the things that you are driving in the business from both a product and a margin perspective, do you still think that you are on track get to that? And can you get there even if things do remain a bit more challenged just given what's going on in the business fundamentally?

Question: Susan Maklari - Goldman Sachs Group, Inc. - Analyst : Okay. That's helpful. And then turning to the cash flows in the balance sheet. It was nice to see you buying back stock again this quarter. The business has been generating approximately $700 million of free cash in the last 2 years, even with all the pressure that you've been under. Can you talk a bit about how you're thinking about the uses of cash going forward? How buybacks could fit into that and how you're thinking about M&A as well, perhaps?

Question: Stephen Kim - Evercore ISI Institutional Equities - Analyst : Appreciate all the color so far, and best of luck, Chris, with everything. I guess my first question relates to the outage that you experienced in Flooring North America. I understood what you said about your impacts in the 1Q. What I thought was a little interesting was that I might have expected that some of the missed sales in 1Q would actually lead to a sort of a better-than-normal trend opportunity in 2Q or maybe 2Q, 3Q, something like that. But it sounds like you're sort of leaving the door open for perhaps a little bit of continued sales impact. Just wanted to see if I could -- if we could explore that a little bit. Why is it that you wouldn't get

Question: Stephen Kim - Evercore ISI Institutional Equities - Analyst : All right. That's fine. And then a broader question. I know that we're all waiting for the turn in R&R, and we talked about in the past how that typically comes hand-in-hand with better mix because people tend to -- those kinds of people tend to buy higher quality products. But in the U.S., there's sort of an odd situation where you're seeing a lot of relatively greater strength in the move-up price points right now. I'm talking for houses. And the entry level of the market is obviously very locked up. because of the mortgage rates and that -- and at the lower price points, the homeowners literally can't move up because they just can't afford that jump in mortgage rate. So I think the lock-in effect is probably more prevalent at the lower price point. And so what I guess I'm saying is that if we were to see the -- an improvement in existing home sales, might it be that you see more of an improvement in -- with consumers who actually are not going to be paying up as much for products, and therefore, you might actually not see the typical product mix, a positive product mix that you would normally expect to see when a cycle recovers. I'm just curious if you've consider that, if that's something you think is a valid thing? And then lastly, is this dynamic just simply a U.S. phenomenon where you have sort of this relative -- much greater relative weakness at the entry level rather than the move-up?

Question: Keith Hughes - Truist Securities, Inc. - Analyst : Just wanted to ask about the $200 and I believe you said $85 million of restructuring saves. How much of that is realized in '24? Do you have a view of how much will be saving in '25?

Question: Keith Hughes - Truist Securities, Inc. - Analyst : Okay. Just to make sure. The $100 million is income and in '25 is incremental, that would be $180 million over the 2 years. Is that the what you're saying it?

Question: Keith Hughes - Truist Securities, Inc. - Analyst : '26. Okay. And 1 question for you, Jeff. You mentioned in '25, it was something about -- you thought you might have some more positive mix. I just want to make sure I heard that right. Where do you think you would see that.

Question: Michael Rehaut - JPMorgan Chase & Co - Analyst : First, I just wanted to clarify an earlier comment, I think, Jim, that you made about 2Q seeing normal seasonality off of the first quarter in both sales and margins. I assume -- does that kind of -- when you talk about normal seasonality sequentially, is that off of the adjusted numbers, if you were to add back that $0.35 and the various impacts of that, just trying to understand the baseline there.

Question: Michael Rehaut - JPMorgan Chase & Co - Analyst : Great. Great. And then I also thought it would be pretty helpful if you could break out, if possible, what the impact on -- from currency and the natural gas costs that have kind of risen, how -- if there's any way to kind of quantify or roughly quantify what those impacts are expected to be on first quarter and how those might persist over the next quarter or 2?

Question: Michael Rehaut - JPMorgan Chase & Co - Analyst : So just to make sure I'm understanding, you're saying -- I apologize, kind of mid-single digits -- is that in the millions of dollars? Or is that an EPS number? And then also in terms of the natural gas, you said that it would be likely higher in 2Q and 3Q. Again, just trying to get any type of quantification off of that and what might -- what might it be both of these issues, again, impacting earnings in the first quarter guide? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 4:00PM, MHK.N - Q4 2024 Mohawk Industries Inc Earnings Call

Question: Timothy Wojs - Robert W. Baird & Co. Incorporated - Analyst : I guess there's a lot of moving pieces kind of in the market and kind of underlying. But as you look at the 3 segments as you report it. Is there a way to kind of talk about what you think those markets grew on an underlying basis in 2024 relative to what you've reported from a growth perspective?

Question: Timothy Wojs - Robert W. Baird & Co. Incorporated - Analyst : Okay. I mean I guess my question was more around like do you feel like you're gaining share in the majority of your markets? Or do you feel like you're growing more in line with the market?

Question: Timothy Wojs - Robert W. Baird & Co. Incorporated - Analyst : Okay. Good. And then just a quick one. Just in Flooring North America, just like high level, could you just give us a sense for how big hard surface versus soft surfaces right now.

Question: John Lovallo - UBS Investment Bank - Analyst : Maybe just from a high level, obviously, existing home turnover has been a headwind. One of the things that's been interesting is that rates have been high, but the prime rate has come in a bit. There's been a little bit more talk about potentially folks kind of leaning into home equity a little bit more than they have in the recent past. I mean, given the high-ticket nature of flooring, I mean, how are you thinking about that dynamic playing out as we move through 2025?

Question: John Lovallo - UBS Investment Bank - Analyst : Got you. I mean, I guess I was wondering just about on the ability for folks to extract equity from their homes and use that as a catalyst for R&R. If you had any thoughts around that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 4:00PM, MHK.N - Q4 2024 Mohawk Industries Inc Earnings Call

Question: John Lovallo - UBS Investment Bank - Analyst : Okay. Fair enough. And then maybe the second question is the flooring industry, as you mentioned in a tough spot here for a few years. Your balance sheet is been really good shape. I mean it seems like it could create an opportunity for you guys to take advantage of the situation. I mean how are you thinking about the ability to be a little bit more acquisitive in 2025, expanded into new products or regions or whatever it may be?

Question: Philip Ng - Jefferies - Analyst : Jim, I appreciate the color that the nat gas impact will be more impactful from a P&L standpoint, 2Q, 3Q. But any way to size that up in terms of gas input or just broader inflation in general. And certainly, the million question is around pricing. It's a tough environment, but you're seeing costs go higher have you or your competitors taking price and then in your markets? And from a mix comment, you talked about new products, but should we think of mix holistically up overall? Any color would be helpful.

Question: Philip Ng - Jefferies - Analyst : Okay. Great. That's helpful color. In terms of tariffs, appreciating it's a very fluid situation. I guess, how do you see that impacting your business, right? When you look at your peers, you're competing with largely players ex carpet importing product in. Is that going to be a good guy from a pricing standpoint? And remind us how you're set up from a Mexico exposure. You got an LVT facility, ceramic as well. So holistically, tariffs that's proposed, is this a good guy from a price margin standpoint? And then anything that we be mindful from an operation and supply chain standpoint as well?

Question: Philip Ng - Jefferies - Analyst : Yes, if you think it's a net positive, neutral or a modest headwind for you guys because your competitive landscape is largely importing.

Question: Laura Champine - Loop Capital Markets - Analyst : It's actually a follow-up on let's call them potential tariffs on North America. What percentage of your overall sales are imported from Mexico? And then a little more Farfetch, but totally possible. I know that you export product from the U.S. to Canada. What percentage of your sales is in that bucket? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 4:00PM, MHK.N - Q4 2024 Mohawk Industries Inc Earnings Call