Q1 2026 Mohawk Industries Inc Earnings Call

May 1, 2026

Operator: Good morning, everyone, and welcome to the Mohawk Industries Q1 2026 Earnings Conference Call. At this time, I'd like to turn the floor over to Nick Manthe, Chief Financial Officer. Please go ahead.

Operator: Good morning, everyone, and welcome to the Mohawk Industries Q1 2026 Earnings Conference Call. At this time, I'd like to turn the floor over to Nick Manthey, Chief Financial Officer. Please go ahead.

Speaker #2: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 touch tone telephones.

Speaker #2: To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Nick Manthe, Chief Financial Officer.

Speaker #2: Please go ahead. Thanks, Jamie. Good morning, everyone, and welcome to MOHAWK INDUSTRIES Quarterly Investor Conference Call. Joining me today on the call are Jeff Lorberbaum, Chairman and Chief Executive Officer; and Paul Cock, President and Chief Operating Officer.

Nicholas P. Manthey: Thanks, Jamie. Good morning, everyone, and welcome to Mohawk Industries quarterly investor conference call. Joining me today on the call are Jeffrey S. Lorberbaum, Chairman and Chief Executive Officer, and Paul De Cock, President and Chief Operating Officer. Today, we'll update you on the company's Q1 performance and provide guidance for the Q2 of 2026. I'd like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including, but not limited to, those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers.

Speaker #2: Today, we'll update you on the company's first quarter performance and provide guidance for the second quarter of 2026. I'd like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Speaker #2: Which are subject to various risks 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 #2: This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release.

Nicholas P. Manthey: For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release in the investor section of our website. I'll now turn the call over to Jeff for his opening remarks.

Speaker #2: In the investor section of our website. I'll now turn the call over to Jeff for his opening remarks.

Speaker #3: Thank you, Nick. Our performance for the first quarter was in line with our expectations, despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year.

Jeffrey S. Lorberbaum: Thank you, Nick. Our performance for Q1 was in line with our expectations despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year. Our results include benefits from productivity, restructuring, and product mix, offset by inflation and volume. Last year was impacted by the system conversion and had 4 fewer days. Our net sales were approximately $2.7 billion, an increase of 8% as reported, or decreases 2.6% on a constant basis. Across our regions, the commercial sector continued to outperform residential. New home construction remained soft, and consumers continued to defer home purchases and remodeling projects due to economic uncertainty. We're implementing productivity actions and executing our previously announced restructuring projects to enhance our results.

Speaker #3: Our results include benefits from productivity restructuring and product mix, offset by inflation and volume. Last year was impacted by the system conversion and had far fewer days.

Speaker #3: Our net sales were approximately $2.7 billion, an increase of 8% as reported, or a decrease of 2.6% on a constant basis. Across our regions, the commercial sector continued to outperform residential.

Speaker #3: New home construction remained soft, and consumers continued to defer home purchases and remodeling projects due to economic uncertainty. We're implementing productivity actions and executing our previously announced restructuring projects to enhance our results.

Speaker #3: During the quarter, we repurchased 607,000 shares of stock for $64 million, as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise.

Jeffrey S. Lorberbaum: During the quarter, we repurchased 607,000 shares of stock for $64 million as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise. At the end of February, the conflict in the Middle East intensified increasing volatility in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas. Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions and are contributing to a more cautious consumer outlook. Energy prices as well as the cost of oil and natural gas derivatives are also increasing, which affects the cost of many of our products.

Speaker #3: At the end of February, the conflict in the Middle East intensified, increasing volatility in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas.

Speaker #3: Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions in our contributing to a more cautious consumer outlook. Energy prices, as well as the cost of oil and natural gas derivatives, are also increasing.

Speaker #3: Which affects the costs of many of our products. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending.

Jeffrey S. Lorberbaum: Depending on the duration of the conflict, the economic impact will vary across our markets with increased inflation reducing consumer sentiment and discretionary spending. US natural gas prices have been less impacted due to the significant domestic production, though oil prices in the US have risen as they follow worldwide trends. In the US, 10-year treasury yields have increased, creating a corresponding rise in mortgage rates. The European continent will be more affected due to the dependence on oil and gas from the Middle East, and we have made forward purchases to limit our exposure. European governments are reviewing initiatives to lessen the impact on businesses and consumers, such as cutting energy taxes, implementing fuel price caps, and coordinating European gas storage. The energy markets will remain volatile until the global supply normalizes. We're implementing price increases across many products and geographies, and further price increases could be required.

Speaker #3: U.S. natural gas prices have been less impacted due to the significant domestic production, though oil prices in the U.S. have risen, as they follow worldwide trends.

Speaker #3: In the U.S., 10-year Treasury yields have increased, creating a corresponding rise in mortgage rates. The European continent will be more affected due to the dependence on oil and gas from the Middle East, and we have made forward purchases to limit our initiatives to lessen the impact on businesses and consumers, such as cutting energy taxes, implementing fuel price caps, and coordinating European gas storage.

Speaker #3: The energy markets will remain volatile until the global supply normalizes. We're implementing price increases across many products and geographies, and further pricing increases could be required.

Speaker #3: The impact of higher cost of raw materials will be greater in the second half of the year, due to our flow-through of our inventory.

Jeffrey S. Lorberbaum: The impact of higher cost of raw materials will be greater in the H2 of the year due to our flow-through of our inventory. We are continuing to launch new product collections with industry-leading designs and features to enhance our sales and margins. We're implementing operational strategies that we've used to navigate past disruptions, which prioritize adaptability and cost control. We're maintaining flexibility to align with evolving demand, supply availability, and volatile costs. We're focused on the controllable parts of our business, including sales initiatives, inventory levels, and discretionary spending and investments. Now, Nick will provide the details of our financial performance for the quarter.

Speaker #3: We are in continuing to launch new product collections with industry-leading designs and features to enhance our sales and margins. We're implementing operational strategies that we've used to navigate past disruptions, which prioritize adaptability and cost control.

Speaker #3: We're maintaining flexibility to align with evolving demand, supply availability, and volatile costs. We're focused on the controllable parts of our business, including sales initiatives, inventory levels, and discretionary spending and investments.

Speaker #3: Now, Nick will provide the details of our financial performance for the quarter.

Speaker #2: Thanks, Jeff. Looking at our Q1 2026 financial results, net sales for the quarter were $2.7 billion. Up 8% as reported, and a decrease of 2.6% on a constant basis.

Nicholas P. Manthey: Thanks, Jeff. Looking at our Q1 2026 financial results. Net sales for the quarter were $2.7 billion, up 8% as reported and a decrease of 2.6% on a constant basis. Our Global Ceramic segment delivered stronger mix, and we lapped the impact of the order management system conversion in Flooring North America, which partially offset the slower market conditions across our markets. Gross margin was 23.5% as reported and 24.8% on an adjusted basis. This is up 70 basis points from prior year as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of $20 million offset the increased input costs of $28 million. SG&A expenses were 19.4% as reported and 19.3% excluding charges, in line with prior year levels.

Speaker #2: Our global ceramic segment delivered stronger mix, and we lapped the impact of the order management system conversion and flowing North America, which partially offset the slower market conditions across our markets.

Speaker #2: Gross margin was 23.5% as reported, and 24.8% on an adjusted basis. This is up 70 basis points from prior year, as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of $20 million offset the increased input costs of $28 million.

Speaker #2: SG&A expenses were 19.4% as reported, and 19.3% excluding charges, in line with prior year levels. That gave us an operating income as reported of $112 million, or 4.1% of net sales.

Nicholas P. Manthey: That gave us an operating income as reported of $112 million or 4.1% of net sales. We had $38 million in non-recurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million or 5.5% of sales. That's an increase of 70 basis points versus prior year. The benefits of lapping the prior year order management system conversion of $30 million and our restructuring and productivity initiatives of $36 million were partially offset by increased input costs of $38 million. Lower volumes, given the weaker market conditions, were offset by extra days in the quarter. Interest expense was $2 million, a decrease compared to prior year due to the reduction in short-term debt and the benefit of increased interest income.

Speaker #2: We had $38 million in non-recurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million, or 5.5% of sales.

Speaker #2: That's an increase of 70 basis points versus the prior year. The benefits of lapping the prior year order management system conversion of $30 million and our restructuring and productivity initiatives of $36 million were partially offset by increased input costs of $38 million.

Speaker #2: Lower volumes, given the weaker market conditions, were offset by extra days in the quarter. Interest expense was $2 million, a decrease compared to the prior year due to the reduction in short-term debt and the benefit of increased interest income.

Speaker #2: Our adjusted tax rate was 19.4%, and we are forecasting the full year tax rate for 2026 to be between 19 and 20 percent. That gave us an earnings per share on both the reported and adjusted basis of $1.90.

Nicholas P. Manthey: Our adjusted tax rate was 19.4%, and we are forecasting the full year tax rate for 2026 to be between 19% and 20%. That gave us an earnings per share on both a reported and adjusted basis of $1.90. Turning to the segments. Global Ceramic had net sales just under $1.1 billion. That's a 10.4% increase as reported and basically flat on a constant basis. The ceramic business delivered positive price mix, given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel. Adjusted operating income was $55 million or 5% of sales.

Speaker #2: Turning to the segments, global ceramic had net sales just under $1.1 billion. That's a 10.4% increase as reported and basically flat on a constant basis.

Speaker #2: The ceramic business delivered a positive price mix, given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel.

Speaker #2: Adjusted operating income was $55 million, or 5% of sales. That's an improvement of 20 basis points compared to the prior year, as the combination of productivity initiatives of $21 million and positive price mix of $13 million were only partially offset by an increase in input costs of $30 million.

Nicholas P. Manthey: That's an improvement of 20 basis points compared to the prior year, as the combination of productivity initiatives of $21 million and price mix of +$13 million were only partially offset by an increase in input costs of $30 million. Flooring North America, net sales were $880 million. That's a 2% increase as reported or a 4.1% decrease on a constant basis as sales were impacted by slower conditions in both new residential construction and residential remodeling. We had an adjusted operating income of $35 million or 4% of sales. That's an improvement of 100 basis points compared to prior year as we lapped the impact of the order management system conversion of $30 million, which was partially offset by increased input costs of $13 million and the net impact of lower volumes.

Speaker #2: Flowing North America net sales were $880 million. That's a 2% increase as reported, or a 4.1% decrease on a constant basis, as sales were impacted by slower conditions in both new residential construction and residential remodeling.

Speaker #2: We had an adjusted operating income of $35 million, or 4% of sales. That's an improvement of 100 basis points compared to the prior year, as we lapped the impact of the order management system conversion of $30 million, which was partially offset by increased input costs of $13 million, and the net impact of lower volumes.

Speaker #2: In flowing Western world, we had sales of $751 million as reported. That's a 12.2% increase, or a decrease of 4.4% on a constant basis.

Nicholas P. Manthey: In Flooring Western World, we had sales of $751 million as reported. A 12.2% increase or a decrease of 4.4% on a constant basis, with the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses. Adjusted operating income was $74 million or 9.8% of sales. An improvement of 70 basis points compared to prior year as the combination of productivity gains and lower input costs of $14 million were more than enough to offset negative price mix. Corporate expenses and eliminations were $14 million in the quarter. We estimate the full year 2026 expenses to be between $52 and $55 million. Now looking at the balance sheet.

Speaker #2: With the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses.

Speaker #2: Adjusted operating income was $74 million, or $9.8% of sales. That's an improvement of 70 basis points compared to prior year, as the combination of productivity gains and lower input costs of $14 million were more than enough to offset negative price mix.

Speaker #2: Corporate expenses and eliminations were $14 million in the quarter, and we estimate full-year 2026 expenses to be between $52 million and $55 million.

Speaker #2: And now looking at the balance sheet, cash and cash equivalents ended the quarter at $872 million. We had free cash flow of $8 million in the quarter, which is in line with seasonal trends.

Nicholas P. Manthey: Cash and cash equivalents ended the quarter at $872 million. We had free cash flow of $8 million in the quarter, which is in line with seasonal trends. Inventories were just shy of $2.7 billion, up less than 1% compared to prior quarter due to inflation. Property, plant, and equipment ended the quarter at just under $4.7 billion. CapEx spending in the quarter was $102 million, and we plan to invest approximately $480 million in 2026, focused on cost reduction initiatives, product innovation, and maintenance.

Speaker #2: Inventories were just shy of $2.7 billion, up less than 1% compared to prior quarter due to inflation. Property plant and equipment ended the quarter at just under $4.7 billion.

Speaker #2: Capex spending in the quarter was $102 million. And we plan to invest approximately $480 million in 2026, focused on cost reduction initiatives, product innovation, and maintenance.

Speaker #2: The balance sheet remains in a very strong position, with net debt of $1.2 billion and a net debt to EBITDA ratio of 0.9. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers.

Nicholas P. Manthey: The balance sheet remains in a very strong position, with net debt of $1.2 billion and a net debt-to-EBITDA ratio of 0.9x. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers. Now, Paul will review our Q1 operational performance.

Speaker #2: Now, Paul will review our Q1 operational performance.

Speaker #3: Thank you, Nick. Our global ceramic segment delivered improved sales and profitability year over year. Our regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial.

Paul De Cock: Thank you, Nick. Our Global Ceramic segment delivered improved sales and profitability year over year. Our regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial. Our premium collections increased our mix with advanced technologies that enhance the visuals. Across our regions, productivity improvements and restructuring actions are improving our results. In the US, we benefited from stronger commercial sales and increased retail partnerships, which offset ongoing weakness in the builder channel. In March, we introduced our spring collection, which emphasizes higher end decorative wall tile and large polished floor tile to enhance our mix. We announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation costs.

Speaker #3: Our premium collections increased our mix, with advanced technologies that enhance the visuals. Across our regions, productivity improvements and restructuring actions are improving our results.

Speaker #3: In the US, we benefited from stronger commercial sales and increased retail partnerships, which offset ongoing weakness in the builder channel. In March, we introduced our spring collection, which emphasizes higher-end decorative wall tile and large polished floor tile to enhance our mix.

Speaker #3: We announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation cost. We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher-value products.

Paul De Cock: We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher value products. The United States International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production, and the commission is determining tariffs and quotas to safeguard the industry. In our European ceramic business, we delivered solid sales and margin improvement with investments in sales personnel, showrooms, and new collections. In the region, we have greater participation in the commercial channels, which is outperforming the residential markets. The industry has announced limited price increases at this point, given the market softness. We have purchased a portion of our natural gas requirements this year, which will reduce the impact of higher energy prices. Our Latin American ceramic businesses have been less impacted by the conflict.

Speaker #3: The US International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production, and the Commission is determining tariffs and quotas to safeguard the industry.

Speaker #3: In our European ceramic business, we delivered solid sales and margin improvement, with investments in sales personnel, showrooms, and new collections. In the region, we have greater participation in the commercial channels which is outperforming the residential markets.

Speaker #3: The industry has announced limited price increases at this point, given the market softness. We have purchased a portion of our natural gas requirements this year, which will reduce the impact of higher energy prices.

Speaker #3: Our Latin American ceramic businesses have been less impacted by the conflict. We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs.

Paul De Cock: We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs. In Mexico, our volume improved as we expanded distribution, improved service times, and grew sales with large size polished porcelain collections. In Brazil, our new product introductions are improving our mix with growth in the higher value porcelain category. US reciprocal tariffs on Brazil were significantly reduced, which will improve our export volumes to the United States. Brazil's economy remains sluggish, and the central bank is now cutting interest rates to stimulate growth. Our Flooring Rest of the World segments result were driven by productivity, cost improvements, and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation. With the war in Iran, consumer confidence declined as fuel and energy costs increased.

Speaker #3: In Mexico, our volume improved as we expanded distribution, improved service times, and grew sales with large-sized polished porcelain collections. In Brazil, our new product introductions are improving our mix, with growth in the higher-value porcelain category.

Speaker #3: US reciprocal tariffs on Brazil were significantly reduced. Which will improve our export volumes to the United States. Brazil's economy remains sluggish, and the central bank is now cutting interest rates to stimulate growth.

Speaker #3: Our flooring rest of the world segments result were driven by productivity, cost improvements, and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation.

Speaker #3: With the war in Iran, consumer confidence declined as fuel and energy costs increased. We are implementing price increases to offset the higher costs impacting our business.

Paul De Cock: We are implementing price increases to offset the higher costs impacting our business. In the quarter, our laminate sales benefited from growing retail partnerships and the success of our new collections, which combine elevated style and performance. We updated our LVT designs, added offerings at new price points, and expanded our retail distribution. Our sheet vinyl sales to the Middle East were disrupted and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products, and we implemented price increases. We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs. Our insulation business performed well and improved our costs by re-engineering our products. We're growing our insulation sales in Germany and Eastern Europe to support the startup of our manufacturing facility in Poland.

Speaker #3: In the quarter, our laminate sales benefited from growing retail partnerships and the success of our new collections, which combine elevated style and performance. We updated our LVT designs, added offerings at new price points, and expanded our retail distribution.

Speaker #3: Our sheet vinyl sales to the Middle East were disrupted, and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products, and we implemented price increases.

Speaker #3: We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs.

Speaker #3: Our insulation business performed well and improved our costs by re-engineering our products. We're growing our insulation sales in Germany and Eastern Europe to support the startup of our manufacturing facility in Poland.

Speaker #3: Our businesses in Australia and New Zealand improved results with favorable pricing, mix, and cost. Our new carpet collections, national promotions, and increased participation in the new construction channel enhanced our performance.

Paul De Cock: Our businesses in Australia and New Zealand improved results with favorable pricing, mix, and cost. Our new carpet collections, national promotions, and increased participation in the new construction channel enhanced our performance. Our Flooring North America segment remained slow during the quarter, given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring, system improvements, and additional days in the period, partially offset by lower volume and inflation. Commercial continued to outperform residential, and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material, energy, and transportation increases. Mortgage rates rose almost half a point in March, leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders.

Speaker #3: Our flooring North America segment remains slow during the quarter given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring, system improvements, and additional days in the period, partially offset by lower volume and inflation.

Speaker #3: Commercial continued to outperform residential, and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material energy and transportation increases.

Speaker #3: Mortgage rates rose almost half a point in March, leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders.

Speaker #3: We improved our hard surface mix with our best-in-class laminate, hybrid, and LVT collections. Our proprietary accessories coordinate with our hard surface offering, increasing complementary sales.

Paul De Cock: We improved our hard surface mix with our best-in-class laminate, hybrid, and LVT collections. Our proprietary accessories coordinate with our hard surface offering, increasing complementary sales. Our new carpet introductions are being well-received with a focus on our premium polyester and SmartStrand collections. In February, we launched the industry's first carpet collections certified by the Asthma & Allergy Foundation to significantly reduce household allergens using natural probiotics. Our commercial order backlog has seasonally improved with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers and are creating additional specification opportunities for our other commercial products. I will now return the call to Jeff.

Speaker #3: Our new carpet introductions are being well received with a focus on our premium polyester and smart strand collections. In February, we launched the industry's first carpet collections certified by the ASMA and Allergy Foundation to significantly reduce household allergens using natural probiotics.

Speaker #3: Our commercial order backlog has seasonally improved with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers, and are creating additional specification opportunities for our other commercial products.

Speaker #3: And I will now return the call to Jeff.

Speaker #2: Thank you, Paul. One month into the second quarter, we continue to adapt our business to changes caused by the Middle East conflict. Thus far, we've announced price increases across much of our portfolio due to inflation, and our order backlog has continued to grow.

Nicholas P. Manthey: Thank you, Paul.

Jeffrey S. Lorberbaum: Thank you, Paul.

Jeffrey S. Lorberbaum: 1 month into Q2, we continue to adapt our business to changes caused by the Middle East conflict. Thus far, we've announced price increases across much of our portfolio due to inflation, and our order backlog has continued to grow. Across our regions, the commercial channel remains solid, while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high-end collections are performing better in the market, and our new products are enhancing our mix. We're maximizing our flexibility to react to changes in our supply chain, operating costs, and market demand. Presently, we're containing costs, reengineering products, and limiting capital expenditures. We'll not see the full impact of our pricing actions and rising costs until Q3. The degree to which the Middle East conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure.

Speaker #2: Across our regions, the commercial channel remains solid while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high-end collections are performing better in the market, and our new products are enhancing our mix.

Speaker #2: We're maximizing our flexibility to react to changes in our supply chain, operating costs, and market demand. Presently, we're containing costs, re-engineering products, and limiting capital expenditure.

Speaker #2: We'll not see the full impact of our pricing actions and rising costs until the third quarter. The degree to which the Middle East conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure.

Speaker #2: Given these factors, and one less shipping day in the second quarter, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one-time charges.

Jeffrey S. Lorberbaum: Given these factors and one less shipping day in Q2, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one-time charges. We are managing all aspects of the business we can control and responding to market changes as they arise. In the past, Mohawk has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for the long term. Increased new home construction is necessary to satisfy growing household formations. We expect deferred remodeling of aging housing stock across our regions will significantly increase flooring demand. As we navigate the current conditions, we're prepared to capitalize on the rebound in our industry that lies ahead. We'll now be glad to take your questions.

Speaker #2: We are managing all aspects of the business we can control, and responding to market changes as they arise. In the past, MOHAWK has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for the long term.

Speaker #2: Increased new home construction is necessary to satisfy growing household formations, and we expect deferred remodeling of aging housing stock across our regions will significantly increase flooring demand.

Speaker #2: As we navigate the current conditions, we're prepared to capitalize on a rebound in our industry that lies ahead. We'll now be glad to take your questions.

Speaker #3: We will now begin the question and answer session. To ask a question, you may press star and then one on your touchstone telephones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys.

Operator: Our first question today comes from Trevor Allinson from Wolfe. Please go ahead with your question.

Speaker #3: To withdraw your questions, you may press star and two. And in the interest of time, we do ask that you please limit yourselves to a single question and a follow-up.

Speaker #3: At this time, we will pause momentarily to assemble the roster. Our first question today comes from Trevor Allison from Wolfe. Please go ahead with your question.

Operator: Our first question today comes from Trevor Allinson from Wolfe. Please go ahead with your question.

Speaker #4: Hi, good morning. Thank you for taking my questions. Jeff, I appreciate there's a lot of uncertainty in the market right now. At times in the past, you've given a range of outcomes for your business.

Trevor Allinson: Hi. Good morning. Thank you for taking my questions. Jeff, I appreciate there's a lot of uncertainty in the market right now. At times in the past, you've given a range of outcomes for your business. Can you talk about what that range of outcomes looks like here as we move through 2026 and into early next year? What drives the high end versus the low end? How are you running your business today to account for the uncertainty and prepare for either end of that spectrum?

Speaker #4: Can you talk about what that range of outcomes looks like here as we move through '26 and into early next year? What drives the high-end versus the low-end?

Speaker #4: And how are you running your business today to account for the uncertainty and prepare for either end of that spectrum?

Jeffrey S. Lorberbaum: There's a lot of uncertainty in the marketplace. We're preparing for multiple options and staying flexible. If we look at the best case as we think forward, the supplies in the Middle East could open up in the near term and could return the supplies to normal over the next 6 months. This would remove the economic uncertainty and would improve the category and the flooring industry in H2. We would expect the inflationary pressures to remain, though, throughout the year. The alternative view is that the disruption in the Middle East stays for a significant period of time, the inflation continues to increase. It could result in a pullback by both consumers and businesses. In this case, we have alternative plans to adjust our business strategy to manage through at lower rates.

Speaker #2: Listen, there's a lot of uncertainty in the marketplace, and we're preparing for multiple options and staying flexible. If we look at the best case as we think forward, the supply to the Middle East could open up in the near term and could return the supplies to normal over the next six months.

Speaker #2: This would remove the economic uncertainty and would improve the category and the flooring industry in the second half. We would expect the inflationary pressures to remain though throughout the year.

Speaker #2: The alternative view is that the disruption in the Middle East stays for a significant period of time, inflation continues to increase, and it could result in a pullback by both consumers and businesses.

Speaker #2: In this case, we have alternative plans to adjust our business strategy to manage through at lower rates. Our strategy is to remain flexible and to adapt to the changes that occur.

Jeffrey S. Lorberbaum: Our strategy is to remain flexible and to adapt to the changes that occur. As a reminder, you know, most flooring projects being initiated today are really to meet the changing needs because they've been down since 2022 and should limit some of the downside if it gets worse. We expect a significant recovery given these 4 years of postponed flooring purchases.

Speaker #2: As a reminder, most flooring projects being initiated today are really to meet the changing needs because they've been down since '22, and should limit some of the downside if it gets worse.

Speaker #2: We expect a significant recovery given these four years of postponed flooring purchases.

Speaker #4: Okay. Thanks for that. That was very helpful. And then second question, perhaps related to those comments last quarter, you talked about expecting both sales and adjusted earnings to be up on the year-of-year basis in 2026.

Trevor Allinson: Okay. Thank you for that. It was very helpful. A second question perhaps related to those comments. Last quarter, you talked about expecting both sales and adjusted earnings to be up on a year-over-year basis in 2026. Just given all the macro uncertainty, should we still think that is a good base case for you guys to be able to grow both sales and adjusted earnings this year?

Speaker #4: Just given all the macro uncertainty, should we still think that is a good base case for you guys to be able to grow those sales and adjusted earnings this year?

Speaker #2: Well, in February, we had expected the category to improve, and we're really focused on maximizing opportunities this year. With the war interrupting things, the environment's really changed, and we're focused on managing the impact of inflation on our margins.

Jeffrey S. Lorberbaum: Well, in February, we had expected the category to improve, and we're really focused on maximizing the opportunities this year. With the war interrupting things, the environment's really changed, and we're focused on managing the inflation's impact on our margins. At this point, as we just went through, the potential impacts are really unpredictable, and it's too early to tell where it's gonna end up. We'll have to see how the conditions evolve.

Speaker #2: At this point, as we just went through, the potential impacts are really unpredictable and it's too early to tell where it's going to end up.

Speaker #2: We'll have to see how the conditions evolve.

Speaker #4: Okay. Thank you for all the color, and good luck moving forward.

Trevor Allinson: Okay. Thank you for all the coloring. Good luck moving forward.

Speaker #3: Our next question comes from John Lovallo from UBS. Please go ahead with your question.

Operator: Our next question comes from John Lovallo from UBS. Please go ahead with your question.

Speaker #5: Good morning, guys. Thanks for taking my questions. The first one is, can you provide some additional color on just maybe the magnitude of the price increases across regions and some of the key products?

John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is, you know, can you provide some additional color on just maybe the magnitude of the price increases across regions and some of the key products? You know, what type of realization are you expecting given sort of some of the challenges from a volume standpoint in the market?

Speaker #5: And what type of realization are you expecting given some of the challenges from a volume standpoint in the market?

Jeffrey S. Lorberbaum: Well, the Middle East conflict has really dramatically increased our material, energy, and transportation costs across all the different product categories. We're seeing some differences in each region and product category given the different dynamics. As you'd expect, Europe's more affected given that the use of the energy from the Middle East. Some of our products are also delivered, so we have to increase the prices to cover the freight costs as well. We've announced increases across the businesses generally in the mid to high single-digits with significant variations by both product and geographies. Just to note, the imported products that we in the industry have had really long supply chains, the price increases due to that will lag some of the others.

Speaker #2: Well, the middle East conflict has really dramatically increased our materials, energy, and transportation costs across all the different product categories. We're seeing some differences in each region and product categories given the different dynamics.

Speaker #2: And as you'd expect, Europe's more affected given that the use of the energy from the Middle East. Some of our products are also we deliver or delivered so we have to increase the prices to cover the freight costs as well.

Speaker #2: We've announced increases across the businesses generally in the mid- to high-single digits, with significant variations by both product and geographies. And just as a note, the imported products that we in the industry have have really long supply chains, and the price increases due to that will lag some of the others.

Speaker #5: Got it. And then, maybe just to push a little bit more on this, if I can—let's just say that things stay as they are today.

John Lovallo: Got it. You know, maybe just to push a little bit more on this if I can. You know, let's just say that things stay as they are today. Do you believe that you have enough pricing in the market to offset, excuse me, the current level of inflation? Or would additional pricing be needed just to offset what we know today?

Speaker #5: Do you believe that you have enough pricing in the market to offset—excuse me—the current level of inflation, or would additional pricing be needed just to offset what we know today?

Speaker #2: Yeah, John, thanks. I think if you look at Q1, our price mix and productivity offset the impact of inflation. We expect similar dynamics in Q2.

Nicholas P. Manthey: Yeah, John, thanks. You know, I think if you look at Q1, our price mix and productivity offset the impact of inflation. We expect similar dynamics in Q2. You know, as Jeff outlined, we announced some more price increases in response to the inflation, and we'll really see the full impact of both the inflation and the pricing in H2. We will adjust as necessary as the environment evolves.

Speaker #2: As Jeff outlined, we announced some more price increases in response to the inflation. And we'll really see the full impact of both the inflation and the pricing in the second half, and we will adjust as necessary as the environment evolves.

Speaker #5: Okay. Thank you, guys.

John Lovallo: Okay. Thank you, guys.

Speaker #2: Thanks, John.

Nicholas P. Manthey: Thanks, John.

Speaker #3: Our next question comes from Susan McLaurie from Goldman Sachs. Please go ahead with your question.

Operator: Our next question comes from Susan Maklari from Goldman Sachs. Please go ahead with your question.

Speaker #6: Thank you. Good morning, everyone. My first question is around the benefits of the new products. Can you talk about how the momentum you're seeing there is helping you to enhance the mix and incrementally perhaps offset some of that inflationary pressure that you're seeing?

Susan Maklari: Thank you. Good morning, everyone.

Jeffrey S. Lorberbaum: Good morning.

Susan Maklari: My first question is around the benefits of the new products. Can you talk about how the momentum you're seeing there is helping you to enhance the mix and incrementally perhaps offset some of that inflationary pressure that you're seeing? Do you also think that you're continuing to gain share with these new products?

Speaker #6: And do you also think that you're continuing to gain share with these products?

Jeffrey S. Lorberbaum: In each of the different businesses, the new product introductions, there's a significant portion of them that are higher value products with more differentiation and command higher prices in the marketplace. With that, each of the different businesses is introducing unique products with different features and benefits. Global Ceramic is driven a lot by technologies of different sizes as well as different visuals with different decorating technologies to be able to create them. On the other side, we're introducing LVT collections with all the latest technologies and multiple alternatives for PVC in the marketplace, with better performance, better scratch resistance, and other characteristics. The carpet categories, we're introducing premium products in polyester and the anti-allergen carpets which have never been done, which is a concern by many consumers.

Speaker #2: In each of the different businesses, the new product introductions—there's a significant portion of them that are higher value products with more differentiation and command higher prices in the marketplace.

Speaker #2: With that, each of the different businesses is introducing unique products with different features and benefits. Ceramic is driven a lot by technologies of different sizes as well as different visuals with different decorating technologies to be able to create them.

Speaker #2: On the other side, we're introducing LVT collections with all the latest technologies and multiple alternatives for PVC in the marketplace, with better performance and better scratch resistance and other characteristics.

Speaker #2: The carpet categories were introducing premium products and polyester and the anti-allergen carpets, which have never been done, which is a concern by many consumers.

Speaker #2: And in each of the categories, I could go on with you. There's different products in each one. To provide reasons for the consumers to trade up and spend more money.

Jeffrey S. Lorberbaum: You know, in each of the categories, you know, I could go on with you, there is different products in each one to provide reasons for the consumers to trade up and spend more money.

Speaker #6: Okay, thank you for that. And then, turning to the margins, you've done a lot in terms of cost-cutting, and you're realizing some nice productivity across the business despite the headwinds.

Susan Maklari: Okay. Thank you for that. Turning to the margins, you've done a lot in terms of cost-cutting, and you're realizing some nice productivity across the business despite the headwinds. Can you talk about the ability to continue to see further productivity? Any thoughts on how we should think about Q2 margins just across the three segments?

Speaker #6: Can you talk about the ability to continue to see further productivity, and then any thoughts on how we should think about second-quarter margins just across the three segments?

Speaker #2: Yeah, Susan. So I think on the productivity we generated over $200 million of productivity and restructuring savings last year. This year, we have another 50 to 60 million of restructuring savings that we should realize.

Nicholas P. Manthey: Susan. I think on the productivity, you know, we generated over $200 million of productivity and restructuring savings last year. You know, this year we have another $50 to 60 million of restructuring savings that we should realize. You know, in addition to that, over the last few years, we've had additional productivity, you know, ranging from $80 to 100 million. We'll continue to, you know, evaluate different ways to rationalize our cost structure as we go forward and the environment changes. You know, I think you asked about Q2. You know, we're really assuming the present demand trends continue through Q2, and there's somewhat of a limited impact from the conflict.

Speaker #2: And then in addition to that, over the last few years, we've had additional productivity ranging from 80 to 100 million will continue to evaluate different ways to rationalize our cost structures as we go forward in the environment changes.

Speaker #2: I think you asked about Q2. We're really assuming the present demand trends continue through the second quarter, and there's somewhat of a limited impact from the conflict.

Speaker #2: The market volumes have been declining, and we've seen oil and gas prices increase, which will begin to impact our cost in Q2. We do expect price and mix will improve and help address that higher inflation.

Nicholas P. Manthey: The market volumes have been declining, and we've seen oil and gas prices increase, which will begin to impact our costs in Q2. We do expect price and mix will improve and help address that higher inflation. You know, back to your original point, productivity and restructuring will continue to lower our costs, similar to Q1.

Speaker #2: And then, back to your original point, productivity and restructuring will continue to lower our costs, similar to Q1.

Speaker #6: Okay. So, is it reasonable to assume that you see a fairly normal seasonal sequential lift in the margins?

Susan Maklari: Okay. Is it reasonable to assume that you see a fairly normal seasonal sequential lift in the margins?

Nicholas P. Manthey: Yeah, typically, you know, Q2 is our strongest quarter of the year. You know, going from Q1 to Q2, that's what you would expect.

Speaker #2: Yeah. Typically, Q2 is our strongest quarter of the year. So going from Q1 to Q2, that's what you would expect.

Nicholas P. Manthey: Yeah, typically, you know, Q2 is our strongest quarter of the year. You know, going from Q1 to Q2, that's what you would expect.

Speaker #6: Okay. All right. Thank you. Good luck with the quarter.

Susan Maklari: Okay. All right. Thank you. Good luck with the quarter.

Speaker #2: Yep. Thanks, Susan.

Nicholas P. Manthey: Yep. Thanks, Susan.

Speaker #3: Our next question comes from Adam Baumgarten from Vertical Research. Please go ahead with your question.

Operator: Our next question comes from Adam Baumgarten from Vertical Research. Please go ahead with your question.

Speaker #5: Hey, good morning, everyone. Just a question on the input cost headwinds. Can you maybe size, as it stands today, what you're thinking about for the back half? As you said, you're going to kind of see the peak levels at that time frame?

Adam Baumgarten: Hey, good morning, everyone. Just a question on input cost headwinds, can you maybe size as it stands today, what you're thinking about for the back half, as you said you're gonna kinda see the peak levels at that timeframe?

Speaker #2: Yeah. I think we're seeing inflation across the different materials and energy and transportation. We're not going to quantify a precise impact given it's changing pretty much daily.

Nicholas P. Manthey: Yeah. I think, you know, we're seeing inflation across the different materials and energy and transportation. You know, we're not gonna quantify a precise impact given it's changing pretty much daily. You know, and really, as you said, the in terms of cadence, the impact will begin in Q2 and ramp up into Q3.

Speaker #2: And really, as you said, the in terms of cadence, the impact will begin in Q2 and ramp up into Q3. If you look at each of the different product categories, they're all driven by different things.

Jeffrey S. Lorberbaum: If you look at each of the different product categories, they're all driven by different things. You have our carpet, LVT, and insulation, they're all oil-based and energy intensive, so the materials are being driven by the changes in gas and oil and the materials as well. In the ceramic business, it is really heavily caused by natural gas and transportation costs, and the transportation costs are both for raw materials as well as for shipping our products. The other businesses are wood-based, which is laminate wood and panels. They have significant chemical costs in them to put them all together, as well as energy and transportation costs with those. We said before, just to remind you that, you know, not assuming that inflation in Europe is higher, and we purchased a portion of the natural gas ahead to limit the volatility.

Speaker #2: So you have our carpet LVT and insulation that are all oil-based and energy-intensive. So the materials are being driven by the changes in gas and oil in the materials as well.

Speaker #2: And the ceramic business, it is really heavily caused by natural gas and transportation costs. And the transportation costs are both for raw materials as well as for shipping our products.

Speaker #2: And the other businesses are wood-based, which is laminate wood and panels. They have significant chemical costs in them, to put them all together, as well as energy and transportation costs with those.

Speaker #2: We said before, just to remind you that we're assuming not assuming, that inflation in Europe is higher and we purchased a portion of the natural gas ahead to limit the volatility.

Speaker #2: We do see that US and Mexico have more stable natural gas prices. And they're less affected by it. And we've announced price increases to cover all this.

Jeffrey S. Lorberbaum: We do see that US and Mexico have more stable natural gas prices and are less affected by it. We've announced price increases to cover all this, again, as we go through it.

Speaker #2: Again, as we go through.

Speaker #5: Okay. Great. That's helpful. And then just, I believe you guys and maybe your competitors had some price increases out on certain products earlier, in April.

Adam Baumgarten: Okay, great. That's helpful. Then just I believe you guys and maybe your competitors had some price increases out on certain products earlier in April, and it has been about a month. Just curious how those are going as it stands today.

Speaker #5: And it's been about a month. Just curious how those are going as it stands today.

Speaker #2: Yes. That's correct. We've recently announced more price increases of mid to high single digits. And with these levels of inflations, the industry must pass them through.

Paul De Cock: Yes, that's correct. We've recently announced more price increases of mid to high single digits. With these level of inflations, the industry must pass them through.

Jeffrey S. Lorberbaum: In the marketplace, I mean, all the prices are going up. The market seems to be understanding it. We think we're gonna have to push them through 'cause we need it. It's possible, given what's going on with the energy markets, we could need more.

Speaker #2: In the marketplace, I mean, all the prices are going up. The market seems to be understanding it. And we think we're going to have to push them through because we need it.

Speaker #2: And it's possible, given what's going on with the energy markets, we could need more.

Speaker #5: Okay. Got it. Thanks.

Adam Baumgarten: Okay. Got it. Thanks.

Speaker #3: Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Operator: Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Speaker #4: Yeah, thanks very much, guys. Appreciate it. I think I heard you say, in Flooring Rest of the World, that inputs were a positive, even though I think for the company as a whole, it was a headwind of—I think you said—$38 million.

Stephen Kim: Yeah. Thanks very much, guys. Appreciate it. I think I heard you say in Flooring Rest of the World that inputs were a positive, even though I think for the company as a whole, it was, you know, a headwind of I think you said $38 million. Just trying to understand, can you give us some context around that? I imagine, you know, you're anticipating that'll probably flip negative again, based on your comments. Can you just provide some context around the inputs in Flooring Rest of the World?

Speaker #4: So just trying to understand, can you give us some context around that? And I imagine you're anticipating that'll probably flip negative again based on your comments.

Speaker #4: But could you just provide some context around the inputs in flooring rest of the world?

Speaker #2: Yes, Steve. We did see some positivity in Q1 on a year-over-year basis. And you're right. We're seeing given the conflict, we're seeing the natural gas and oil prices go up in Europe and so we would expect that inflation to begin in Q2 and ramp up in the back half.

Nicholas P. Manthey: Yes, Steve. We did see some positivity in Q1 on a year-over-year basis. You're right, we're seeing, you know, given the conflict, we're seeing the natural gas and oil prices go up in Europe. We'd expect that inflation to begin in Q2 and ramp up in H2.

Speaker #4: Okay. And, okay, that's helpful. Secondly, and maybe a little more broadly, I want to touch on the innovation comments that you made. There was a comment in your press release about re-engineering products.

Stephen Kim: Okay, that's helpful. Secondly, maybe a little more broadly, I wanna touch on the innovation comments that you made. There was a comment in your press release about re-engineering products, I wanted to get some understanding of what that, you know, meant. Like, are there certain products that you particularly wanna call out? Then maybe at a higher level, there's a lot about the wars, the lingering impact of the war that we don't know, but the one thing we do know is that it's put a pause on shipments. Yet innovation is continuing, I would assume, uninterrupted.

Speaker #4: And I wanted to get some understanding of what that meant. Are there certain products that you particularly want to call out? And then maybe at a higher level, there's a lot about the wars, the lingering impact of the war that we don't know.

Speaker #4: But the one thing we do know is that it's put a pause on shipments, and yet innovation is continuing, I would assume, uninterrupted. And so, what I'm curious about is, do you actually have a situation where that delay—this pause, if you will—in actual production and shipping could actually be a positive for you as you continue to work on innovation and R&D?

Stephen Kim: What I'm curious is do you actually have a situation where that delay, this pause, if you will, in actually, at production and shipping, could actually be a positive for you as you continue to work on innovation and R&D? Is this something that could actually lead to a competitive advantage for you as you develop new products such that when the conflict ends, when consumer confidence improves, you could actually capitalize on the R&D that was done during, let's say, a more quiet period? Is that a reasonable way of thinking about it or is that not?

Speaker #4: Is this something that could actually lead to a competitive advantage for you as you develop new products, such that when the conflict ends, when consumer confidence improves, you could actually capitalize on the R&D that was done during, let's say, a more quiet period?

Speaker #4: Is that a reasonable way of thinking about it? Or is that not?

Jeffrey S. Lorberbaum: It's a continuous process. When you bring new products to market, depends on which market, it takes anywhere from 9 months to a year and a half to put them into the marketplace and then to mature over time. It's not an immediate impact to get them pushed through the marketplace as normal, is it? I mean, the other part is that just the big piece is that the industry and category started going down in 2022. It started with consumers pushing out things, housing sales going down around the world. There's a huge pent up demand and need for people in housing. The housing stock continues to get older. When more confidence comes back, we're expecting many years of catch up from what hasn't been spent the last three or four.

Speaker #2: It's a continuous process. And when you bring new products to market, it depends on which market. It takes anywhere from nine months to a year and a half to put them into the marketplace, and then to mature over time.

Speaker #2: So it's not an immediate impact to get them pushed through the marketplace as normal. So I mean, the other part is just the big piece is that the industry and category started going down in '22.

Speaker #2: It started with consumers pushing out things, housing sales going down around the world. And there's a huge pent-up demand and need for people in housing.

Speaker #2: The housing stock continues to get older. And when more confidence comes back, we're expecting many years of catch-up from what hasn't been spent the last three or four.

Speaker #4: And the role of new products in that, in particularly I'm thinking in areas like the hybrids products in North America, for example. I'm curious as to whether or not you think that, let's say, that category will be a little more settled and allow you to scale up production better than if, let's say, the consumer response had occurred last year, for example.

Stephen Kim: The role of new products in that, and particularly I'm thinking in areas like the hybrids products in North America, for example. I'm curious as to whether or not you think that, let's say, that category will be more, a little more settled and allow you to scale up production, better than if, let's say, the consumer response had occurred last year, for example. Is that a reasonable way of thinking about it?

Speaker #4: Is that a reasonable way of thinking about it?

Jeffrey S. Lorberbaum: I don't think there's gonna be that much difference relative to the new products because we're gonna have the capacity to support whatever's needed in the marketplace and react to it as we go through. I think what the bigger impact is helping us increase the margins as the business increases and you get leverage in all the fixed costs over the business as it occurs.

Speaker #2: I don't think there's going to be that much difference relative to the new products, because we're going to have the—we have the capacity to support whatever's needed in the marketplace and react to it as we go through.

Speaker #2: So I think what the bigger impact is, is helping us increase the margins as the business increases, and then you get leverage in all the fixed costs over the business as it occurs.

Speaker #4: Okay. Great. Thanks very much.

Stephen Kim: Okay. Great. Thanks very much.

Speaker #2: Thanks, Steven.

Nicholas P. Manthey: Thanks, Stephen.

Speaker #3: Our next question comes from Reef Jidrasich from Bank of America. Please go ahead with your question.

Operator: Our next question comes from Rafe Jadrosich from Bank of America. Please go ahead with your question.

Speaker #6: Hi. Good morning. Thanks for taking my question.

Rafe Jadrosich: Hi. Good morning. Thanks for taking my question.

Rafe Jadrosich [Managing Director, Senior Equity Analyst: Hi. Good morning. Thanks for taking my question.

Speaker #2: Good morning.

Nicholas P. Manthey: Good morning.

Rafe Jadrosich: Just to start, can you give an update on the Russia business, just like how big it is, and then how it's been performing?

Speaker #6: Just to start, can you give an update on the Russia business? Just how big it is, and then how it's been performing?

Rafe Jadrosich [Managing Director, Senior Equity Analyst: Just to start, can you give an update on the Russia business, just like how big it is, and then how it's been performing?

Jeffrey S. Lorberbaum: We don't break it out in that detail, but the Russian business has been performing well. There's been no impacts on the business and how we operate it. We continue to generate cash in the business. The business has slowed down with the general economy over there, and we're adapting to it. We have a leadership position in the category, and we're complying with all the regulations.

Speaker #2: We don't break it out in that detail. But the Russian business has been performing well. There's been no impacts on the business and how we operate it.

Speaker #2: We continue to generate cash in the business. The business has slowed down with the general economy over there, and we're adapting to it. We had a leadership position in the category.

Speaker #2: And we're complying with all the regulations.

Speaker #6: Okay, great. That's helpful. And then I think last quarter you gave a little bit of color on what you were expecting for full-year inflation.

Rafe Jadrosich: Okay. That's helpful. Then I think, last quarter you gave a little bit of color, like what you were expecting full year for in inflation. Obviously it's a. like the environment's moving around a lot. Just is there any way to sort of quantify the level of inflation in H1 relative to what you're expecting in H2?

Rafe Jadrosich [Managing Director, Senior Equity Analyst: Okay. That's helpful. Then I think, last quarter you gave a little bit of color, like what you were expecting full year for in inflation. Obviously it's a. like the environment's moving around a lot. Just is there any way to sort of quantify the level of inflation in H1 relative to what you're expecting in H2?

Speaker #6: And obviously, it's a the environment's moving around a lot. Is there any way to sort of quantify the level of inflation in the first half relative to what you're expecting in the second half?

Speaker #2: Yeah, Reef. The inflation will really begin to increase in Q2 and ramp up into the second half. Our pricing and other actions are intended to pass through those costs.

Nicholas P. Manthey: Yeah, Rafe. You know, the inflation will really begin to increase in Q2 and ramp up into H2. Our pricing and other actions are intended to pass through those costs. As Jeff outlined, it really varies by product and region, and we will adjust our pricing as the levels of inflation change.

Speaker #2: As Jeff outlined, it really varies by product and region. And we will adjust our pricing as the levels of inflation change.

Speaker #6: Just asking another way. Just the first half, do you have an what's the inflation, I guess, embedded in the first half?

Rafe Jadrosich: Just asking, like, another way. Just the H1, do you have an aggregate, like what's the inflation, I guess, embedded in the H1?

Rafe Jadrosich [Managing Director, Senior Equity Analyst: Just asking, like, another way. Just the H1, do you have an aggregate, like what's the inflation, I guess, embedded in the H1?

Speaker #2: Yeah. I mean, we're not going to break it out in that detail. But we do have inflation in the first half of the year just given the different aspects of our input costs.

Nicholas P. Manthey: Yeah. I mean, we're not gonna break it out in that detail, but we do have inflation in the H1 of the year, you know, just given the different aspects of our input costs.

Speaker #6: Okay. That's helpful. Thank you.

Rafe Jadrosich: Okay. That's helpful. Thank you.

Rafe Jadrosich [Managing Director, Senior Equity Analyst: Okay. That's helpful. Thank you.

Speaker #2: Thanks, Reef.

Nicholas P. Manthey: Thanks, Rafe.

Speaker #3: Our next question comes from Phil Ung from Jefferies. Please go ahead with your question.

Operator: Our next question comes from Philip Ng from Jefferies. Please go ahead with your question.

Speaker #4: Hey, guys. I think it's more of a recent practice. But any color in how much you buy ahead in Europe on the gas side of things?

Philip Ng: Hey, guys. I think it's more of a recent practice, but any color on how much you buy ahead in Europe on the gas side of things, were you able to lock in some of that price before the war? Jeff, I think, in 2022, you know, some of your competitors in Italy had some issues on the gas side of things, Italy is a big importer of LNG. Are any of your competitors having trouble sourcing energy? Are they hedged? I was a little surprised on the comment that pricing in Europe for ceramics was a bit more muted.

Speaker #4: And were you able to lock in some of that price before the war? And then Jeff, I think in 2022, some of your competitors in Italy had some issues on the gas side of things.

Speaker #4: And Italy is a big importer of LNG. Are any of your competitors having trouble sourcing energy? Are they hedged? I was a little surprised when they commented that pricing in Europe for ceramics was a bit more muted.

Jeffrey S. Lorberbaum: Yes, we are. We did buy gas before it went up. We continue to buy gas at the period, and we continue to make decisions of what to buy on a going forward basis to reduce the volatility of the European gas prices. We'll have to see what happens in the marketplace with the inventories and the gas prices and the volatility. If the gas keeps going up, the industry will have to respond to it as we go through. There are other areas around the world, like India, where they don't have enough natural gas. They've cut back the industry and the ceramic production, we believe is off almost by 80% because they don't have the gas to do it. That should also create opportunities as we go around.

Speaker #2: Yes. We are. We did buy gas before it went up. We continue to buy gas at the period. And we continue to make decisions of what to buy on a going forward basis to reduce the volatility of the European gas prices.

Speaker #2: We'll have to see what happens in the marketplace. With the inventories in the gas prices and the volatility, if the gas keeps going up, the industry will have to respond to it as we go through.

Speaker #2: There are other areas around the world like India where they don't have enough natural gas. They've cut back the industry. And the ceramic production we believe is off almost by 80% because they don't have the gas to do it.

Speaker #2: That should also create opportunities as we go around.

Speaker #4: Oh, wow. That's helpful. On the North American carpet, I believe you and your biggest competitor have a large concentration in share. There's a bunch of smaller guys.

Philip Ng: Okay, that's helpful. On the North American carpet, I believe you and your biggest competitor have a large concentration in share. There's a bunch of smaller guys. Give us some perspective, how does the cost curve look for carpet in the US between the two of you guys? Does that drop off pretty hard? Just given where raws are kind of shaping up and then back F, if you don't see much traction, I mean, are some of these smaller guys like cash flow negative, like, you know, operating at a loss? How would you guys kind of stack up in that situation as well?

Speaker #4: Give us some perspective. How does the cost curve look for carpet in the U.S. between the two of you guys? And does that drop off pretty hard?

Speaker #4: And just given where ROS are kind of shaping up in the back half, if you don't see much traction, I mean, are some of these smaller guys like Cashflow Negative, operating at a loss?

Speaker #4: And how would you guys kind of stack up in that situation as well?

Speaker #2: Yeah, thank you for the question. The market is soft in carpet in general. Remodeling and new construction sales have slowed. We've announced the price increases to cover the inflation.

Paul De Cock: Yeah, thank you for the question. The market is soft in carpets in general. Remodeling and new construction sales have slowed. We've announced the price increases to cover the inflation. We're introducing the new products to also improve our mix, and we're taking further actions to cut our costs. Carpet volumes, we expect should improve as the market recovers.

Speaker #2: We're introducing the new products to also improve our mix. And we're taking further actions to cut our costs. And carpet volumes, we expect should improve as the market recovers.

Speaker #2: There has been some limited capacity taken out of the industry by us and others, and there have been some smaller ones to go out, but not enough to change anything.

Jeffrey S. Lorberbaum: There has been some limited capacity taken out of the industry by us and others, and there have been some smaller ones to go out, but not enough to change anything.

Speaker #4: Okay. All right. Thank you so much.

Philip Ng: Okay. All right. Thank you so much.

Speaker #2: Thanks, Phil.

Nicholas P. Manthey: Thanks, Phil.

Speaker #3: Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.

Operator: Our next question comes from Sam Reid from Wells Fargo. Please go ahead with your question.

Speaker #7: Thanks so much, guys. I just wanted to circle back to the prepared remarks. I heard a comment about your order backlog growing. I'm just curious.

Sam Reid: Thanks so much, guys. I just wanted to circle back to the prepared remarks. I heard a comment about your order backlog growing. I just curious, is that restricted to any particular end markets or categories? Would just love some additional context there. I also heard a comment about some of your channel partners reducing inventories. Perhaps two things that might be a little diametrically opposed there. Just wanna flush those out. Thanks.

Speaker #7: Is that restricted to any particular end markets or categories? We'd just love some additional context there. And then I also heard a comment about some of your channel partners reducing inventories.

Speaker #7: So perhaps two things that might be a little diametrically opposed there. I just want to flush those out. Thanks.

Jeffrey S. Lorberbaum: Well, first, as we came into the new year, the expectations for we and the entire industry was greater than it turned out with the war. As we came into the year, there were channels that started lowering some of their inventories as we started into the year. The backlog as we've gone through, what we've said is the trends of our business from March to April haven't changed. The incoming orders are similar to those. The backlog has actually increased in April, and we don't see any dramatic change in it. On the other side, when you have price increases like we're having, there is some pull forward of it, but we don't have enough view into the inventories of our customers to know how much that is.

Speaker #2: Let's see. Well, first, the as we came into the new year, the expectations for we and the entire industry was greater than it turned out with the war.

Speaker #2: So as we came into the year, there were channels that started lowering some of their inventories as we started into the year. The backlog, as we've gone through what we've said, is the trends of our business from March to April haven't changed.

Speaker #2: The incoming orders are similar to those. The backlog is actually increased in April. And so we don't see any dramatic change in it now.

Speaker #2: On the other side, when you have price increases like we're having, there is some pull forward of it. But we don't have enough view into the inventories of our customers to know how much that is.

Speaker #7: That's helpful. And maybe, switching gears, it's great to hear the commercial end market strength. Maybe just restricting the question to the U.S.—in the past, you've called out institutions and hospitality as areas where you've been growing.

Sam Reid: That's helpful. Maybe switching gears, it's great to hear the commercial end market strength. Maybe just restricting the question to the US. In the past, you've called out institutions and hospitality as areas where you've been growing. Just curious, what's the latest on commercial end markets, and where are the areas where you're seeing the most strength? Thanks.

Speaker #7: Just curious, what's the latest on commercial end markets and where are the areas where you're seeing the most strength? Thanks.

Speaker #2: Yeah. So around the world, we see the commercial channel continuing to outperform residential. And so the segments that are performing better would be the hospitality segment, education segment, and also healthcare and government are doing well.

Paul De Cock: Yeah. Around the world, we see the commercial channel continuing to outperform residential. The segments that are performing better would be the hospitality segment, education segment, and also healthcare and government are doing well. To increase specifications, we are expanding our showrooms, product features, and specialized sales forces to go after those segments.

Speaker #2: And so, to increase specifications, we were expanding our showrooms, product features, and specialized sales forces to go after those segments.

Speaker #7: All helpful context. I'll pass it on. Thanks.

Sam Reid: All helpful context. I will pass it on. Thanks.

Speaker #2: Thanks, Sam.

Nicholas P. Manthey: Thanks, Sam Reid.

Speaker #3: Our next question comes from Colin Burren from Deutsche Bank. Please go ahead with your question.

Operator: Our next question comes from Collin Burren from Deutsche Bank. Please go ahead with your question.

Speaker #8: Great, thanks for taking my question. I just wanted to follow up there on the April backlog building. Is that across the portfolio, or are you seeing pockets of weakness and strength, just given what's going on in the Middle East?

Collin Burren: Great. Thanks for taking my question. I just wanted to follow up there on the April backlog building. Is that across the portfolio, or are you seeing pockets of weakness and strength just given what's going on in the Middle East? I thought it sounded like there was probably a little bit of caution, so maybe some downside into volume trends into April, but it sounds like they're building. I guess just any clarification there would be helpful.

Speaker #8: I thought it sounded like there was probably a little bit of caution, so maybe some downside in volume trends into April. But it sounds like they're building.

Speaker #8: I guess just any clarification there would be helpful.

Jeffrey S. Lorberbaum: It's generally across all the businesses. The backlogs are generally higher than they were a month or so ago. Again, we're having difficulty separating the ongoing business trends from inventory changes in the customers, and we're not gonna be able to know that for a while.

Speaker #2: It's generally across all the businesses. The backlogs are generally higher than they were a month or so ago. And again, we're having difficulty separating the ongoing business trends from inventory changes in the customers.

Speaker #2: And we're not going to be able to know that for a while.

Speaker #8: Okay, that's helpful. And then just following up on the natural gas, is there any way to help us understand how much of the gas you have already hedged for this year versus how much you'll need to buy just to service the production levels for the remainder of the year?

Collin Burren: Okay, that's helpful. Just following up on the natural gas, is there any way to help us understand how much of the gas you have already hedged for this year versus how much you would need to buy just to service sort of production levels for the remainder of the year?

Speaker #2: It's different by business. It's different by country. In some countries, you can't do it if the country purchased it and the price is the same.

Jeffrey S. Lorberbaum: It's different by business, it's different by country. In some countries you can't do it, that the country purchases it and the price is the same. In other countries, we can purchase ahead, so it's not as simplistic an answer as you'd like to have.

Speaker #2: In other countries, we can purchase ahead. So, it's not as simplistic an answer as you'd like to have.

Speaker #8: Understood. Thank you, and good luck.

Collin Burren: Understood, thank you, and good luck.

Speaker #2: Thanks, Colin.

Nicholas P. Manthey: Thanks, Collin.

Speaker #3: And our next question comes from Mike Dahl from RBC. Please go ahead with your question.

Operator: Our next question comes from Mike Dahl from RBC. Please go ahead with your question.

Speaker #9: Hi, this is Mike. Just a follow-up on the near-term demand comments. What are you guys specifically assuming in the Q2 guide in terms of demand trends?

Mike Dahl: Hi, this is Mike. Just to follow up on the near-term demand comments. What are you guys specifically assuming in the Q2 guide in terms of demand trends? It sounds like, is it more of the same from what you've seen in April? On that order backlog comment and the sequential increase, is there any way you could help frame that on a year-over-year basis?

Speaker #9: It sounds like it's more of the same from what you've seen in April? And then on that order backlog comment and the sequential increase, is there any way you could help frame that on a year-over-year basis?

Speaker #2: Yeah. Thanks, Mike. So again, we're really assuming that the present demand trends continue through the second quarter. And there's a limited impact from the conflict market volumes amid declining now for a little while.

Nicholas P. Manthey: Yeah, thanks, Mike. You know, again, we're really assuming that the present demand trends continue through Q2 and there's a limited impact from the conflict. Market volumes have been declining now for a little while, and we don't expect any big change in Q2.

Speaker #2: And so, we don't expect any big change in Q2. At this point, we haven't seen a decrease in the sales and order trends. Is it in, we're going to have the impact of the increasing prices as we go through, starting the second quarter and ramping up in the third quarter?

Jeffrey S. Lorberbaum: At this point, we haven't seen a decrease in the sales and order trends. We're gonna have the impact of the increase in prices as we go through starting Q2 and ramping up in Q3, and we'll just have to see how things evolve. The real question, which we all have to answer, is what's gonna happen to the consumer confidence and spending patterns given the inflation that's coming through the marketplace, and how is the consumer gonna react? We're all gonna get to find out together.

Speaker #2: And we just have to see how things evolve the real question, which we all have to answer, is what's going to happen to the consumer confidence and spending patterns given the inflation that's coming through the marketplace?

Speaker #2: And how is the consumer going to react? We're all going to get to find out together.

Speaker #9: Right, fair enough. I guess just on that—from all the pricing that you've announced—are there regions or products where you could kind of rank order where you think you have the most pricing power versus the least?

Mike Dahl: Right. Fair enough. I guess just on that, from all the pricing that you've announced, are there regions or products where you could kind of rank order where you think you have the most pricing power versus the least? If it's easier just by segment, when we think about modeling the?

Speaker #9: Or, if it's easier, just by segment when we think about modeling the pricing challenge?

Mike Dahl: Um-

Mike Dahl: The pricing tailwinds.

Speaker #2: I'm not sure there's a dramatic difference in any of them. The biggest differences would be the amount of inflation, based on how big the cost increases impact each product category.

Jeffrey S. Lorberbaum: I'm not sure there's a dramatic difference in any of them. The biggest differences would be the amount of inflation based on how big the cost increases impact each product category. you know, it may sound different. The ones with the highest ones might be the easiest because the industry has to force through more. On the other side, as we said earlier, the imported products with long backlog, with long supply chains, those product categories, you know, it's going to take a while before the chemical costs flow through it, but they're going to flow through it.

Speaker #2: And then it may sound different. The ones with the highest ones may be the easiest because the industry has to force through more. Is it on the other side, as we said earlier, the imported products with long backlog with long supply chains?

Speaker #2: Those product categories—it's going to take a while before the chemical costs flow through it. But they're going to flow through it.

Speaker #9: Understood. Appreciate the caller.

Mike Dahl: Understood. Appreciate the call.

Speaker #2: All right. Thanks.

Nicholas P. Manthey: All right. Thanks.

Speaker #3: Our next question comes from Michael Rehut from J.P. Morgan. Please go ahead with your question.

Operator: Our next question comes from Michael Rehaut from J.P. Morgan. Please go ahead with your question.

Speaker #7: Thanks, good morning, everyone. First question, I just wanted to circle back to the price increases relative to the cost inflation that you expect to see in the back half, just wanted to be sure of two things.

Michael Rehaut: Thanks. Good morning, everyone. First question, I just wanted to circle back to the price increases relative to the cost inflation that you expect to see in H2. Just wanted to be sure of two things. First, when you talk about the cost increases, it's the ones that you've already announced in April, mid- to high-single digits, if that's really at this point what we're talking about. Second, as you see the cost inflation today, are the price increases sufficient to offset the H2 cost inflation?

Speaker #7: First, when you talk about the cost increases, it's the ones that you've already announced in April, mid to high single digits. If that's really at this point, what we're talking about.

Speaker #7: And second, as you see the cost inflation today, is the price increases sufficient to offset the back half cost inflation?

Speaker #2: Yeah, Mike. I think, again, our pricing that we've announced, along with other cost actions, are intended to offset the higher costs. We have announced mid to high single digits across most of our categories.

Nicholas P. Manthey: Yeah, Mike, I think, you know, again, our pricing that we've announced, along with other cost actions are intended to offset the higher costs. We have announced, you know, mid to high single digits across most of our categories. As, you know, inflation is really changing, you know, daily and weekly, we will adjust and adapt as we go through the H2 of the year, but our intent is to pass them through.

Speaker #2: And then, as inflation is really changing daily and weekly, we will adjust and adapt as we go through the second half of the year.

Speaker #2: But our intent is to pass them through.

Jeffrey S. Lorberbaum: It's possible we'll have to announce additional price increases if the things keep inflating.

Speaker #7: It's possible we'll have to announce additional price increases if the things keep inflating.

Speaker #8: Right. Right. Okay. And I guess the second question, just on mix—if you're seeing any green shoots of mix. I'm really thinking about North America here.

Michael Rehaut: Right. Okay. I guess, you know, the second question just on, you know, mix. If you're seeing any green shoots of mix, I'm really thinking about North America here, ceramic and North America flooring. How do you characterize the mix trends in residential? Have they improved at all? Could this be, you know, any help at all as well in the back half as you combat some other margin pressures?

Speaker #8: Ceramic and North America flooring. How would you characterize the mix trends in residential? Have they improved at all? And could this be any help at all as well in the back half as you combat some other margin pressures?

Speaker #2: Let me try to frame it. The consumers today—the higher-end consumer—has more money, and is spending more. So that's helping on one side.

Jeffrey S. Lorberbaum: Let me try to frame it. The consumers today, the higher end consumer has more money and is spending more, that's helping on one side. On the other side, the guys in the middle are either postponing or trading down, there is huge pressure in the builder market to put in low-cost products in order to keep the price of the home. You have both things going at the same time. I think that the people with money will continue to spend. We talked to some of our retailers, they say some of them have the traffic slower, but the people coming in are spending more money. We're gonna have to see how the whole thing evolves. A lot of it's really around consumer confidence and how they react to all this stuff.

Speaker #2: On the other side, the guys in the middle are either postponing or trading down. And there is huge pressure in the builder market to put in low-cost products in order to keep the prices of the homes.

Speaker #2: So you have both things going at the same time. I think that the people with money will continue to spend. We talked to some of our retailers.

Speaker #2: They say some of them have the traffic slower, but the people coming in are spending more money. So we're going to have to see how the whole thing evolves.

Speaker #2: A lot of it’s really around consumer confidence and how they react to all this stuff. We could sure use some help from some positive comments out of our leadership.

Jeffrey S. Lorberbaum: We could sure use some help from some positive comments out of our leadership.

Speaker #7: All right. Thank you very much.

Michael Rehaut: All right. Thank you very much.

Speaker #2: Thanks, Mike.

Jeffrey S. Lorberbaum: Thanks, Mike.

Speaker #3: Our next question comes from Keith Hughes from Truist. Please go ahead with your question.

Operator: Our next question comes from Keith Hughes from Truist. Please go ahead with your question.

Speaker #9: Thank you. Yes. The last time we saw this kind of inflation, a couple of years ago during COVID, you saw some pretty significant hit on mix.

Keith Hughes: Thank you. Yes. The last time we saw this kind of inflation, a couple years ago during COVID, you saw some pretty significant hit on the books. Is there anything that is changed in the industry or any reason we wouldn't feel at least some of that pressure? These are pretty significant price increases you are talking about.

Speaker #9: Is there anything that's changed in the industry, any reason we wouldn't feel at least some of that pressure? Because these are pretty significant price increases you're talking about.

Jeffrey S. Lorberbaum: It's possible that we could see some declining mix in a piece, but we're raising all the product categories to cover it. It's not abnormal that some of the customers trade down, given the, as I said before, the higher end customers have money, so it's not gonna affect them. The higher end of the business has been doing better. It is possible there'll be some mix decline as people try to maintain budgets.

Speaker #2: It's possible that we could see some declining mix in a piece, but we're raising all the product categories to cover it. It's not abnormal that some of the customers trade down.

Speaker #2: As I said before, the higher-end customers have money, so it's not going to affect them. So the higher end of the business has been doing better.

Speaker #2: But it is possible there'll be some mixed decline as people try to maintain budgets.

Speaker #9: Okay. And we talked a lot about price increases and cost increases on this call. Is carpet where you're seeing the biggest inflation coming right now, just based on the fibers they use?

Keith Hughes: Okay. We talked a lot about price increases and cost increases on this call. Is carpet where you are seeing the biggest inflation coming right now just based on the fibers that you use?

Speaker #2: No. We see inflation across the board in all the different categories. And we have all the chemical input costs going up with similar levels.

Paul De Cock: No. We see inflation across the board in all the different categories. We have all the chemical input costs going up with similar levels. As that filters through, we'll have to take up the prices. In Europe, we see higher increases like we said. The impact of energy in Europe is much more significant. In some of our product categories, we see much higher impacts than on the flooring side, and we are acting appropriately.

Speaker #2: And as that filters through, we'll have to take up the prices. And then, in Europe, we see higher increases, like we said. The impact of energy in Europe is much more significant.

Speaker #2: And so in some of our product categories, we see much higher impacts than on the flooring side. And we are acting appropriately.

Speaker #9: Okay. Thank you.

Keith Hughes: Okay. Thank you.

Speaker #2: If I had to pick one that was highest, we have in Europe, and it's the polyurethane insulation business. And the chemicals have a large part of it.

Jeffrey S. Lorberbaum: If I had to pick one that was highest, we have in Europe a polyurethane insulation business.

Keith Hughes: Oh, really?

Jeffrey S. Lorberbaum: is a large part of it, and there are some shortages in the marketplace. I mean, we're putting through really significant increases in the category along with the competitors in the marketplace.

Speaker #2: And they're some shortages in the marketplace. So I mean, we're putting through really significant increases in the category along with the competitors in the marketplace.

Speaker #9: Okay. Thank you.

Keith Hughes: Okay. Thank you.

Speaker #3: Our next question comes from Matthew Bullie from Barclays. Please go ahead with your question.

Operator: Our next question comes from Matthew Bouley from Barclays. Please go ahead with your question.

Speaker #10: Good morning. You have a need to talk on for Matt today. Thank you for taking my questions. So first off, we've seen industry peers announce price increases over the past few months.

Anika Dolakia: Good morning. You have Anika Dolakia on for Matt today. Thank you for taking my questions. First off, we've seen industry peers announce price increases over the past few months, but as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry, or is there evidence of share gain coming at the expense of price, either for Mohawk or competitors across LVT, carpet, and ceramic? Thanks.

Anika Dholakia: Good morning. You have Anika Dolakia on for Matt today. Thank you for taking my questions. First off, we've seen industry peers announce price increases over the past few months, but as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry, or is there evidence of share gain coming at the expense of price, either for Mohawk or competitors across LVT, carpet, and ceramic? Thanks.

Speaker #10: But as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry? Or is there evidence of share gain coming at the expense of price, either for Mohawk or competitors across LVT, carpet, and ceramic?

Speaker #10: Thanks.

Jeffrey S. Lorberbaum: The increases are flowing through the marketplace. It takes a while to go through. We will not see the full impact of them for another few weeks or even more, so we'll have to see. So far, we're seeing more discipline than normal, given the amounts of the increases. Everybody needs more to cover the cost.

Speaker #2: The increases are flowing through the marketplace. It takes a while to go through. We will not see the full impact of them for another few weeks, or even more.

Speaker #2: So, we'll have to see. But so far, we're seeing more discipline than normal, given the amounts of the increases. Everybody needs more to cover the cost.

Speaker #10: Okay, that's helpful. Thank you. And then, second, I wanted to talk a little bit more about the setup in Europe. So you mentioned Europe has understandably become—it's more impacted following the Middle East conflict.

Anika Dolakia: Okay. That's helpful. Thank you. Second, I wanted to talk a little bit more about the setup in Europe. You mentioned Europe has understandably, it's more impacted following the Middle East conflict. Any color on the trends you guys are seeing since last quarter, specifically, are consumers deferring projects or is it more a function of mix down? Thanks.

Anika Dholakia: Okay. That's helpful. Thank you. Second, I wanted to talk a little bit more about the setup in Europe. You mentioned Europe has understandably, it's more impacted following the Middle East conflict. Any color on the trends you guys are seeing since last quarter, specifically, are consumers deferring projects or is it more a function of mix down? Thanks.

Speaker #10: Any color in the trends you guys are seeing since last quarter, specifically our consumers deferring projects? Or is it more a function of mix down?

Speaker #10: Thanks.

Speaker #2: The market was showing some improvements in January, following the multiple rate cuts that the European Central Bank had executed. But after the start of the war, consumer confidence declined.

Paul De Cock: The market was showing some improvements in January following the multiple rate cuts that the European Central Bank had executed. After the start of the war, consumer confidence declined, and so that reduced the discretionary spend in the market. As we discussed, energy prices are higher in Europe. They're causing growth, greater inflation, and we'll have to push up the prices more. Consumers have record savings and mortgage rates are much lower in Europe, and that should support growth as the confidence come back.

Speaker #2: And so, that reduced the discretionary spend in the market. As we discussed, energy prices are higher in Europe. They're causing greater inflation, and we'll have to push up the prices more.

Speaker #2: But consumers have record savings and mortgage rates are much lower in Europe. And that should support growth as the confidence comes back.

Speaker #10: That's helpful. Thank you.

Anika Dolakia: That's helpful. Thank you.

Anika Dholakia: That's helpful. Thank you.

Speaker #2: Thank you.

Paul De Cock: Thank you.

Speaker #3: Our next question comes from Brian Byros from TRG. Please go ahead with your question.

Operator: Our next question comes from Brian Biros from TRG. Please go ahead with your question.

Speaker #11: Hey, good morning. Thank you for taking my questions today. I guess, how quickly can you pass on price in today's market relative to previous price increases?

Brian Biros: Hey, good morning. Thank you for taking my questions today. I guess how quickly can you pass on price in today's market relative to previous price increases? Inflation pressures are well known, but the demand side isn't really there. Curious how those conversations go and kind of just how quickly that can be reflected in today's market once you announce an increase.

Speaker #11: Inflation pressures are well known. But the demand side isn't really there. So curious how those conversations go. You kind of just how quickly that can be reflected in today's market once you announce an increase.

Jeffrey S. Lorberbaum: The entire world knows this is going on. Our customers know what's going on. Our competitors have the same pressures we do. The marketplace understands that it has to happen. In some cases, it may feel a little easier up to this point or not, but we're not through fully implementing it. On the other side, there is a concern that there's more to come.

Speaker #2: The entire world knows this is going on. Our customers know what's going on. Our competitors have the same pressures we do. So the marketplace understands that it has to happen.

Speaker #2: And in some cases, it may feel a little easier up to this point, or not. But we're not through fully implementing it. On the other side, there is a concern that there's more to come.

Speaker #2: Is it? And so, all of those things are affecting acting.

Brian Biros: Is it?

Jeffrey S. Lorberbaum: All of those things are affecting the way the industry's acting.

Speaker #11: Okay. And then margins expanded in Q1. I think that might be the first time in maybe five or six quarters here. So, it's nice to see some level of expansion even after all the restructuring efforts, and that was on lower volume still.

Brian Biros: Okay. You know, margins expanded in Q1. I think that might be the first time in maybe 5 or 6 quarters here. It's nice to see some level of expansion even after all the restructuring efforts. You know, that was on lower volume still. It feels like there's still gonna be pressures for the rest of the year. Do you guys look at Q1 as some type of indicator of kind of what financials you can put up when things start to turn? Kind of putting that into context would be helpful for thinking about Mohawk beyond the next few quarters. Thank you.

Speaker #11: So it feels like there's still going to be pressures for the rest of the year. But do you guys look at Q1 as some type of indicator of kind of what financials you can put up when things start to turn?

Speaker #11: Kind of putting that in the context would be helpful for thinking about Mohawk beyond the next few quarters. Thank you.

Speaker #2: Yeah, I think Q1, the market conditions were still very pressured. And so we think that, looking forward in the near term, our margins will depend on how the conflict evolves.

Nicholas P. Manthey: Yeah, I think, you know, Q1, the market conditions were still very pressured. You know, we think that looking forward or in the near term, our margins will depend on how the conflict evolves. We'll have the inflation, we're taking price to mitigate it. As Jeff mentioned, you know, consumer confidence could be lower and could impact volumes. We're really focused on our productivity and restructuring efforts to lower our costs. You know, we do believe that over the long term, there's a potential for margins to grow from here.

Speaker #2: We'll have the inflation, and we're taking price to mitigate it. As Jeff mentioned, consumer confidence could be lower and could impact volumes. But we're really focused on our productivity and restructuring efforts.

Speaker #2: To lower our costs. And we do believe that, over the long term, there's a potential for margins to grow from here.

Speaker #11: As we started earlier, we talked about potential good outcomes and bad outcomes. Either one still possible. And we have to be prepared to adapt to either one.

Jeffrey S. Lorberbaum: As we started earlier, we talked about, you know, potential good outcomes and bad outcomes. Either one's still possible, and we have to be prepared to adapt to either one. We're hoping for the best.

Speaker #11: We're hoping for the best.

Speaker #3: In our next question comes from David McGregor from Longbow Research. Please go ahead with your question.

Operator: Our next question comes from David MacGregor from Longbow Research. Please go ahead with your question.

Speaker #12: Yes. Good morning, everyone. And thanks for taking my questions. I guess I wanted to focus on the commercial business for a moment. And maybe it's a strategic question, Jeff.

David MacGregor: Yes. Good morning, everyone, and thanks for taking my questions. I guess I wanted to focus on the commercial business for a moment. Maybe it's a strategic question, Jeff. Just given the relative resilience of the commercial businesses as well as a, maybe a different competitive structure and more opportunities for growth in that market segment, have you considered allocating capital to the expansion of that side of your business and bringing the residential commercial mix more into balance?

Speaker #12: But just given the relative resilience of the commercial businesses, as well as maybe a different competitive structure and more opportunities for growth in that market segment, have you considered allocating capital to the expansion of that side of your business and bringing the residential-commercial mix more into balance?

Jeffrey S. Lorberbaum: The commercial business is much smaller than the residential business.

Speaker #2: The commercial business is much smaller than the residential business. The opportunities are much less, so achieving at the same market shares, the commercial business is dramatically smaller than the other.

Jeffrey S. Lorberbaum: The commercial business is much smaller than the residential business.

David MacGregor: Yep.

Jeffrey S. Lorberbaum: The opportunities are much less. Achieving at the same market shares, the commercial business is dramatically smaller than the other. With that, we continue to invest more money in product innovation. In the commercial market, it's easier to sell and promote features and benefits that are differentiated. We continue to invest to create differentiated offerings that we can specify in the marketplace. We're investing in more showrooms. We're investing in our sales organization to create more specifications. We agree with you that it's a good place to be.

Speaker #2: With that, we continue to invest more money in product innovation in the commercial market. It's easier to sell and promote features and benefits that are differentiated.

Speaker #2: So we continue to invest to create differentiated offerings that we can specify in the marketplace. We're investing in more showrooms. We're investing in our sales organization to create more specifications.

Speaker #2: So, we agree with you that it's a good place to be.

Speaker #12: I guess I was sort of asking the question more from an M&A standpoint.

David MacGregor: I guess I was sort of asking the question more from an M&A standpoint.

Jeffrey S. Lorberbaum: From M&A, we would consider the right commercial businesses that fit with ours that we think we can add value to, and their opportunities should arise over time in both the US markets as well as the world markets.

Speaker #2: Yeah. From M&A, we would consider the right commercial businesses that fit with ours, that we think we can add value to. And there are opportunities that should arise over time in both the U.S. markets as well as the world markets.

David MacGregor: Got it. Okay. Second question is just the obligatory tariff expense question, I guess. What's your current expectation for 2026 gross tariff expense prior to mitigating actions?

Speaker #12: It's just the obligatory tariff expense question, I guess. A lot of noise and moving parts on this. But what's your current expectation for 2026 gross tariff expense prior to mitigating actions?

Speaker #2: Yeah, the tariffs were reduced from a few months ago. But really, with the inflation occurring because of the conflict, the net effect is our costs are going to increase, and that's why we're taking the pricing adjustments to mitigate the higher costs.

Nicholas P. Manthey: Yeah. The tariffs were reduced from a few months ago. Really with the inflation occurring because of the conflict, the net effect is our costs are going to increase, and that's why we're taking the pricing adjustments to mitigate the higher costs.

Speaker #12: Okay. But you haven't quantified that for the Street?

David MacGregor: Okay. You haven't quantified that for the street?

Speaker #2: No, I think the tariff environment is changing, and so we'll see how it evolves.

Nicholas P. Manthey: No, I think the tariff environment is changing. We'll see how it evolves.

Speaker #12: Understood. Thanks very much.

David MacGregor: Understood. Thanks very much.

Speaker #2: Thank you.

Nicholas P. Manthey: Thank you.

Speaker #3: And with that, ladies and gentlemen, we'll be concluding today's question and answer session. I'd like to turn the conference call back over to Jeff Lorberbaum for any closing remarks.

Operator: With that, ladies and gentlemen, we'll be concluding today's question and answer session. I'd like to turn the conference call back over to Jeffrey Lorberbaum for any closing remarks.

Speaker #13: We've managed global turmoil many times in our history, and it's always followed by an industry recovery. We expect multiple years of above-trend growth when it happens this time.

Jeffrey S. Lorberbaum: We've managed global turmoil many times in our history. It's always followed by an industry recovery. We expect multiple years of above growth trend when it happens this time. As that occurs, our industry, the pricing and margins increase, our mix improves with people buying higher value products, and we get significant leverage off of our cost structures and all the actions we've taken over the past few years. We appreciate you taking the time and being with us today. Thank you very much.

Speaker #13: As that occurs, our industry, the pricing and margins increase, our mix improves. With people buying higher-value products, we get significant leverage off of our cost structures and all the actions we've taken over the past few years.

Speaker #13: We appreciate you taking the time and being with us today. Thank you very much.

Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.