MOHAWK INDUSTRIES INC Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Sales in the first quarter were $2.5 billion, a 5.7% decrease reported but flat on a constant basis, absorbing two fewer shipping days and foreign exchange headwind. EPS was $1.52,受益于生产力提升、重组行动和更低税率。
• Premium collections and differentiated products launched in 2024 performed above market. Missed sales and system issues impact within expected range. Purchased 225,000 shares for ~$26 million.
• Tariffs on China LVT imports; Mohawk has domestic capacity advantage. Inventory increased due to tariffs preparation. Restructuring actions to generate ~$100 million savings this year.
• Enhancing Flooring North America order system to improve efficiencies; services returned to historical rates.

Segment Performance:

• Global Ceramic: Sales over $990 million, a 4.9% decrease as reported and a 1.2% increase on a constant basis. Revenue contribution is approximately 39.6% of total sales. Adjusted operating income was $48 million or 4.8%.
• Flooring North America: Sales were $862 million, a 4.2% decrease as reported and 1.1% increase on a constant basis. Revenue contribution is around 34.5% of total sales. Adjusted operating income was $26 million or 3%.
• Flooring Rest of the World: Sales were $670 million, an 8.8% decrease as reported and 2.9% increase on an adjusted basis. Revenue contribution is approximately 26.8% of total sales. Adjusted operating income was 9.1%.

Guidance:

• Anticipate second quarter adjusted EPS between $2.52 and $2.62, excluding restructuring or other one-time charges.
• Plan to cover tariff costs via pricing actions, but timing and extent of tariff impact on earnings are uncertain.
• Restructuring savings of over $70 million remaining for the balance of the year; expect productivity gains to offset inflation costs.

Risks:

• Uncertainty from global tariffs affecting consumer and business spending, housing market. Timing of tariff impact on earnings due to FIFO accounting.
• Soft market conditions leading to pricing pressure and competitive challenges. Input cost increases and inflationary pressures.

Q: Morning, guys. Thank you for taking my questions. Maybe starting with the tariffs, you guys talked about an annualized cost impact of $50 million. I mean, how should we sort of think about the timing of that coming through in 2025? I mean, is there anything embedded in 2Q? Or is it just more kind of a second half? And then you sort of mentioned your intentions to offset the impact with pricing actions and supply chain adjustments. I mean, any additional color there between the split of those buckets? Particularly considering that the pricing environment right now is fairly challenging?

A: Well, let me start, John, on your first question. Timing. Obviously, as you know, we're on a FIFO accounting system, which means that as we start to purchase material that has tariff on it, it would take somewhere between four and five months to kind of turn through the inventory. So this would be certainly more of a late third quarter, fourth quarter impact, giving us sufficient time to get pricing and other actions aligned.

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

A: Well, our East and West Coast production capacity is obviously improving our service and logistics cost and position in the US market. We have a very good manufacturing footprint, which should advantage us with the increase in tariffs. And so going forward, we'll use a balance of sourced and manufactured goods to optimize our results, and we'll continue focusing on filling our existing capacity.