Q1 2025 Mohawk Industries Inc Earnings Call
Speaker Change: Good morning everyone and welcome to the Mohawk Industries First Quarter 2025 earnings conference call.
Speaker Change: All participants will be in a listen only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions, to ask a question you may press star and then one on your touchtone phones
Please note this event is being recorded.
Speaker Change: At this time, I'd like to turn the conference call over to Mr. James Brunk, Chief Financial Officer Sir, please go ahead
Speaker Change: Thanks, Jamie. Good morning, everyone and welcome to Mohawk Industries Quarterly Investored Conference Call. Join me on the call, our Jeff Lorberbaum Chairman and Chief Executive Officer, and Paul DeCoc, President and Chief Operating Officer.
Speaker Change: Today we'll update you on the company's first quarter performance and provide guidance for the second quarter of 2025
Speaker Change: I'd like to remind everyone that our press release and statements that we make during this call may include forward-looking statements as defined in the private security litigation reform act of 1995 which are subject to various risk and uncertainties including but not limited to those set forth in our press release
and Periodic Files with the Securities and Change Commission.
Speaker Change: I'll now turn over the call to Jeff for his opening remarks. Thank you, Jim. In the first quarter, our reported sales were 2.5 billion, a decrease of 5.7% is reported, or about flat on a constant basis, absorbing two fewer shipping days, and year over year for an exchange headwind.
Jeff Lorberbaum: Even with soft market conditions, our premium collections and differentiated products we launched in 2024 generated above market results [inaudible]
Jeff Lorberbaum: We recorded earnings per share of $1.52 with our performance primarily benefiting from productivity gains, restructuring actions in a lower tax rate, which offset pricing pressure and higher input costs.
Jeff Lorberbaum: During the quarter, we purchased 225,000 shares of our stock for approximately $26 million.
Jeff Lorberbaum: In response to the retaliatory tariffs, the US also implemented tariffs of 145% on China which supplies the significant part of LVT sold in the US.
Jeff Lorberbaum: To offer our customers a wider variety of options, we supplement our ceramic tile and LVT
Manufactured in the US with imported products. [inaudible]
Jeff Lorberbaum: Most of the ceramic tile and some of the LVT we import is produced in our own facilities in Mexico and is not subject to tariffs under the USMCA agreement. We increase our inventory levels and preparation of tariffs being implemented. [inaudible]
Jeff Lorberbaum: At the current 10% rate, we expect estimate Mohawk will incur annualized costs of approximately 50 million, which is we expect to address through price increases and supply chain adjustments as needed. In addition to direct-
Jeff Lorberbaum: To the direct impact, the tariffs are likely to influence consumer and new construction and business spending in both the US and abroad, though the extent is unpredictable at this time.
Jeff Lorberbaum: Another impact of the tariffs is a weakening of the US dollar which could benefit our domestic manufacturing and translated results this year
Jeff Lorberbaum: In the US, concerns over inflation have prevented the Fed from reducing rates, though most are now predicting the Fed will make multiple rate cuts during 2025 2005
Jeff Lorberbaum: So far this year more US homes are being offered for sale as available housing inventory continues to rise. After multiple years of deferring purchases, some consumers are re-entering the real estate market to meet their current family needs
Jeff Lorberbaum: As the spring selling season begins, the outlook for US home builders remains cautious, with March result showing significant variation by region
Jeff Lorberbaum: Due to economic uncertainty in the war in Ukraine, consumer confidence in Europe has also declined, leading to postponed home sales and remodeling activities [inaudible]
Jeff Lorberbaum: As inflation nears their target, the European Central Bank cut central rates to 2.25% in April to stimulate the economy as well as the housing market as defense and infrastructure spending increases European economy particularly Germany could see improvement. [inaudible]
Jim will review our financial details for a quarter.
Thank you, Jeff.
Jeff Lorberbaum: The sales recorder was just over $2.5 billion, it's 5.7% decreases reported, or 0.7% on a constant basis.
including absorbing two less shipping days, unfavorable year over year. [inaudible]
Jeff Lorberbaum: Foreign Exchange and the previously disclosed impact of the Florian North America system conversion. These headwinds were partially offset by favorable price mix in the quarter primarily in our global ceramic and Florian North America segments
Jeff Lorberbaum: Gross Margin for the quarter was 23.1% as reported, and excluding charges was 24.1% in line with the prior year.
Jeff Lorberbaum: S.J.A. expense as a percentage of sales was 19.2% on adjusted faces again relatively in line with the prior year operating income as reported was $96 million or 3.8%
Jeff Lorberbaum: During a quarter we had charges of $26 million, primarily related to our previously announced restructuring actions across the enterprise which will generate approximately $100 million of savings this year.
Jeff Lorberbaum: It gave us an operating margin from an adjusted basis of 4.8%
Jeff Lorberbaum: 130 basis point decrease versus the prior year due to higher input costs of $41 million, the impact of the Floring North America Order Management System conversion of approximately $30 million, which was in line with our expectations.
Jeff Lorberbaum: Volume of $11 million, partially offset by improvement in productivity at $51 million.
Jeff Lorberbaum: Interest expense for the quarter was $6 million dollars a decrease versus the prior year due to lower overall debt and the benefit of interest income reflecting the strength of our balance sheet
Jeff Lorberbaum: Our non-GAAP tax rate was approximately 18% versus 21.8% in the prior year. We're forecasting a Q2 tax rate of approximately 21% and for the full year to be approximately 20%.
Jeff Lorberbaum: He gave us an earnings per share for the quarter on a reported basis of $1.15 and adjusted earnings per share of $1.52.
Turning to the segments
Jeff Lorberbaum: Global Ceramic at Sales of just over $990 million, it's a 4.9% decrease as reported an increase of 1.2% on a constant basis.
Jeff Lorberbaum: Driven by an improvement in our product and channel mix across the segment, partially offset by lower sales volume [inaudible]
Jeff Lorberbaum: Our operating command just the basis was $48 million or 4.8%, that's only 20 basis points below the prior year as higher input costs of $18 million $18 million.
Jeff Lorberbaum: Lower sales volume of $10 million, offset gains in productivity versus the prior year of $21 million. Driven by an improvement in our year over year results in the US, Brazil and Europe .
Jeff Lorberbaum: In flooring North America, our sales were $862 million. That is a decrease of 4.2% as reported for 1.1% on a constant basis.
Jeff Lorberbaum: As the segment had improvement and price and mix, especially in the resilient, laminate and commercial soft business units, offset by the negative impact of the order management system conversion, which was approximately $50 million, most of that being on volume.
Jeff Lorberbaum: excluding charges, a decline of 230 basis point versus the prior year, as a year-over-year improvement in productivity of $27 million was offset by higher input costs of 19 million and the impact of the system conversion of approximately 30 million. [inaudible]
Jeff Lorberbaum: Employing rest of the world, we have sales of $670 million, so it's an 8.8% decrease as reported, and 2.9% on adjusted basis [inaudible]
Jeff Lorberbaum: Driven by lower sales volume, an unfearable price mix, primarily in their laminate insulation and cheap vinyl business units.
Jeff Lorberbaum: Operating, Command, Justice, Basis, was 9.1% that's a decline of 100 basis point versus a prior year due to unfavorable price mix of approximately $8 million and lower sales volume only partially offset by stronger productivity. [inaudible]
Jeff Lorberbaum: as the improvement in our LVT business was offset by the weakness in insulation and laminates.
Jeff Lorberbaum: Corporate eliminations for the quarter were $12 million in line with the prior year and we anticipate the full year expenses to be approximately $50 million in dollars.
Jeff Lorberbaum: Turning to the Balenci cash and cash equivalents for just over $700 million in Q1, our free cash flow was a use of approximately $85 million for $100 million.
Jeff Lorberbaum: Primarily due to timing with the delayed invoicing in foreign North America and an increase in imported goods ahead of US tariff rollout, we still forecast a strong overall year in free cash flow [inaudible]
Jeff Lorberbaum: Inventories were just over 2.6 billion dollars, our inventory grew by approximately 80 million dollars versus the prior year, primarily due to the increase of imported goods, again ahead of the recently announced US tariffs. [inaudible]
Jeff Lorberbaum: Properly Plank, Whitman was just over $4.6 billion. Our Q1 CapEx was $89 million with DNA at approximately $150 million.
Jeff Lorberbaum: And lastly, overall, the balance sheet and cashflow outlook remained very strong with current net debt of 1.7 billion and a leverage of 1.2 times. And with that I will turn it over to Paul to review our Q1 operational performance.
Paul DeCock: With low demand, we are leveraging our extensive offering, superior service and reliability to improve our position with existing customers while pursuing new opportunities.
Paul DeCock: Pricing pressure remains a challenge due to low capacity utilization across the industry in all of our geographies and we are taking selective pricing actions where feasible.
Paul DeCock: Arrestructuring projects are on schedule and we are evaluating additional initiatives to lower our costs
Paul DeCock: In the US, we delivered solid results in both residential and commercial as we focused on ceramic alcohol contractors, kitchen and bar dealers and commercial projects.
Paul DeCock: Most of our U.S. floor and Walton portfolio is manufactured in the U.S. and Mexico, which should advantage your business given tariffs on imported products.
Paul DeCock: Or domestically produced quartz countertops should also benefit since more than half of that market is using imported alternatives.
Paul DeCock: In Europe , our results benefited from our premium collections, innovative product introductions, and growing participation in the commercial channel which is outperforming residential .
Paul DeCock: Tales of our porcelain slabs are growing significantly due to our advanced visuals, capacity expansion
Paul DeCock: Natural gas prices in Europe have recently declined and will help offset other inflation.
Paul DeCock: in Brazil, or results benefitted from strengthened exports throughout South America, Droshing Actions and Enhanced Mix.
Paul DeCock: The Mexican market remains challenging and we are expanding our porcelain offering to grow our distribution and improve our mix [inaudible]
Paul DeCock: or restructuring projects in Mexico or on track and will lower our costs and increase our competitive position.
Paul DeCock: In our floating rest of the world segment, we are responding to challenging market conditions through strategies to expand sales in parts of Europe with stronger economies, introducing new products to satisfy regional preferences, and focusing on greater export opportunities around the world.
Paul DeCock: To offset higher input costs, we are taking selective pricing actions where possible, while also pursuing productivity gains and cost reductions .
Paul DeCock: We are controlling inventory and managing operations to align with lower demand in the region.
Paul DeCock: In our flooring business or transition from flexible to rigid LVT has helped increase volumes and we have improved our manufacturing performance [inaudible]
Paul DeCock: In Europe , we are experiencing increased pricing and mixed pressures in our flooring categories as retailers shift their product assortment to lower price points to align with consumers trading down.
Paul DeCock: To increase sales of our quick step premium flooring, we are expanding distribution in southern and eastern Europe [inaudible]
Paul DeCock: In the quarter, we started a new laminate press that can deliver the next generation of product features and is more efficient than the line we retired.
Paul DeCock: Our panels make benefit it from the growth of our premium collections and higher value decorative panels despite ongoing pressure on our commodity panels business.
Paul DeCock: Or insulation performance improved in the UK and sales of flat-roof products for commercial projects increased
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Unknown Executive, William Wellborn, James Brunk
Speaker Change: Our Flooring North America segment performed in line with expectations as our shipments recovered from the disruption caused by the order system conversion
Paul DeCock: Residential remodeling remains under pressure due to low housing turnover, elevated interest rates and weakening consumer confidence [inaudible]
Paul DeCock: In 2025, we launched many new products to better position us for a recovery of the category. At the recent National Trade Show,
Paul DeCock: During the quarter, we also benefited from strong sales performance in LVT as we have expanded the door portfolio across all price points.
Paul DeCock: or East and West Coast LVT production strategy is improving our service and optimizing our logistics costs.
Paul DeCock: The acceptance of our premium waterproof laminate as an alternative to LVT is progressing in both residential remodeling and new construction. It provides superior aesthetics and scratch resistant and more dependable supply.
Paul DeCock: We are further increasing our domestic laminates capacity to support the increasing demand.
Paul DeCock: We have expanded our relationships with home builders across the country in both carpet and hard surfaces which are yielding higher sales
Paul DeCock: In commercial order activity is good in all categories as we benefit it from accelerated product launches or restructuring actions in the segment or on track and delivering the expected savings
Paul DeCock: We are working to offset higher input costs through additional process improvements and cost reduction actions.
Paul DeCock: I will now return the call to Jeff for his closing remarks. Thank you Paul
Speaker Change: With the implementation of the tariffs last month, there is more uncertainty with the global economic outlook and softer conditions are anticipated given higher inflation, lower consumer confidence and reduced business investments [inaudible]
Speaker Change: At this point, the tariff amounts and the effect on consumers spending and housing are still evolving [inaudible]
Speaker Change: We will take the appropriate actions to manage the impact of tariffs as needed.
Speaker Change: We're focusing on optimizing our sales and further lowering our operational costs with our restructuring initiatives this year which has resulted in a benefit of approximately $100 million.
Speaker Change: Our flooring North America Segment Service has returned to historical levels while we continue to enhance the functionality and efficiency of the system's new order system [inaudible]
Speaker Change: We anticipate pricing pressure will continue in all regions given low demand and competitive markets.
Speaker Change: Global Ceramics and Florian North America are improving their mix with increased participation in the commercial channel sales of premium collections and performance of recent product introductions [inaudible]
Speaker Change: In the rest of world segment, European consumer demand for large discretionary purchases such as flooring is at a low level with product demixing, though declining interest rates could stimulate demand
Speaker Change: Given these factors, we expect our second quarter adjusted EPS will be between $2.52 and $2.62 excluding any restructuring or other one-time charges We expect our second quarter adjusted EPS will be between $2.50 and $2.50 including the first quarter adjusted EPS will be between $2.50 and $2.50
Speaker Change: We remain optimistic about the long-term prospects of the flooring category given where we are in the housing cycle. To improve our results we continue to reduce our cost structures, simplify our operations and product complexity and invest in new product features.
Speaker Change: When the Great Recession bottoms out, our industry rebounded dramatically growing more than 10% in subsequent years. Though we cannot predict the inflection point, we expect our results to significantly improve when the industry volumes return to historical levels.
Speaker Change: As with past economic cycles, we will emerge from this period operationally stronger and ready to provide our customers with superior products and service [inaudible]
We'll now be glad to take your questions.
Speaker Change: Ladies and gentlemen, at this time we'll begin that question and answer session. To ask a question, you may press star and then one on your touch tone phones. If you are using a speaker phone, we do ask that you please pick up your handset before pressing the keys.
To withdraw your question, you may press star in two [inaudible]
Speaker Change: We do ask that you please limit yourselves to one question and a single follow up in the interest of time.
Speaker Change: At this time we'll pause momentarily to assemble the roster.
David MacGregor, David MacGregor, David MacGregor
Our first question today comes from
John Lovall from UBS, please go ahead with your question [inaudible]
Good morning guys, thank you for taking my questions [inaudible]
Speaker Change: Maybe starting with the tariffs, you guys talked about an annualized cost impact, a $50 million, I mean how should we sort of think about the timing of that coming through in 2025?
Speaker Change: I mean, is there anything embedded in 2Q or it's just more kind of a second half?
Speaker Change: And then you sort of mentioned your intentions 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.
David MacGregor, David MacGregor, David MacGregor
Speaker Change: Well, let me start John on your first question on timing. Obviously, as you know, we're on a pipe accounting system which means...
that as we start to purchase...
Speaker Change: Material that has tariff on it, it will take somewhere between four and five months
Unknown Executive, William Wellborn, James Brunk
We've started announcing increases, we're going to continue to continue.
Speaker Change: assessing the timing of when we're going to announce the rest of them. [inaudible]
Speaker Change: We think that we've stopped importing product from China at this point already and we're moving product between different suppliers and regions as we think is appropriate for what's going on we'll continue adjusting as we need to . . .
Speaker Change: understood. And then the second question would be, if I remember correctly, about 40% of LVT came in from China last year. You know, 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, you know, take some share or, you know, raise prices, you know, along with the rest of the industry? How do you sort of think about the balance there? I don't know. I don't know. I don't know.
Speaker Change: Well, or Eastern West Coast production capacity is obviously improving our service and logistics cost and position in the U.S. market [inaudible]
Speaker Change: We have a very good manufacturing footprint which should advantage us with the increase in tariffs And so going forward we'll use a balance of source and manufactured goods to optimize our results and we'll continue on focusing filling or existing capacity We'll continue on focusing filling or existing capacity and we'll continue on focusing filling or existing capacity
Okay, thank you guys.
Thank you.
Richard [inaudible]
Speaker Change: Our next question comes from Matthew Bouley from Barkley's Investment Bank. Please go ahead with your question.
Matthew Bulley: Hey, I'm warning everyone. Thanks for taking the questions. I guess sticking on that same topic of pricing power. Yeah, just wanted to
Press a little bit on kind of balancing that...
Matthew Bulley: You know, the environment, that emotional right when you have slower demand in the industry [inaudible]
Matthew Bulley: and you mentioned that the top potential for more pricing pressure across geographies and 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? I don't know.
Matthew Bulley: or maybe are there different categories that may be better pricing power relative to others, just any more color on that. Thank you.
Adam Baumgarten
We think that the...
Speaker Change: An easy alternative for it, ceramic as well as even carpet made benefit as the costs go up and people try to manage it.
Speaker Change: Okay, thank you for that Jeff. 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 dollars from other countries besides China. So just any color on what specifically you do import which countries that maybe obviously we just want to understand what can happen given what you know, may change with these
Speaker Change: The 500 million is, of course, a big difference from other products.
Speaker Change: Major Italy LVT, but we import many other products and then we are optimizing our supply chain continuously to minimize the duties and maximize our buying power across the world, across the 500 million.
Unknown Executive, William Wellborn, James Brunk
Okay, thanks Paul, good luck guys. Yes, thank you
Ray Jucic: Our next question comes from Rafe Jutich from Bank of America. Please go ahead with your question.
Hey, good morning. Thanks for saying my question.
Ray Jucic: 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 [inaudible] the next quarter, the next quarter
Ray Jucic: with the 50 million tire of hit. How do you think about that playing out? And then what are the puts and takes there?
Ray Jucic: Well, I mean, as you know, it's going to be dependent on the market conditions which are really unpredictable at this point. We think that the tariffs will be covered by price increases, as we said, and we think we'll get enough to cover the present tariffs. We'll have to see what happens after that. We'll have to see what happens after that. We'll see what happens after that.
Speaker Change: And Rafe's key, as Jeff says, is that our plan is to offset that 50 million through pricing and other supply chain initiatives. And if you explore the system conversion,
Speaker Change: Given the current conditions, if the economy does stabilize, tariffs remain at the present level.
Speaker Change: and you should get some maybe potential interest rate falls. We could still exceed last year's results. Obviously, the alternative is the economy's weakened and investments in housing discretionary spending fall. Our results would then certainly be under pressure. Thank you.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: We also have to absorb the increased cost of labor and benefits across the business Now the cost of natural gas should correct in the US and Europe recently has decreased
Speaker Change: And that should benefit us as it flows through the inventory, but it will be later in the year. We are increasing prices selectively and taking actions to really further reduce our costs.
Speaker Change: and we'll just as required the competitive markets you are making it more difficult and more challenging for increases.
David MacGregor, David MacGregor, David MacGregor,
David MacGregor, David MacGregor,
Thanks, I appreciate it
Speaker Change: Our next question comes from Susan Maklari from Goldman Sachs. Please go ahead with your question.
Thank you, good morning, everyone. Good morning.
Morning. Nice first.
Speaker Change: Good morning. My first question is maybe just building on the outlook for 2025. Can you talk a bit more?
Speaker Change: on how you're thinking of this sequential lift from first quarter, 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...
Spoken about [inaudible]
Speaker Change: As you look for the rest of the year, the government policies are slowing the economy and reducing consumer confidence, which is lowering the housing and remodeling activity. As we said, we've begun price increases and expect a compensate for the present tariff levels and we'll have to adjust if they change.
Speaker Change: We'll benefit from the restructuring savings of more than 70 million left for the balance of the year. We are driving additional productivity to reduce our cost structure to help us set it. We anticipate some tailwinds in a fourth quarter from lower energy. [inaudible]
Speaker Change: Our interest cost is you're also be lower given that we've reduced our debt and the interest income is higher.
Speaker Change: and then we still see a potential that central banks are reducing rates and could stimulate growth which could help our category in Europe to keep the rates should be getting low enough to help to help.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: 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 it may be with that to Mohawk's ability to continue to generate really strong free cash flows even in a tougher macro.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Yes, Susan, we still forecast, even with the use of cash in the first quarter, strong free cash flow for the...
Speaker Change: in the year. We did buy back about $26 million and we'll continue to use that as part of our overall capital allocation strategy.
David MacGregor, David MacGregor, David MacGregor
Okay, thank you. Good luck with everything.
Thank you [inaudible]
Speaker Change: Our next question comes from Colin Braun from Deutsche Bank, please go ahead with your question [inaudible]
Speaker Change: Good morning, thank you for taking my question. Sorry, North America sales, they're down modestly in the quarter, but when you start to parse out sort of the system conversion impact, it looked like sales could have been up
Speaker Change: His first is not the right way to think about it [inaudible]
Speaker Change: And if it is, can you just talk about what you're driving and improvement either by end markets or product categories? And you think you saw any Poltoward just as customers got ahead of some terrorist fear?
David MacGregor, David MacGregor,
Speaker Change: Yes, so in the Floring North America, our performance was in line with expectations as our shipments recovered well from the disruption that was caused by the order system conversion although residential remodeling is at low levels
Speaker Change: because of low-housing turnover, elevated interest rates, and weakening consumer confidence we performed well in the market. We are capturing volume share with differentiated products and promotions.
Speaker Change: And also, our commercial business performed quite well. In North America, in the Florida North America segment, and in the Dow tile business, we have a larger exposure to commercial than in our other businesses.
Speaker Change: and so commercial is holding up well and pricing is more resilient and we are increasing investment in that segment.
David MacGregor, David MacGregor,
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Reid, that's the tumble color, and I guess just following up on that. [inaudible]
Speaker Change: Yes, you're correct that we are of course through benefiting from projects that were started last year But at this time we don't see the incoming orders on commercial projects tapering down and so we are hopeful for the remainder of the year that this continues for the next year.
Unknown Executive, William Wellborn, James Brunk
Thank you for all the color.
Thank you very much.
Speaker Change: Our next question comes from Keith Hughes, from Truist. Please go ahead with your question.
Keith Hughes: Now, thank you. I think I've prepared something that you said that Christ Mix was up in both ceramic and flooring North America, I think that's the first time in a couple of years that we've seen that. Can you talk about what's going on in those sectors driving that up?
Well, in Florida, America, and in Volvo Ceramic,
You are seeing the premium.
Speaker Change: First of all, you're seeing the premium product do well, both on the higher end.
Britsis Carpeth, Laminate, Porcelain Slav in Europe . [inaudible]
Speaker Change: and then also you have that mix of channel that Paul just described.
Keith Hughes: where commercial, which is a larger piece of foreign earth America and global ceramic compared to foreign rest of the world, has done well so far this year, which is also helping their mix. So it's really a combination of a little bit of product mix and a little bit of channel mix.
Speaker Change: Second question, as you look in America, specifically on LVT, the vast majority is [inaudible]
Keith Hughes: asked earlier when do you think the price issue, the price results of everything that's going on? How long is that going to take to hit the industry? [inaudible]
Keith Hughes: Well, we and market participants have already increased prices to compensate for these tariffs and as the tariffs change the industry will highly likely push those through with more price increase
Keith Hughes: The announcements are just going out on a pricing with different pieces and the implementation will go through We think you're going to see it as we go through the second quarter We're going to see more and more of it getting into the marketplace [inaudible]
Speaker Change: But depends on each, in us, he said it was probably going to be somewhere in the third quarter before we flowed through the inventory.
Unknown Executive, William Wellborn, James Brunk
Okay, thank you [inaudible]
David MacGregor, David MacGregor, David MacGregor
David MacGregor, David MacGregor, David MacGregor
David MacGregor, David MacGregor,
Speaker Change: Our next question comes from Tim Woos from Beard. Please go ahead with your question.
Speaker Change: and what you're thinking various import competitors are going to have to raise prices. Is there a way that you can just kind of.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: It's really too early to tell. They're just getting out there. The announced increases of some of them are somewhere around 8% at the moment but that's only for a portion of it. We'll have to see how they average out and what they're going to end up with at the end.
Speaker Change: It's just the first announcements are just rough directions of where it's going, then they get to the individual product prices don't come out until later [inaudible]
Speaker Change: 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? Yeah, sure.
Speaker Change: And again, we also have to make sure that whatever is going to happen with inflation in the U.S. also so we're going to take all those to account and it'll solidify probably over the next 30, 45 days. [inaudible]
Speaker Change: Tim, the point is, we really focus back on the fact that our domestic capacity, as Jeff had previously said, and if you think about...
Speaker Change: You know, our capacity in the U.S. from ceramic tile, carpet, laminate, cheap vinyl, LVT, and quartz countertop, it really puts us in an advantage situation as the tariffs increase.
Speaker Change: Okay, okay, and then just thinking about productivity, I mean, [inaudible]
Speaker Change: It seems like just, just given the general pressure on price kind of exterrace that...
Okay, okay, appreciate the color guys. Thank you [inaudible]
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Our next question comes from Adam Bojartin from Zellman, please go ahead with your question.
Speaker Change: Hey, good morning, guys. Just on the positive price mix in flooring North American global ceramics, sounds like it was mixed-driven. Can you give us some color on how pricing behaves? Was it down or maybe closer to flatish?
Speaker Change: Now we did take some selective price increases in some of our more premium ceramic products.
Speaker Change: We also to price increases in our laminated flooring business because of higher input costs and so we're continuing to look very strategically where we can take price to compensate some of the inflation that is in the market right now. So we're continuously working on it on all categories.
Speaker Change: Okay, got it. Thanks. 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 Florida and North America. Do you expect that to flow through at some point later in the year as well? I didn't mention that gas costs and 4Q being a positive, but maybe as it relates to oil and the timing there. I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: In terms of raw materials, we really haven't seen a whole lot at this point but you're right if, you know, any petrochemicals [inaudible]
Benefit
Great, thanks.
Speaker Change: Our next question comes from Brian Byros from Thompson Research Group. Please go ahead with your question.
Brian Byros: Hey, good morning. Thank you for taking my questions. 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?
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Look, we're always trying to take market share in the market and we never lead with price to take market share but we focus on our vast portfolio of differentiated products and phenomenal innovations that we have, so we focus on that
Brian Byros: And we focus on our service capabilities, we focus on our quality capabilities in the market and we never really use price to drive market share and we will continue to do that [inaudible]
Brian Byros: Also, give them where the markets are, the prices are pretty compressed everywhere and almost all the markets because everybody has excess capacity.
Brian Byros: At some point it's got to turn up and when it does it's going to go back to this historical trends and we're going to have multiple years of historically high growth rate feature [inaudible]
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Got it. And secondly, can you talk about your inventory levels and I guess really the levels in the channel? Is there any work down and needs to be done there? You kind of talked about some advanced imports on your part.
Brian Byros: We had heard there was some maybe pre-buy activity in the retail channel in advance of the price increases as well, so I'm just wondering kind of how that all sits now with the weaker market digital into and how that might slow back through the supply chain. Thank you.
Brian Byros: Well I'll start with our inventory and I did increase about $80 million and as I previously said, it's primarily due to the increase in imported goods ahead of the new tariffs.
Brian Byros: We haven't seen a significant change we can identify with the customers given that we haven't announced price increases We haven't seen a large increase in the downstream volumes from us [inaudible]
Unknown Executive, William Wellborn, James Brunk
David MacGregor, David MacGregor, David MacGregor
David MacGregor, David MacGregor, David MacGregor
Unidentified Moderator: Our next question comes from Michael Rehaut from JP Morgan, please go ahead with your question [inaudible]
Hi, thanks. Good morning. Thanks for taking my questions
Unidentified Moderator: First, I just wanted to get a little more granularity on, you know, in flooring North America where you've put across some incremental pricing
David MacGregor, David MacGregor, David MacGregor
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Michael, at this point, as Paul said, it's really been more on a selective basis to offset...
Some
increases, short term increases in raw material, I would expect as...
We go through the year.
Speaker Change: Jeff indicated with the demand being constrained to continue to see pressure on pricing, which is wise.
Speaker Change: So good to see that we're getting benefit from MIX both on our premium products and with the strength of the commercial channel.
David MacGregor, David MacGregor,
Okay.
Speaker Change: I guess a secondly on the roughly 500 million of imports that you expect the 50 million tariff hits.
Speaker Change: Just circling back to that, if you can break down, you'd be appreciated, which countries those?
Speaker Change: Come from either order of magnitude or rough breakdown of...
You know, the top two, three, four countries, you know, that you're getting that 500 million from, that would be very helpful. Thanks.
Yes, so the 500 million or the tariff imports, of course. As Jeff said, we have
Speaker Change: Barely any exposure to China, which is obviously a good thing [inaudible]
Speaker Change: And then besides that, a big component of that 500 million is LVT and a large component of that comes out of Vietnam And then we have also other countries we source from like India, we have countries we source from like Korea, that would be the main ones [inaudible]
Speaker Change: And then I can also remind you that Mexico or the products that we make in Mexico are non-tariffed at this moment and so these are not part of this 500 million We have tariffs all over the place from countertops coming in from different countries and other product categories as well, ceramic [inaudible]
We're buying from different ones to supplement our tone portfolio.
David MacGregor, David MacGregor, David MacGregor
Speaker Change: Our next question comes from Stephen Kim from Evercore, please go ahead with your question [inaudible]
Thanks very much guys.
kind of product selection, particularly in North America. Thank you.
But I believe most of those products are imported.
Speaker Change: and the necessary pricing to cover the towers would crimp the man there, or is it your view?
There's two parts to the question. One part is...
Speaker Change: that over the last few years we have increased the capabilities of our U.S. manufacturing.
and we have continued to push up.
Speaker Change: and there is no alternative for it, so either the consumer is going to pay more for it or they'll move to some more valuable options.
Speaker Change: My understanding though, I think you showed us the Carristan Black, and I think there was also the Carristan LVT, if I'm not mistaken, the WC Pre-T product, and are those imported products?
Speaker Change: Some are some aren't. Some of the high-end wool products we import from our own facilities in Australia. Other cases we import some from India and in other cases part of the collection we manufacture here. So all of the above.
Speaker Change: You can't really say that all the premium is imported and the mid is made in America I mean we are very focused on getting the right products with the right price from the right plant within Mohawk or from the right supplier and so we're optimizing the full product line so we're very focused on getting the right products with the right
Okay, yeah, that makes sense.
Speaker Change: 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, you know, fight full accounting and that therefore it's going to take a certain amount of time, I think you said, late 3Q before the impacts [inaudible]
Speaker Change: And then, you know, you would have the offset to that, you know, 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?
Speaker Change: Anything's possible. What happens is there's not enough information in the marketplace, where the prices are going to go, how they're going to get implemented in the structures of them. And we're waiting to adjust to the market circumstances.
Speaker Change: The price increase that have been announced are very specific at this point.
Speaker Change: So I have to see how it evolves. But as I said earlier, you, we still have the higher cost of the
Speaker Change: material and energy that was purchased at the end of the year that will flow through so that has nothing to do with the tariffs and the general demand outside of tariffs is still very competitive.
Speaker Change: Our next question comes from Trevor Allinson from Woolf Research. Please go ahead with your question.
Speaker Change: Hi, good morning. Thank you for taking my questions. First of all, I want to follow up on some of the energy commentary with that gas prices coming down here. Can you quantify what you expect the energy cost had went to be that's assumed in your QQ guide and then you're talking about some benefits of lower net gas by the fourth quarter. Are you talking about [inaudible] You're going to do that.
Speaker Change: Just less inflation from that guest in the fourth quarter, you're actually expecting that guest to turn into a tailwind on the year of year by the fourth quarter.
Well, when I look at the input costs, [inaudible]
and Total in the first quarter was...
Speaker Change: You know, just over $40 million, as I previously noted, I would expect that to be slightly higher in the second quarter. And again, that's driven by all three, you know, main categories of raw materials, wages and benefits.
Speaker Change: and Energy. So all three of those, so I would expect the impact and inflation from a year-over-year perspective that was considered in our guidance to be higher in Q2 versus Q1.
For more information visit www.FEMA.gov
Speaker Change: And then the second part of your question, again, it really depends on, you know, the stability of that natural gas price is, you know, it could just be sequentially, it could be better as we get into the fourth quarter, but from a year over a year standpoint, it really depends on where that price lands over the next, really the next quarter. [inaudible]
David MacGregor, David MacGregor,
Okay, gotcha. Makes sense.
Speaker Change: Europe is already importing vast amounts of China-produced LVT at this moment.
Speaker Change: and so the market is saturated with the product and the demand of the market is satisfied.
Speaker Change: So we don't really expect any additional cost or price pressure in the European markets given all the changes. We do expect the China supply chain to move to other countries for the U.S. of course.
David MacGregor, David MacGregor, David MacGregor
Speaker Change: Thanks for that fall, and thanks for all the color of the luck moving forward.
Thank you [inaudible]
Our next question comes from Tom Baumgarten,
Phil Ng from Jeffries, please go ahead with your question.
Phil Ung: Hey guys, curious to get your thoughts on interchord trends in 1Q and how April's kind of progressed.
Speaker Change: By Geography, certainly North America is particularly hard hit with consumer confidence coming down with Terrace and whatnot, but here's to get your thoughts on just broadly, broadly worldwide, how you're seeing trends kind of progress into quarter and into April
Speaker Change: So we're anticipating continuous slow conditions. We, it doesn't matter what country we're in, we're seeing lower consumer confidence and business investments being pushed out.
as we go through.
Speaker Change: We do expect inflation to keep being a problem and we're thinking it's going to be mitigated through our strategic pricing, productivity, cost containment and product mix as we go under the second quarter.
Speaker Change: Jeff, I'm trying to gauge just like April , I mean, it's certainly March in fact, February softened, but April get worse or it's kind of stabilized, I'm just trying to get a gaze from that standpoint [inaudible]
Speaker Change: I think it followed the same trends that we've been at so far. [inaudible]
Okay, so some levels to be like...
and for Jim. Adam.
Speaker Change: A lot of moving pieces, the faithful piece gives you some line of sight on the rod
Speaker Change: But based on what you know today, would you expect Rawls to kind of, in terms of your inflation peaking into you or that could actually...
Speaker Change: First you have to see if the lower oil prices follow through with...
Speaker Change: Changing the commodity prices that are related to it, to remind you we have outside of...
Speaker Change: The plastic pieces. We have large businesses in ceramic that have limited use of it, wood products that aren't impacted by it. Let's go.
Speaker Change: At this point, there's a possibility to come down or there's a possibility that the supply chain, given the low margins that are at, we're not sure what's going to happen [inaudible]
Okay, all right, thank you [inaudible]
Speaker Change: Our next question comes from Laura Champine from Loop Capital. Please go ahead with your question.
Laura Champagne: Thanks for taking my question. I'm wondering if there's a material amount of product that you're going to resource into your US facilities and if so.
I'm assuming you ask that question on LVT. [inaudible]
Yes. Okay.
Laura Champagne: So given the impact of the tariffs, we're obviously going to balance our internal resources with our external supply.
Laura Champagne: Not all products can be made in our factory, not all products can be sourced.
So we have some limitations there.
Laura Champagne: But as we move forward, we're going to continue to maximize the capacity utilization of our internal factories.
Laura Champagne: And we have a little bit of capacity at this moment across the two categories we just discussed And we will also continue to import from the appropriate locations minimizing our costs and minimizing our import duties We will continue to import from the appropriate locations minimizing our import duties
Laura Champagne: Got it, and then a quick follow-up on the...
Laura Champagne: Your comments on Chinese production, impacting the European business. I'm aware that they're already there, but couldn't an influx impact your pricing there, and are you already accounting for that in your plans for this year?
Unknown Executive, William Wellborn, James Brunk
Laura Champagne: We don't know exactly what's going to happen with the Chinese producers. We know the prices are already low in the European market, and I'm not sure there's a lot lower to get, is it? So we'll have to see.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: And our next question comes from Mike Dahl from RBC Capital Markets, please go ahead with your question [inaudible]
Mike Dahl: Hi, thanks for taking my questions. I want to circle back on channel inventories. I know you've mentioned Jeff, you hadn't necessarily seen a meaningful difference in customer activity, but...
Mike Dahl: One of the large foreign retailers last night seemed to suggest that they had done a material amount of pre-buy, specifically with some Chinese product, and our sense has been home centers of...
Speaker Change: Something different there. I thought I answered a different question. The question was, have they increased the inventories of my products in their stores? I assume everybody in the industry is doing what we're doing and on imported products expecting high tariffs that everybody raised the inventories. [inaudible]
Okay, got it, thanks, maybe misinterpreted your answer then. [inaudible]
Speaker Change: Appreciate the clarification. Second comment or question, Jim in response to Rafe's question about earnings he suggested so the potential for...
Speaker Change: Earnings to be up here on your, you know, here's what I'm wondering. Seasonally speaking, you're three cues usually flat to down versus two cues and four cues is almost always down the decent amount seasonally. And so, you know, with demand week.
Speaker Change: and, you know, the incremental pressures that could come in the second half, it would take an eight typically. [inaudible]
Speaker Change: seasonally strong second half to get anywhere close to flat up for the full year even XERP. So I'm just trying to understand that bridge. It seems like the base case should be that there's going to be some continued year on your pressure. [inaudible]
So first of all, everything is excluding the impact of...
Speaker Change: What has happened in Florida, America with the system perversion? [inaudible]
So he said, set that.
Speaker Change: As we go through the bounce of the year, one difference is the benefit of the restructuring.
Savings that we have.
You know, flowing through. [inaudible]
Speaker Change: for the Bells of the Year. We have additional productivity initiatives as well that will help in Q3 and Q4.
Speaker Change: and then if we do get some of that tailwind on energy, that would also help...
that situation as well.
You know, interest costs with the strength of the balance sheet. [inaudible]
Speaker Change: It is certainly a health this year, it's down year over year just in the quarter [inaudible]
Speaker Change: It was down nicely to four of the period, almost $9 million, so that's going to help us [inaudible]
Speaker Change: as we go through the battles for the year. And then the last point is...
The strengthening, next that we've talked about.
Speaker Change: It is still possible. Now, obviously we do need assistance from, as I've said, some stabilization from the macro economy to make really that happen.
Okay, got it. Yeah, thanks for those pieces, appreciate it.
Thank you [inaudible]
Unidentified Moderator: and ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd now like to turn the floor back over to Jeff Lorberbaum for any closing remarks.
Unknown Executive, William Wellborn, James Brunk
Speaker Change: Our local manufacturing should be a greater competitive advantage. We're going to continue to flexibly manage the environment as it changes. The postponed housing remodeling that's been pushed out over the last few years will return to historical levels and we'll see a rebound from it when it occurs.
We appreciate your interest in Mohawk. Thank you.
Speaker Change: Ladies and gentlemen, that does conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Unknown Executive, William Wellborn, James Brunk
Unknown Executive, William Wellborn, James Brunk