Q2 2025 Mohawk Industries Inc Earnings Call
Yeah.
Good day and welcome to the Mohawk industry. Second quarter 2025 earnings conference call. All participants will be in. Listen, only mode. Should you need assistance? Please signal a conference specialist by pressing the star key, followed by 0.
After today's presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to James Frank Chief Financial Officer. Please go ahead.
Thank you, Asha.
Speaker Change: Good morning everyone and welcome to Mohawk, Industries. Quarterly investor conference call joining me on the call today are Jeff Flora, Bond chairman and chief executive officer and Paul Daw, president and Chief Operating Officer. Today, we'll update you on the company's second quarter performance and provide guidance. For the third quarter of 2025, I'd like to remind everyone that our press release is statements that we make. During this call may include forward-looking
Speaker Change: Statement says to find in the private Securities, 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 our periodic filings with the Securities and Exchange Commission.
Speaker Change: This call may include discussion of non-gaap numbers for a Reconciliation of any non-gaap to gaap amounts. Please refer to our Form 8K, and press release in the investor section of our website. I'll now, turn over to the call to Jeff for his opening remarks.
Jeff Flora: Thanks Jim.
Speaker Change: In challenging conditions across our regions our results, reflect the impact of our ongoing operational improvements Cost, Containment actions and Market development initiatives. Our net sales for the second quarter were 2.8 billion, essentially, flat as reported, and on a constant basis,
Speaker Change: Our premium residential commercial products and new collections introduced during the past 24 months benefited. Our performance, we generated second quarter adjusted earnings per share of $2.77 was strong productivity and restructuring actions, as well as favorable FX impact and lower interest expense are set by higher input, costs, and plant shutdowns.
Are restructuring. Actions are on schedule and delivering the expected savings as we close high-cost operations, eliminate inefficient assets, streamline distribution and leverage technology to improve our administrative and operational costs.
Speaker Change: Our Global operations team continued to identify productivity initiatives to lower our costs through enhancements to equipment. Conserving energy, optimizing our supply chain and re-engineering our products.
Our industry face continued pricing pressure from lower Market volume which we mitigated through strengthening product and mix.
Speaker Change: During the quarter, we generated approximately 125 million in free, cash flow. And we purchased about 393,000 shares of our stock for approximately 42 million.
Speaker Change: Our board recently approved a new authorization to acquire, 500 million of the company's outstanding stock.
We have a confident in our strategies to deliver long-term profitable growth as the industry recovers from the cyclical downturn.
Speaker Change: A dominant Trend that costs. Our geographies is consumers. Deferral of large discretionary purchases, which has reduced demand in our industry for almost 3 years.
Geopolitical events, inflation and low housing. Turnover are contributing to Market uncertainty. That is limiting residential Remodeling and new construction.
Speaker Change: The commercial Channel continues to outperform residential. However, the architectural billing index in the US is forecasting. Slowing conditions.
Speaker Change: Available US. Housing inventory has risen to its highest level. Since 2007, though, elevated housing costs and high interest rates are constraining sales of both new and existing homes.
In its challenging Market. Builders are offering price reductions and buying down interest rates to encourage purchases while housing. Turnover has historically driven remodeling. We believe that families remaining in their homes, longer and increasing multi-generational households will require additional renovation to meet evolving family needs.
Speaker Change: Interest rate Cuts while monitoring inflation and employment trends forecasters believe, the FED will cut rates twice in a second half of this year given potential Market weakness.
Speaker Change: In June, the European Central Bank cut rates to 2% to stimulate the economy and the housing market.
The ECB move comes as inflation, has slowed to their target. Lower, interest rates, should support increased consumer spend, discretionary spending and business investment.
Speaker Change: The European housing market. Varies by region, though a shortage of units in affordability or common issues in June Germany's new government approved legislation to expand home construction by removing barriers that delayed building projects
since the pandemic European households have built up, record levels of savings, which combined with lower interest rates should encourage housing sales
Given the increase in tariffs were infusing. The benefits of our locally produced Collections and leading positions as a North American manufacturer.
We have begun to address the implemented tariffs through price adjustments and supply chain optimization.
Speaker Change: Earlier this month, the US government set a new deadline of August 1st for countries to complete tariffs negotiations while also announcing specific tariffs on key trading partners.
Speaker Change: We're continuing to monitor the changing tariff levels, and will adjust our strategies as they evolve.
Speaker Change: On July 15th, we released our annual sustainability report which is currently available on our website, embracing sustainable processes and products. Align our commitment to improve our operations and provide industry-leading features and benefits. We continue to invest in product, circularity material optimization and green energy to benefit our customers, the environment, and our results.
This year, major media Outlets have recognized mohawk for reducing our carbon footprint. Fostering Innovation and developing a talented organization
Speaker Change: Now Jim will review our financial details for the quarter. Thank you. Jeff.
Jim: Sales for the quarter were just over 2.8 billion dollars, that was flat versus the prior year as reported and I constant basis due to favorable product and channel mix led by our hard surface business. In flooring North America and our Commercial Business across the Enterprise partially offset by negative volume and continued price pressure. Gross margin for the quarter was 25.5% as reported and excluding charges was 26.4% a decrease of approximately 70 basis points versus the prior year. Primarily due to higher input costs of 44 million lower sales, volume of 22, million and increased shutdown costs of 18 million partially offset by productivity gains of 40.
Jim: 7 million and favorable FX of 15 million sgna expense has reported was 18.8% of sales and excluding charges was 18.5%.
Jim: Of relatively close to the prior year. It gives us an operating income as reported of 6.7% non-recurring charges for the quarter were 34 million related to restructuring actions and the associated costs undertaken by all segments, which in total will result in annual cost Savings in 2025 approximately 100 million dollars.
Jim: That gave us an operating income on just the basis of 223 million or 8% of sales. That's a decrease of approximately 120 basis points as the benefit from strengthening productivity and restructuring initiatives of 57 million and FX of 9 million were offset by the increase. In input costs of 63 million, lower sales, volume impact to 21 million and higher shutdown costs of 18 million dollars, interest expense for the quarter was million dollars, a decrease from the prior year level due to lower overall debt, balance, and a benefit of interest income across the business. Our non-gaap tax rate for Q2 was 19.3% versus 20.9% in the prior year due to Geographic dispersion of our income and certain 1-time V.
Benefits. We are forecasting Q3 and full year tax rates via approximately 19%.
Jim: That gave us an earnings per share as reported of $2.34, and I adjusted basis of $2.77.
Jim: New product, introductions leading decorating technology and the strength of our Commercial Business. Operating income on adjusted basis, was 90 million or 8.1%. That's a decrease of approximately 40 basis points on adjusted basis as the benefit from price and mix of 27 million, and strong productivity of 17. Million was offset by an increase in input costs of 36 million, and lower sales, volume of 16 million in the quarter flooring in our America had sales of 947 million. That's a 1.2% decrease due to lower volumes. Mainly in our soft surfaces partially offset by favorable product and channel mix driven by our resilient and laminate businesses. In the US residential, remodeling remains slow with the commercial channels, still outperforming operating income on adjusted basis with 69 million of 7.3%.
For a decrease of approximately 130 basis points versus the prior year as higher input, costs of 23 million unfavorable net impact of price and mix of approximately 9 million and increase shutdown costs of 11 million were partially offset by the benefits of strengthening productivity of 32 million.
Flooring rest of the world at sales of 734 million. That's a 1% increase as reported and 3%. Decrease on the constant basis. The decrease is primarily due to the continued pricing pressure and the residential remodeling Channel, as consumers, defer, large, discretionary purchases. The ECP though, has lowered rates further, but has not yet driven increases in housing or remodeling activity.
Jim: Operating commodity adjusted basis was 76 million or 10.4% of the decrease of 220 basis points, versus the prior year primarily due to unfavorable net, price and mix of 19 million partially offset by productivity gains of approximately 8 million dollars.
Jim: Given the weak residential Market. We are lowering costs by removing inefficient assets and reducing operational and administrative expenses.
Jim: Corporate eliminations with 13 million for the quarter in line, with the prior year. And our full year 2025 expenses are estimated to be approximately $50 million.
Jim: Taking a brief. Look at the balance sheet.
Jim: Cash and cash equivalents for 547 million for the quarter with free cash flow of 126 million in the quarter. As we also repurchase shares, approximately 42 million inventories for just
Jim: Just increase above 2.7 billion dollars. That's an increase of 130 million for the quarter, primarily due to FX. And an increase in important inventory due to new tariffs.
Jim: Property plant equipment was just above 4.7 billion with Q2 capex of 80 million compared to a DNA of 156 million. The company has reduced its planned Investments to approximately 500 million dollars in 2025 with DNA. For the full year, forecasted at approximately 610 million, 40% of the projects focused on cost reduction and product Innovation at 40% on maintenance and other with the remaining 20% to complete our growth initiatives.
Jim: Overall, the balance sheet and cash flow Outlook remained, very strong with current net. Debt of 1.7 billion and leverage at 1.2 times.
Jim: Now Paul will review our Q2, operational performance.
Paul Daw: Thank you, Jim in our Global ceramic segment or results in challenging market conditions benefited from sales of our premium products strength in commercial projects, expanded, distribution, and operational improvements.
Paul Daw: We have pressure on pricing from excess industry, capacity and pressure from Imports or product and channel. Mix strengthened from our Superior product portfolio in brand leadership in the quarter, we minimize the impact of inflation on input costs through select price increases and restructuring projects as well as numerous productivity initiatives including refinements to manufacturing processes supply chain optimization and increasing distribution efficiencies.
Paul Daw: In the US or commercial performance was solid. While the residential sales remain challenged from softness in Remodeling and new construction.
Paul Daw: Range of contractors specialty retailers and Commercial projects.
Paul Daw: To counter Rising input costs. We made pricing adjustments on higher value products while increasing productivity action.
Paul Daw: As terrorists are evolving, we are promoting or domestically produced, floor and wall tile and our expansion of quartz countertop capacity in Tennessee will allow us to produce more of our offering in the US.
Paul Daw: Home Remodeling in Europe remains constrained. While the commercial Channel continues to perform well led by the hospitality sector in major European cities or designer showrooms and educational events for Architects and designers. Having increased our participation in commercial projects and boosted sales of our premium collections.
Paul Daw: Sales of our porcelain slabs with more realistic, visuals or growing in both traditional channels, as well as for use in countertops and Furniture Manufacturing.
In Brazil, higher interest rates have slowed the domestic Market though exports benefited sales and our mix improved. We offset higher input costs through productivity gains from operational enhancements and realigning manufacturing assets.
Paul Daw: The Mexican market remains soft and we have implemented. Select price increases introduced more porcelain and Innovative polished collections to enhance mix and partner with Distributors to add more Delta branded stores.
Restructuring initiatives in our Mexican operations are on track to improve our Market position and lower. Our costs with Benefits. Anticipated in the second half of the year.
Paul Daw: Or flooring rest of the world. Segment, managed through difficult market conditions, with additional operational, enhancements and Cost, Containment actions,
Residential remodeling remains soft in Europe and new construction has not kept up with population growth.
Paul Daw: A rebound in home, building and renovation will be needed to meet growing demand.
And mixed pressure remains strong, and is challenging market. And we are executing promotions to optimize our results.
We took many actions to increase productivity in our operations and supply chain, as well as enhance or material costs.
We are removing inefficient assets reducing operational and administrative costs and consolidating operations.
We continue to invest in recycling, waste and green energy to reduce costs.
Paul Daw: In the flooring category or laminate performance improved as we have progressed through the quarter.
Paul Daw: We're expanding our lvt distribution across Channels with new Collections and customer relationships.
While our commodity panels, business remains under pressure from excess capacity in the market or mixed benefited from the expansion of our high-end decorative Collections and entry into new geographies.
We increased our sales volume of insulation boards despite soft demand, and we are expanding distribution in Germany and Poland to prepare for a new Eastern European plant.
Paul Daw: in Australia or hard surface offering performed well and we are expanding or lvt alternatives
Paul Daw: Carpet Sales, remained under pressure, and the recent election has improved. The economic Outlook and orders are strengthening. We implemented price increases in June and are improving efficiencies in our operations.
Paul Daw: flooring North, America, segment sales were about flat for the quarter with strong performance in hard surface categories across all channels
Paul Daw: Rising housing inventory and lower mortgage rates could improve home sales and residential remodeling.
Paul Daw: While pricing.
Paul Daw: Pressure remains strong in the market. We minimize the impact with enhanced product, mix and cost reductions from stronger. Material yields supply chain optimization and reduced marketing costs.
Paul Daw: We are managing inventories with reduced production and are making targeted Investments to support sales and improve operations.
Paul Daw: Our restructuring actions have streamlined, our operations by rationalizing, inefficient assets, closing higher cost, production, and simplifying. Our product offering.
We continue to work with customers and suppliers to manage the impact of tariff costs as the situation evolves.
Paul Daw: We have strong sales growth in the quarter from our lvt laminate and hybrid products with retailers, and Builders embracing or Superior visuals and features.
Manufacturing enhancements at our east and west coast lvt operations have increased operational. Efficiencies improving our cost position with a strong domestic portfolio to support or growing lvt sales.
Or premium fashion and value collections, let or sorts or soft surface. Performance as residential Carpet Sales, remain, under pressure due, to reduced renovation,
Paul Daw: Or commercial carpet tile and hard surface order. Backlog is strong led by the education and Hospitality sectors. I'll now return the call to Jeff for his closing remarks.
Paul Daw: As we focus on Market development, operational improvements and Cost, Containment, We are continuing to take actions that will optimize our performance in the current market.
Speaker Change: Ongoing inflation and low consumer confidence are constraining, industry sales and the timing of the inflection point remains unpredictable.
Speaker Change: To improve sales where leveraging? The strengths of our portfolios, Superior Service and brand value to expand our business with current and new customers through pricing. The pricing pressure and our markets remains elevated. We are improving our mix through. Our premium collections commercial sales and recent product, introductions input cost. Pressures will continue with the impact. Peaking in the third quarter, as a flow through our inventory to mitigate these higher costs, our teams will continue to execute productivity initiatives and all aspects of our operations.
Speaker Change: Our restructuring actions should deliver approximately 100 million in benefits this year, while strengthening our operations for the future.
Evolving us trade policy should benefit Mohawk where approximately 85% of our us business is produced in North America.
Speaker Change: We will manage the impact of tariffs through supply chain enhancements cost optimization and price adjustments.
Our guidance does not include the potential impact from new tariffs, which has not been finalized at this time given these factors. We expect our third quarter EPS will be between 2 and 56 cents and $2.66, excluding any restructuring or 1-time charges.
Historically down Cycles in our industry are followed by several years of sales growth from pent up demand. During the past 3 years, we have made targeted Investments to improve our operational performance, cost position and our product features
Speaker Change: Through these actions. We are strategically positioned to respond to today's challenges and capitalize on opportunities as the industry recovers.
Speaker Change: We'll now be glad to take your questions.
Speaker Change: Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone, please pick up your handset before pressing the keys. We ask that you please limit yourself to 1 question and 1. Follow-up question.
Speaker Change: if at any time your question has been addressed and you would like to withdraw your question, please press star then 2
Speaker Change: At this time, we'll pause momentarily to assemble or after.
Speaker Change: The first question comes from my talk. With RBC Capital markets, please go ahead.
Speaker Change: I think for taking my questions, um, I want to start with flooring North America pricing environment or competitive environment and it's interesting because in 1 Q price, mix was positive and the comp was
Easier and in 2q you've got all the premium collections that seem to be doing better. Can you just help us understand a little more that inflection back to negative net?
Speaker Change: Price, mix, maybe quantify kind of how you fared versus the the market or give us a little more color on that Dynamic on on price mix and how we should be thinking about through the back, half of the year. And, and for North America,
Speaker Change: Yes. So in Florida in North America, our segment sales were about flat for the quarter with stronger performance. In the hard surface categories, residential remodeling remains slow and Commercial continues to outperform more residential business.
Speaker Change: Lvt enhancements have improved, our efficiency and costs and our teams continue to execute productivity initiatives across our operations.
Speaker Change: Or structuring actions have enhanced our operations by rationalizing, inefficient assets, closing higher cost, production, and simplifying. Our product offering.
Speaker Change: Now from a margin uh perspective, we have a lot of productivity initiatives ongoing and our mix improvements in the quarter were offset by cost inflation, price pressure and lower production. Our productivity initiatives and restructuring actions or progressing as expected. And they are lowering, uh, or costs. And we are continuing investments in new products, to prepare for the recovery of the category and Mike from, uh, the second half of perspective, I would expect that the favorable, uh, mix both products and channel, uh, would minimize the impact of the pricing pressures. So I would expect a year-over-year to see Improvement as you go through Q3 and Q4,
Speaker Change: Okay, yeah, that's that's very helpful. Um, and then my second question,
Speaker Change: um,
you know, the, the comments about this guidance of not include any potential impacts from the new tariffs. I think, clearly the way things roll through your pnl, it seems like that.
Speaker Change: A little bit of time to flip through anyway. Um but just based on all the moving pieces. If if tariffs were to stay in place at the um at the currently articulated rates that you see around the globe, do you have any updated or refined sense of um of how much cost pressure that you would have to offset?
Um, if you start out with the the initial tariffs were about 10% or implementing change changes presently in a Marketplace and we'll continue doing that. The present reciprocal tariffs have been announced from 10% to 50%
Speaker Change: The negotiations are continuing, you know on these tariffs almost changing by the day and given that we don't know what they are, and it looks like they're going to have significant differences from where they're starting, you know, we're not going to know till we get to the end. You're right. That uh,
Speaker Change: Assuming that they don't get implemented till late in the in the third quarter the impact will be, you know practically none is it no matter what they are and we're going to adjust when they're finalized as they're needed.
Speaker Change: Um, in addition to that, I guess we won't know the impact that they're going to have on the economy until later and if it if it'll have any impact on our industry,
Okay. Thanks. Jeff.
The next question comes from Sam Reed with Wells Fargo, please go ahead.
Speaker Change: Awesome. Uh, thanks so much, uh, you know, that the release, uh, just sticking on the topic of competitive pricing. Um, you know, the release and the prepared remarks did make a few references to competitive D, price Dynamics. I just wanted to drill down and talk through kind of where you're seeing uh competitive pricing most acutely in the US. Um you know are there any indication that some of your peers have been pushing through price from tariffs, um you know, or are you finding that in general the peers are more or less kind of holding or perhaps even pulling back on price. Uh, given what we're seeing from a volume standpoint.
Speaker Change: Yeah, thank you for your question. We've announced 8% increases, um, that we are implementing in the market. As we speak the industry will have to increase further with higher tariffs. There's currently some delays on impact with inventory in the system and we're obviously also reviewing other alternatives to optimize or supply chain to compensate for the tariffs.
Speaker Change: That's very helpful. And um, I I Switching gears here, I believe is part of your, uh, Erp transition that that you might actually have better visibility in real time data into some of your, uh, you know, kind of smaller customers, particularly some of your mom and pop specialty retail customers. Um, just curious 1, if that's the case and then just true 2, kind of how you might be able to leverage that data. Is there an opportunity here to perhaps better manage pricing and inventories in that channel? Um, presumably now that you might have a better read on Real Time Trends. Thanks.
Um,
Speaker Change: We have some better analysis that we can see of the different customers. We're trying to use it to.
To understand it and make better decisions through it. Um, but in general, you know, it hasn't did dramatically change our, uh, strategies and what we're doing at this point.
Nope, that helps. I'll pass it on.
The next question comes from, Susan mclary, with Goldman Sachs, please go ahead.
Susan McLary: Thank you. Good morning everyone. Good morning. Voting system first.
Good morning. My first question is going back to the product, you know, you mentioned several times and your prepared remarks. Some of the benefits that you're starting to see from the newer collections that you've launched. Can you talk a bit about where those products are in terms of getting into the channels and any thoughts on how they could perhaps Drive, share gains and some more benefits to results in the upcoming quarters.
Susan McLary: We are introducing in countertops, new veining, technology, as well as getting ready to start up a new plant, uh, in the third quarter and a carpet. We put in a whole new collection on super premium collections, just as limited examples of the things that we're doing.
Susan McLary: Okay, that that's helpful and then when we look at the margins of this quarter it was nice to see how they came together even with the pressures that you're facing and the operating environment. Any thoughts on how we should be expecting Pro profitability to Trend in the back half of this year and then any thoughts on the Outlook further as you think about conditions, perhaps improving over time
Susan McLary: let's see if I can give you some color to think about, um,
We do anticipate that the second half conditions are going to remain challenging at this point. We don't see any Improvement in the market conditions.
Susan McLary: Mark mortgage rates inflation and consumer confidence are still constraining the industry.
Susan McLary: We're taking a lot of actions to self-help ourselves with through our sales. Actions leveraging. Our product offering we just talked about executing productivity initiatives, across all the parts of the business. We are selectively increasing prices across our various Geographic portfolios where we can get price.
we expect the third quarter to follow the same historical seasonality given that european-based Haitians impact sales when they all go on vacation in August,
Susan McLary: Around the world central banks are reducing interest rates, which we believe could stimulate spending. And housing sales will continue to benefit from our restructuring actions. That will total over a hundred million dollars this year. Inflation should peak in a third quarter.
Susan McLary: And given higher input costs from the early period should flow through our costs. Um, in the third period, we have to respond to increases in tariffs as required. Once we know what they are, and can understand the impact the different uh, Supply points.
Susan McLary: Assuming no changes in the present Trends, we expect improvement in our fourth quarter results over last year.
Speaker Change: Okay, thank you for the color and good luck with everything.
Susan McLary: Thank you.
Speaker Change: The next question comes from, Timothy W with beard. Please go ahead.
Hey, everybody, good, uh, good morning. Thanks for all the details. Um maybe just in in in the US or in North America, you know, specifically in hard surface. Um, as you look at kind of the first half, how do you feel that Mohawk is performing, uh, relative to the market, you know, specifically in the heart surface category in the US.
Based on what you can see.
Speaker Change: Yeah, we're performing well, compared to the market or a premium waterproof, laminate sales or expanding, and the product is perceived as an excellent alternative to lvt in both residential Remodeling and new construction.
Speaker Change: Uh, or price and mix improved, but was partially offset by cost inflation.
Speaker Change: And we think that our domestic laminate should benefit as import tariffs increase other alternatives.
Speaker Change: And also on the lvt side or sales increased, as we enhance our portfolio. Uh, we're expanding both our sourced and manufactured volumes.
Speaker Change: And or new uh, hybrid vinyl Alternatives with improved visuals and higher performance or being very well accepted, uh, in the market.
Speaker Change: Okay. Okay, okay, great. And then just just, I guess, you know, kind of piggybacking on the, the answer from the last question just on, on Q4, maybe being better on a year-over-year basis, um, what what would be kind of the key drivers to that on a year-over-year basis? Is it just, um, lower shutdown costs and and and productivity uh, kind of driving that is it is it something around kind of price cost? Just any more kind of details as as you kind of see it today. Thanks. Thanks Tim. Um, we first of all, we expect normal uh sales seasonality from Q3 to Q4 as Jeff mentioned. Um, the peak inflation that that should hit in in Q3 should ease as we go through the fourth quarter. So that's going to help.
Speaker Change: Benefit, um, we'll also see um, favorable impact from price increases. Um, the stronger mix that we've achieved so far this year restructuring and productivity actions. And so assuming no changes from those present Trends, we do expect the fourth quarter results, to be better than the prior year.
Speaker Change: Great. Thanks a lot.
Thank you, next.
Speaker Change: The next question comes from Michael. Remar, with JP Morgan, please go ahead.
Speaker Change: So, just just to clarify on on, on the comment from before Jim. Uh, when you talk about results or profitability in 42 being better year-over-year, um, is that, uh, I would assume that applies to not just EPS but Consolidated margins, as well.
Speaker Change: Yes. Um, because you're looking at, um,
Speaker Change: Inflation, still being in place, but lower than the peak in Q3, you're still getting the benefits from productivity, uh, both from the restructuring and ongoing initiatives. We see favorability and mix as well. So all those things will help, um, in terms of both the sales and the margins
Speaker Change: Right, no, it's good to hear. Um, secondly I I was hoping to go back to a prior question about competitive pricing, perhaps in the US and, and, and and, and in other regions, as well. Just would love to dial down and get a little bit better since, um, I think the question was around, you know, which product categories perhaps you're seeing competitive pricing in, um, and you know, how pervasive is that I know you? I think in discussing this before, uh you guys talked about, maybe what you're trying to do to address it in terms of price increases if I heard right but just wanted to better understand.
Which price points or and which product categories, you're seeing that particularly in the US. Um,
you know, and and how that's and and how that's evolved over the past year, perhaps,
I I think the best way to try to start it is that with the industry volumes being down for 3 years and the low volume to the industry is at with a high Capital costs and and fixed cost levels that the industry has there is we think we're at the bottom the prices have declined to where we think, you know, there's not there's nowhere for them to go in general as we go through. In addition the industry and it now you get into each segment and each uh geography. There's different pricing pressures in different ones and some of the products and categories, we've announced price increases and the industry has in different markets and so we're raising prices where the industry allows us to get it.
Speaker Change: And uh but the and it's going to help us but the inflation is still here. Um if you look at Energy prices chemical prices and things they tended to peak in the first part of the year and those are flowing through our our costs now and we think we'll be get some help from it as we get on to the fourth quarter but I don't leave you. There's still plenty of inflation that we have to recover within it.
Speaker Change: Um the getting back to the tariffs, the tariffs we have to understand before the last move, what is geography is going to be and where they are to determine what the best options are available to us and we'll take whatever actions we need to. We believe that the rates are so high, that the industry will pass them through and it's being a little confused by inventory and the channels. So, you know, there's some a little earlier and later than others but they're all going to have to move.
And Mike is very, very important. Obviously, any discussion that we have about, uh, tariffs is to remind, you know, to remind you that we have substantial, um, local production and ceramic carpet, laminate sheet, vinyl lvt and quartz countertop, which represents about 85% of our us business. So it's really critical to
Speaker Change: To to hone in on the fact that we have that strong local, uh, footprint.
Speaker Change: Yeah. No I appreciate that. I mean, maybe just to squeeze 1 last 1 in um you know have you seen in the last in this past quarter uh or 2 or or to the extent you've seen it. I'm curious if you expected to continue until the third quarter, any type of abnormal uh competitive actions by importers either, you know, stuffing the channel or um being more aggressive in the near term in response to tariffs. Um
Speaker Change: Um that um and and what type of impact that might have had on your results.
Speaker Change: I think the best way to answer it is you have to separate out the importers are trying to raise their inventories ahead of
Speaker Change: ahead of anything as we are. And you can see in our numbers, we raise the inventory. So we're we're all purchasing it ahead to try to give us time to get the execution of it.
So, to tell you the truth, I don't think there's been as much buying as I thought there would be. And given that, what they've done, even prior because you started out back in January,
Speaker Change: so,
Speaker Change: I I think, uh,
Speaker Change: That describes what's happening at this point.
Right. Thank you.
Speaker Change: The next question comes from Keith Hughes with truist. Please go ahead.
Uh, thank you and switching to, uh, following rest of the world, you talked about some pressure in your panel's business. Um, I guess if we, if we x that out, how is the kind of core flooring business in the rest of the world? Was it? Um, was the sum of the downside pressure less without those panels.
Speaker Change: You're right, the industry volumes in or panel business remains slow and we have continued that a price pressure pressure in that business. Although we can offset some of that with our higher end decorative panels, which are growing, and, which are improving or mix.
Speaker Change: And then the second question on the European flooring Market. Uh, the European flooring Market remains difficult with low demand and price pressures in the market. There's a lot of promotional activities that are being utilized to maximize the volumes.
Speaker Change: We had improving laminate performance as we progressed through the quarter.
Speaker Change: And we also installed a new laminate press that is more efficient and can produce the next generation of product features.
And we're also continuing to expand our lvt, uh, distribution across multiple Channels with new Collections and customer relationships, uh, to compensate for the slow market conditions.
Speaker Change: What what ebit. And and the and the flooring part of flooring what's the world with it? Have been up without panels, or it still would have been down like the whole second.
Paul Daw: Okay, I hate to speculate on, you know, the margin in the margin profile. But um, certainly as, as Paul said, the Improvement in laminate as we progress through the quarter and lvt, um, you know, would be uh, you know, margin and creative to our business.
Speaker Change: Okay, thank you.
Speaker Change: The next question comes from Trevor alanson with both research, please go ahead.
Speaker Change: Hi, good morning. Thank you for taking my questions. It sounds like commercial and markets are still outperforming for you. At the same time, the leading indicators have been soft for a while here so I'm curious on the pipeline there. Do you expect commercial to continue out performing for the remainder of 2025? Are you interested saying that business is often here moving forward?
Speaker Change: You write that or us Commercial Business performed. Well and or us commercial carpet tile and hard surface. Backlog at this moment remains strong and that is led by the education and Hospitality segments.
Speaker Change: Um, we're making additional investments in sales activities, to expand our specified business and our new product introductions, both in heart and soft categories have been very well accepted.
Speaker Change: Uh, the ABI index is currently below 50 and has been for a while and we do expect going forward, the market to slow down, uh, a little bit or um, rest of world segment has limited exposure to commercial as, you know. And so they're more exposed to, uh, to residential
Okay, that's very helpful and then a question on pricing in your us Frameworks business given there's a decent amount of import competition there as well. Are you, are you taking prices higher in US Ceramics or expecting to push prices higher in that business? And then you you called out some positive price, mix, uh, in in Ceramics, overall, in the second quarter, how much of that was a mixed Tailwind versus like for like pricing increases? Thanks,
Speaker Change: The US ceramic business.
Speaker Change: You know, a large part of its importance that the world business. The industry's business is imported. They have the same impact of tariffs going up.
Speaker Change: Uh, that they have to absorb and pass through uh, the US business.
Speaker Change: Uh, we deliver solid results in hours, and we have put through selective price increases in our higher value products earlier, in the year to compensate for the inflation, just to remind you the uh, it has really high energy costs as part of it and the gas prices are up significantly over last year. And so around the world we are implementing price increases selectively as we can to offset the the rising costs.
Speaker Change: In the US. It was Trevor was fairly balanced between both price and mix.
Speaker Change: Okay, very helpful. Thank you for all the color and good luck moving forward.
Thank you.
Hey guys. Uh good to see the the buyback in the quarter in upping the authorization. Um, when you kind of think about the business uh as it recovers free cash flow still pretty strong here. You guys have talked about being at the bottom of the cycle. What's your appetite to kind of dial that up and how do you kind of Envision deploying Capital next? Call it 12 to 18 months, is it more geared towards BuyBacks or m&a uh reinvesting in the business? Kind of help us think through how you're going to prioritize that next 12 to 18 months.
Speaker Change: Okay, so we'll continue really with a balanced approach on Capital allocation and that, and we did buy back about 42 million in the second quarter. And with the new authorization, we'll continue to use that as part of our strategy. You know, we'll increase investments in our business as the market improves, and hopefully, we'll have more opportunities to also acquire businesses as the environment strengthens.
Okay. Super, um, and then obviously, a lot of not a lot of visibility on tariffs yet, but at least it's seems to have a potential positive impact on price. But what type of conversations they're having? Are you having of your customers? Are you having more conversations to add shelf space? Uh, just giving your exposure on the US side? Uh, manufacturing here. Does that create a better pricing umbrella?
Uh, and when we think about the back half, you guys kind of alluded to perhaps, there's some inventory in the channel, getting in front of tariffs, is that something that we need to be mindful of? That's a risk factor for you guys. When you, when you think about your business,
Speaker Change: Yes. So, we are indeed exploring commitments uh, with customers uh, in this environment to fully, uh, utilize or uh, domestic capacity and then to come back to the question. I think that Jeff already commented on, um, we didn't really see that much pre- buying from our customers. Um, they have the ability to do that when prices increase, but currently demand is slower than they expected and they are limiting these additional purchases and are forecast includes, uh, that estimate.
Speaker Change: Okay, thank you.
The next question comes from. Eric bussard with Cleveland racer research. Please go ahead.
thanks, um, a lot of conversation about price increases year to date and and bullishness in the back half on price increases, um,
Speaker Change: From you and from the industry, I'm curious. What you're observing with consumer response.
Speaker Change: To price increases, uh, I guess retailer distributor dealer as well as consumer response. Uh, if you're seeing, uh, units change in response to the price increases, if you're seeing mixed change in response to the price increases, or is it just as simple as passing through price increases and and and that's sticking. Thank you.
Speaker Change: 1 is that the price increases are just flowing into the marketplace and understanding the the the reaction to it and what's going to happen with the consumer it's too early to tell at this point we believe that the imported products though will have to go up to reflect the costs and that our local manufacturing positions will be advantaged in that environment as we go through.
Speaker Change: the inventories in the system are all over and depending upon
Speaker Change: different companies actions are not. It's it just makes a little uh confusing, you know, as the prices flow through but in low-level out you know, in a limited time
What is your assumption? And in regards to as this pricing gets into the market, does it have an impact on volume? Does it have an impact on Mets?
Well, we don't know the answer the question and it's a valid question. The question to the whole economy is if you push all this price through what's going to happen to the consumer and buying and is it going to be enough to to stop it on the other side? You have our category housing is at a cyclical low, that people have postponed remodeling projects and that people need to change their living to match their the way their, their, their lives have changed, and they postponed it. So irrelevant of the economy, our categories at such a low point. You know, we have to come out of it as people.
Speaker Change: Aligned with their needs.
okay, and then the last question on I
Speaker Change: I appreciate there's a lot of uncertainty around tariffs.
Speaker Change: Christ passed through and what impact does that have in the market?
Most of the industries lvt indeed is, uh, sourced from Vietnam China, South Korea and Thailand and so people are waiting for the final outcome of the Tariff. Negotiations and will then adapt uh their supply chains. Currently a number has been confirmed on China and so we have seen people move out of China into some of these other geographies that we have mentioned. But given the new tariff rates have not been finalized, we will have to adjust as required and see where uh things go from here.
Okay, thank you.
Speaker Change: The next question comes from Stephen Kim with evercore isi. Please go ahead.
Stephen Kim: Yeah, thanks very much, guys. Just wanted to drill down a little bit more in flooring. North America, uh, I guess, starting with volume. You know, momentum had been building a little bit there, you know, X, the, uh, order taking, uh, snap phone 1 q. But we saw that kind of slow in this quarter. And so I'm curious which products, uh, product categories in foreign North America. Would you say this slow down, was concentrated in? And on the flip side, you had a pretty exciting high-end launch in foreign North America was curious. If you could give us an update on how that's going,
So in the flooding North America segment, uh definitely uh or carpet performance and the industry volumes in carpet or at low levels and that led to reduced manufacturing volumes and pricing pressure and then the weak carpet performance was offset by strong performance in our laminate business and also by strong performance in our lvt business. So we really had hard surface outperforming uh soft surface.
Stephen Kim: Mhm. And the high-end launch.
Stephen Kim: So the high-end launch is doing well. Um, like we said we introduced a lot of high-end fashion products in the market which is a market segment that is still doing well. And so that launch is going in the market as we speak and we have high expectations and the launches is going uh very well.
Speaker Change: Okay. Um, and then price, mix was uh, a headwind in fluorine North America, in the quarter, uh, was curious how the breakdown, how, how, how was the breakdown between price and mix? Did we actually see mixed positive in the quarter?
Yeah, so in for North America for Q2 there was some favorable, some favorable mix. There's Paul pointed out with the pressures on on pricing. It was offset, uh, by those, by those pressures.
Gotcha. And then lastly, um, I had a question regarding the, the m&a pipeline, um, uh,
Speaker Change: Basically, how is that looking? I know in the past. Jeff, you've talked about the fact that, um,
Speaker Change: folks who owners are kind of reluctant to sell when the market is down. But as you pointed out, this is kind of in 3 years. And there are life situation changes that occur that often times create opportunities. So I'm curious if you could give us an update on how your m&a pipeline is looking now.
Um, there's still Limited at this point. People's earnings are compressed.
Speaker Change: You have all the
Speaker Change: the uh,
Housing Industry, low. And uh there there's a limited number of people and activity going on at this point we would expect that to change significantly the same as it did in, I think it was 2010 or 11 when it changed dramatically and came out. There were a lot of opportunities.
Speaker Change: Right, thank you so much.
Next question comes from. John Livalo with UV UVS, please go ahead.
John Livalo: Uh, good morning guys, thanks for taking my questions as well. Um, maybe going back to flooring rest of World. Um, you know, it's pretty clear that some of the margin pressure was driven by the competitive pricing, but what I wanted to kind of poke at of it is that the sales were actually up about 10% quarter over quarter.
John Livalo: Which seems like it's was better than normal seasonality. And in fact, probably the best second quarter performance in in a number of years. So just kind of curious what drove that that strength in the um in the top line.
Perform better as we move through the quarter as well.
Speaker Change: Okay, understood and then in terms of the, the fourth quarter, um, you said that on a year-over-year basis, Consolidated, margins in EPS would be better um year over year. I guess the question is I think historically EPS has sequentially declined by call you know, 20% quarter over a quarter in the fourth quarter. I mean, would you expect a little bit better than that or does that seem like that's that's still a fairly decent bogey for this year.
John Livalo: um,
John Livalo: I think there'll be differences this year, um, with the impact of the price increases, some of the favorable mix, um, but especially the restructuring benefits that we've talked about earlier on a call. So the hundred million dollars is fairly evenly split across the quarters. So, that is kind of abnormal to the, the seasonality from Q3 to Q4 and 1 element that is helping when you look at our our improvements, um, or should improve from the prior year, and again that also assumes. There's no, uh, changes in the present trends.
Understood, thank you.
The next question comes from, Brian beer, with Thompson research group, please go ahead.
Hi. This is, uh, Katherine Thompson and um, today for Brian.
Um stepping back and taking a look at the bigger picture when it comes to Imports and tariffs and other. There's a lot of focus.
But um what percentage of your production for sales in North America? Today are manufactured in North America today versus say 6 to 8 years ago.
Obviously that's been evolving over that time period, especially with the introduction of lvt. And you, you, of course know how much, um, Market lvt has taken over time. Our focus is on today. And as we've, we've said that, you know, when you look across all our product categories, you know, about 85% of that production in the US, you know, comes from the local manufacturing, you know, in North America and again that includes, um, you know, the Mexico operations which are fall under the usmca.
Speaker Change: Okay, so uh I guess what you're saying is, is difficult to put a number on that.
Is there or to even directionally? Is there more net produced now because I, I do understand the LBT market share, you know, um gains but it is it that more
Speaker Change: Or less Manufacturing in North America today versus 6 to 7 years ago.
It is difficult to say because of just the changing profile of all all the products. But something that's been very consistent. Is our ceramic certainly, um, our carpet, um, laminate products, uh, continue to be made uh predominantly in uh North America so that that has not changed over time.
Um, yes, understood that that would be a great um detail to have just to be able to, to kind of assess the impact. Um, moving on to the um, recent bill, that was passed.
Speaker Change: Um, have you uh, Quantified or outlined?
Um, potential ways that you could benefit, or do you see this bill as a benefit, um, particularly for, uh, taking advantage of accelerated depreciation. Thank you.
Well, if you think about the, the tax bill, that was just passed. What it's doing is quantifying the uh changes that started in 2017. So we will take and continue to take full advantage of items like accelerate depreciation R&D credits and such. But um I think we're very much aligned with um the articles in the bill um to manage our our tax exposure.
Okay, and uh, I guess final question for today.
The channel. So, just shifting between yourself and and others. And how do you see that progressing over the next 12 months? Given changes. Uh, just in the mechanics of the channel. Thanks very much and uh good luck.
If you're speaking just about uh North America again, correct. Um so in Florida North America. You know we think that we are in a solid position when it comes to, you know, each of the product categories um specifically around, and that's why we focused on expansion in our laminate business, and our quartz countertop business, um, to really leverage uh, that manufacturing footprint.
Speaker Change: And the channels, if you look at a broad base, the commercial Channel continues to do better than the others, you have the new construction business, like all the data is slowing down and then you have the multi family business where you have a slowing of the construction that is has been coming on for a long period of time. And then residential remodeling has been at a low point and its remaining at a low point. We need a catalyst for it to change.
All right, thanks. Good luck.
Speaker Change: Thank you.
Speaker Change: The last question comes from Ruth. Yo bank, with Bank of America, please go ahead.
Ruth: Hi, thanks for taking my questions. Uh, I just want to follow up on John Livalo question earlier. Um,
In what is normal seasonality from 3Q to 4K? I think you said you expect uh, normal seasonality for sales. Just what would that be? Um, and sort of the same question for for Eva? What would you consider normal?
Speaker Change: or when I look at, um, sales from Q3 to Q4, uh, normal seasonality is anywhere, you know, kind of a 5 to 6% decrease, in in sales, that's how
Ruth: They, that's a Consolidated level.
And are there any um, shifts of like days or anything this year?
Ruth: um know from a year-over-year perspective, there's not
Ruth: And then on ebit what would be the normal seasonality?
Ruth: Um, I need the basis. When you look back over time, I mean because of the holidays in um Q4 across the globe, you know, you could see a, a decrease um again in the 25% area.
And as I pointed out the difference, when our statement on Q4 is the the benefit that we are yielding from our restructuring actions, that's it better than that. Normal seasonality. Yes.
Ruth: And then um, I I just want to just follow up on, on tariffs. Um,
Ruth: if if tariffs are sort of as they, they are um, in place today like with what the current announcements
Ruth: Are. Um, how would you expect that to impact the short-term results? Obviously like, because it's 5o accounting near-term. You have your, your cost doesn't go up but I think there might be more pricing. Uh, so if with that actually help you near-term or um, would would you see cost inflation that comes through before you realize the the the pricing. Um just how do you think about that? How that could could could play out if the tariffs hold as they are today?
um,
the goal is to have them aligned and the question is, does the industry act rationally and push it through? How do your inventory levels compared to different ones? And, you know, we're hoping that everything aligns like it's supposed to. But first, we have to find out what it is and then we have to to see how the marketplace acts upon it and we'll type whatever actions to make sure we're competitive in the marketplace and as just said earlier, um, because of the timing of the cost, um, it would be very minimal, um, in the current year and Ray, if you, you were asking about days, I just want to make sure which quarter you were talking about, you know, Q3 over Q3 in terms of last year, there is no difference Q4 versus the prior year. There is 1 additional Day in 2025.
Speaker Change: How there's been some pull forward ahead of that. Both from you and competitors. Like where is that today? Do do you think that's mostly been worked down? Um, or just how would uh, what's the update?
Well in in in general uh the importers are heavy on inventory because they wanted to get ahead of all the Tariff announcements and then from a sellout perspective, um as we said some of our customers when we increase prices have the ability to pre buy but given the slow environment with demand. Um they are uh making limited additional purchases and of course they made them earlier. Yeah. They they already raised them and they they don't can't do anymore.
Speaker Change: As.
Speaker Change: Uh, right, that, that that's that's really helpful. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Jeff loan for any closing remarks, please go ahead.
Jeff loan: Thank all of you for your participation this morning.
Jeff loan: We're well positioned for the recovery that will occur.
And uh, have a great weekend.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect