Good morning, everyone, and welcome to the Mohawk Industries First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. 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. Please note this event is being recorded. At this time, I'd like to turn the conference call over to Mr. James Brunk, Chief Financial Officer. Sir? Please go ahead.

Thanks, Jamie. Good morning, everyone, and welcome to Mohawk Industries Quarterly Investor Conference Call. Joining me on the call are Jeff Lorberbaum, Chairman and Chief Executive Officer, and Paul De Kock, President and Chief Operating Officer. Today, we'll update you on the company's first quarter performance and provide guidance for the second quarter of 2025. I'd like to remind everyone that our press release and statements that we make during this call may include forward-looking statements as defined in the Private 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 periodic filings with the Securities and Exchange Commission. This call may include the discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-Ks and press release in the Investors section of our website. I'll now turn over the call to Jeff for his opening remarks.

Thank you, Jim. In the first quarter, our reported sales were $2.5 billion, a decrease of 5.7% as reported or about flat on a constant basis, absorbing two fewer shipping days and year-over-year foreign exchange headwind. Even with soft market conditions, our premium collections and differentiated products we launched in 2024 generated above-market results. We recorded earnings per share of $1.52, our performance primarily benefiting from productivity gains, restructuring actions, and a lower tax rate, which offset pricing pressure and higher input costs. The impact of missed sales and extraordinary costs from our new Flooring North America order system was within the expected range, and services returned to historical rates. We are enhancing the system to improve our efficiencies and provide greater functionality and capabilities. During the quarter, we purchased 225,000 shares of our stock for approximately $26 million. Last month, global tariffs were announced, which elevated uncertainty for businesses and consumers. In response to the retaliatory tariffs, the US also implemented tariffs of 45% on China, which supplies a significant part of LVT sold in the US. Mohawk is a substantial domestic operation to produce ceramic tile, carpet, laminate, sheet vinyl, LVT, and quartz countertops, which is more advantageous as tariffs increase. To offer our customers a wider variety of options, we supplement our ceramic tile and LVT manufactured in the US with imported products. Most of the ceramic tile and some of the LVT we import is produced in our own facilities in Mexico and is not subject to tariffs under the USMCA agreement. We increased our inventory levels in preparation for tariffs being implemented. At the current 10% rate, we expect Mohawk will incur annualized costs of approximately $50 million, which we expect to address through price increases and supply chain adjustments as needed. In addition to the direct impact, the tariffs are likely to influence consumer and new construction and business spending in both the US and abroad, though the extent is unpredictable at this time. Another impact of the tariffs is a weakening of the US dollar, which could benefit our domestic manufacturing and translated results this year. Across our markets, conditions in the first quarter weakened sequentially, with residential remodeling remaining the lowest sector. Even before the tariff announcements, consumer confidence had been falling as individuals have grown increasingly concerned about their future prospects. In the US, concerns over inflation have prevented the Fed from reducing rates, though most are now predicting the Fed will make multiple rate cuts during 2025. So far this year, more US homes are being offered for sale, as available housing inventory continues to rise. After multiple years of deferring purchases, some consumers are reentering the real estate market to meet their current family needs. Others are staying in their homes longer than planned and will initiate remodeling projects to maintain their properties and accommodate family changes. As the spring selling season begins, the outlook for US homebuilders remains cautious, with March results showing significant variation by region. Due to economic uncertainty and the war in Ukraine, consumer confidence in Europe has also declined, leading to postponed home sales and remodeling activities. As inflation nears their target, the European Central Bank cut central rates to 2.25% in April to stimulate the economy as well as the housing market. As defense and infrastructure spending increases, the European economy, particularly Germany, could see improvement. Now Jim will review our financial details for the quarter.

Thank you, Jeff. Sales for the quarter were just over $2.5 billion, that's a 5.7% decrease as reported or 0.7% on a constant basis, including absorbing two less shipping days, unfavorable year-over-year foreign exchange, and the previously disclosed impact of the Flooring North America system conversion. These headwinds were partially offset by favorable price mix in the quarter, primarily in our Global Ceramic and Flooring North America segments. Gross margin for the quarter was 23.1% as reported and excluding charges was 24.1%, in line with the prior year. SG&A expense as a percentage of sales was 19.2% on an adjusted basis, again relatively in line with the prior year. Operating income as reported was $96 million or 3.8%. During the quarter, we had charges of $26 million primarily related to our previously announced restructuring actions across the enterprise, which will generate approximately $100 million of savings this year. It gave us an operating margin from an adjusted basis of 4.8%, a 130 basis point decrease versus the prior year due to higher input costs of $41 million, the impact of the Flooring North America order management system conversion of approximately $30 million, which was in line with our expectations, volume of $11 million, partially offset by improvement in productivity of $51 million. Interest expense for the quarter was $6 million, a decrease versus the prior year due to lower overall debt and the benefit of interest income reflecting the strength of our balance sheet. Based on our current outlook, we anticipate our interest expense to be in the range of $25 to $30 million for the full year. Our GAAP and non-GAAP tax rate was approximately 18% versus 21.8% in the prior year. We're forecasting a Q2 tax rate of approximately 21% and for the full year to be approximately 20%. It gave us an earnings per share for the quarter on a reported basis of $1.15 and adjusted earnings per share of $1.52. Turning to the segments, Global Ceramic had sales of just over $990 million, that's a 4.9% decrease as reported and an increase of 1.2% on a constant basis, driven by an improvement in our product and channel mix across the segment, partially offset by lower sales volume. Our operating income on an adjusted basis was $48 million or 4.8%, that's only 20 basis points below the prior year as higher input costs of $18 million, lower sales volume of $10 million offset gains in productivity versus the prior year of $21 million, driven by an improvement in our year-over-year results in the US, Brazil, and Europe. In Flooring North America, our sales were $862 million, that is a decrease of 4.2% as reported or 1.1% on a constant basis, as the segment had improvement in price and mix, especially in the resilient laminate and commercial soft business units, offset by the negative impact of the order management system conversion, which was approximately $50 million, most of that being on volume. It gave us an operating income on an adjusted basis of $26 million or 3%, excluding charges, a decline of 230 basis points versus the prior year, as the year-over-year improvement in productivity of $27 million was offset by higher input costs of CAD 19 million and the impact of the system conversion of approximately $30 million. In Flooring Rest of the World, we had sales of $670 million, that's an 8.8% decrease as reported and 2.9% on an adjusted basis, driven by lower sales volume and unfavorable price mix, primarily in our laminate insulation and sheet vinyl business units. Operating income on an adjusted basis was 9.1%, that's a decline of 100 basis points versus the prior year, due to unfavorable price mix of approximately $8 million and lower sales volume, only partially offset by stronger productivity, as the improvement in our LVT business was offset by the weakness in insulation and laminate. Corporate eliminations for the quarter were $12 million, in line with the prior year, and we anticipate the full year expenses to be approximately $50 million. Turning to the balance sheet, cash and cash equivalents were just over $700 million. In Q1, our free cash flow was a use of approximately $85 million, primarily due to timing with the delayed invoicing in Flooring North America and an increase in imported goods ahead of US tariff rollout. We still forecast a strong overall year in free cash flow. Inventories were just over $2.6 billion. Our inventory grew by approximately $80 million versus the prior year, primarily due to the increase of imported goods again, ahead of the recently announced US tariffs. Property, plant, and equipment were just over $4.6 billion. Our Q1 CapEx was $89 million with D&A at approximately $150 million. The company plans to invest approximately $530 million in 2025 with D&A of approximately $600 million, focusing on cost reduction and product innovation projects. And lastly, overall, the balance sheet and cash flow outlook remain very strong with current net debt of $1.7 billion and a leverage of 1.2 times. And with that, I will turn it over to Paul to review our Q1 operational performance.

Thank you, Jim. In our Global Ceramic segment, our strategy is to grow our market share in a difficult environment. We believe we outperformed the markets in most of our regions while optimizing our mix and reducing costs. With low demand, we are leveraging our extensive offering, superior service, and reliability to improve our position with existing customers while pursuing new opportunities. Pricing pressure remains a challenge due to low capacity utilization across the industry in all of our geographies, and we are taking selective pricing actions where feasible. Our restructuring projects are on schedule, and we are evaluating additional initiatives to lower our costs. In the US, we delivered solid results in both residential and commercial as we focused on ceramic tile contractors, kitchen and bath dealers, and commercial projects. Given rising input costs, we implemented targeted pricing increases on our higher-value products. Most of our US floor and wall tile portfolio is manufactured in the US and Mexico, which should advantage our business given tariffs on imported products. Our domestically produced quartz countertops should also benefit since more than half of that market is using imported alternatives. In Europe, our results benefited from our premium collections, innovative product introductions, and growing participation in the commercial channel, which is outperforming residential. Sales of our porcelain slabs are growing significantly due to our advanced visuals, capacity expansion, and improved costs. Natural gas prices in Europe have recently declined and will help offset other inflation. In Brazil, our results benefited from strength in exports throughout South America, pricing actions, and enhanced mix. The Mexican market remains challenging, and we are expanding our porcelain offering to grow our distribution and improve our mix. Our restructuring projects in Mexico are on track and will lower our costs and increase our competitive position. In our Flooring Rest of the World segment, we are responding to challenging market conditions through strategies to expand sales in parts of Europe with stronger economies, introducing new products to satisfy regional preferences, and focusing on greater export opportunities around the world. To offset higher input costs, we are taking selective pricing actions where possible, while also pursuing productivity gains and cost reductions. We are controlling inventory and managing operations to align with lower demand. In our Flooring business, our transition from flexible to rigid LVT has helped increase volumes, and we have improved our manufacturing performance. In Europe, we are experiencing increased pricing and mix pressures in our flooring categories as retailers shift their product assortments to lower price points to align with consumers trading down. To increase sales of our Quick Step premium flooring, we are expanding distribution in Southern and Eastern Europe. In the quarter, we started a new laminate press that can deliver the next generation of product features and is more efficient than the line we retired. Our panels mix benefited from the growth of our premium collections and higher-value decorative panels despite ongoing pressure on our commodity panels business. Our insulation performance improved in the UK, and sales of flat roof products for commercial projects increased. We are expanding insulation sales into Eastern Europe to support a new facility in Poland that will be operational in 2027 when we expect more favorable market conditions. In both the Panels and Insulation business, we have announced selective price increases given inflation. Our Flooring North America segment performed in line with expectations as our shipments recovered from the disruption caused by the order system conversion. Residential remodeling remains under pressure due to low housing turnover, elevated interest rates, and weakening consumer confidence. In 2025, we launched many new products to better position us for a recovery of the category. At the recent National Trade Show, our new Kazakhstan Black Label luxury carpet collection was chosen by dealers as the best product for style and design. During the quarter, we also benefited from strong sales performance in LVT, as we have expanded our portfolio across all price points. Our East and West Coast LVT production strategy is improving our service and optimizing our logistics costs. The acceptance of our premium waterproof laminate as an alternative to LVT is progressing in both residential remodeling and new construction. It provides superior aesthetics, is scratch-resistant, and has a more dependable supply. We are further increasing our domestic laminate capacity to support the increasing demand. We have expanded our relationships with homebuilders across the country in both carpet and hard surfaces, which are yielding higher sales. In commercial, order activity is good across all categories as we benefited from accelerated product launches. Restructuring actions in the segment are on track and delivering the expected savings. We are working to offset higher input costs through additional process improvements and cost reduction actions. I will now return the call to Jeff for his closing remarks.

Thank you, Paul. With the implementation of the tariffs last month, there is more uncertainty with the global economic outlook, and softer conditions are anticipated given higher inflation, lower consumer confidence, and reduced business investment. At this point, the tariff amount and the effect on consumer spending and housing are still evolving. We will take the appropriate actions to manage the impact of tariffs as needed. We're focusing on optimizing our sales and further lowering our operational costs with our restructuring initiatives this year, which should result in a benefit of approximately $100 million. Our Flooring North America segment service has returned to historical levels while we continue to enhance the functionality and efficiency of the system's new order system. We expect increased costs from inflation will be partially mitigated by productivity gains, cost containment, and strategic pricing actions. We anticipate pricing pressure will continue in all regions given low demand and competitive markets. Global ceramics and flooring North America are improving their mix with increased participation in the commercial channel, sales of premium collections, and performance of recent product introductions. In the rest of the world segment, European consumer demand for large discretionary items such as flooring is at a low level with product remixing, though declining interest rates could stimulate demand. Given these factors, we expect our second quarter adjusted EPS will be between $2.52 and $2.62, excluding any restructuring or other one-time charges. We remain optimistic about the long-term prospects of the flooring category given where we are in the housing cycle. To improve our results, we continue to reduce our cost structures, simplify our operations and product complexity, and invest in new product features. When the Great Recession bottomed out, our industry rebounded dramatically, growing more than 10% in subsequent years. Though we cannot predict the inflection point, we expect our results to significantly improve when the industry volumes return to historical levels. As with past economic cycles, we will emerge from this period operationally stronger and ready to provide our customers with superior products and service. We'll now be glad to take your questions.

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your question, you may press star and 2. We do ask that you please limit yourselves to one question and a single follow-up in the interest of time. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from John Lovallo from UBS. Please go ahead with your question.

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?

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 tariffs 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.

We started announcing increases. We're gonna continue assessing the timing of when we're gonna announce the rest of them. We think that we've stopped importing product from China at this point already. We're moving product between different suppliers and regions as we think is appropriate for what's going on. We'll continue adjusting as we need to.

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?

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.

Okay. Thank you, guys.

Thank you. Thanks, John. Our next question comes from Matthew Bouley from Barclays Investment Bank. Please go ahead with your question.

Hey. Morning, everyone. Thanks for taking the questions. I guess, sticking on that same topic of pricing power, yeah, just wanted to press a little bit on kind of balancing that, you know, the environment that's promotional, right, when you have slower demand in the industry. And you mentioned at the top sort of potential for more pricing pressure across geographies, and then at the same time, you're announcing price increases going forward. So how do you think about that balance there? Is there a mix impact that can happen in that scenario? Or maybe are there different categories that may see better pricing power relative to others? Just any more color on that. Thank you.

Listen. We think that the market's gonna pass through the tariffs in our category with pricing actions. It's just starting to happen, and still evolving as we're going through at this point. We have announced price increases, and we are assessing the timing of the rest of them to pass it through. We think that the tariffs increase our competitive position given all the local products that we make. There could be some movements between product categories within it as LVT in general goes up more than the other product categories, and it could benefit our alternatives like laminate, which is an easy alternative for it. Ceramic as well as even carpet may benefit as the costs go up and people try to manage it.

Got it. Okay. Thank you for that, Jeff. And then secondly, back on the $50 million of higher cost, I just wanted to get a little more detail. I guess that implies maybe you import sort of $500 million from other countries besides China. So just any color on what specifically you do import, which countries that may be? Because, obviously, we just want to understand what can happen given what you know, may change with each individual country's tariffs. Thank you.

Yeah. So you're correct. The $500 million is, obviously, a whole different scale of different products, majoritarily LVT, but we import many other products. And then we are optimizing our supply chain continuously to minimize the duties and maximize our buying power across the world. Across the $500 million.

Okay. Thanks, Paul. Good luck, guys.

Thank you.

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

Hey. Good morning. Thanks for taking my question. I think last quarter, you guys spoke about sort of hoping to be able to grow EPS year over year, obviously, excluding the impact of the ERP issue in the first quarter. With the $50 million tariff hit, like how do you think about that playing out? And then, like, what are the puts and takes there?

Well, I mean, as you know, it's gonna be dependent on the market conditions, which are really unpredictable at this point. We think that the tariffs will be covered by price increases as we've said. And we think we'll get enough to cover the present tariffs. We'll have to see what happens after that. We're taking actions that we've gone through to mitigate the inflation by cutting our costs and restructuring, taking other costs out. Our flooring results this year will really depend on the activity level of the global economies, the interest rates, consumer spending, and housing around the world.

And, Rafe, it's key, as Jeff said, is that our plan is to offset that $50 million through pricing and other supply chain initiatives. If you exclude the system conversion, given the current conditions, if the economy does stabilize, tariffs remain at present level, and you should get some, you know, maybe potential interest rate falls, we could still exceed last year's results. Obviously, the alternative is the economies weaken and investments in housing discretionary spending fall. Our results would then certainly be under pressure.

That's helpful. And then just on the price cost outlook from here, I think it was a $40 million headwind in the first quarter. You've spoken about some price increases here, and it looks like some of the input costs have declined more recently. Just how do we think about the price cost as we go through the year?

Well, you know, material and energy costs increased towards the end of last year. And as I said about on the tariffs, you know, that will begin to flow through really our results a little bit this quarter, but even into Q2 and Q3. We also have to absorb the increased cost of labor and benefits across the business. Now the cost of natural gas, you're correct, in the US and Europe recently has decreased, and that should benefit us as it flows through the inventory, but it'd be later in the year. We are increasing prices selectively and taking actions to really further reduce our cost. And we'll adjust as required, though competitive markets are making it more difficult and more challenging for increases.

Thanks. Appreciate it.

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

Thank you. Good morning, everyone. Morning. Morning. My first question is maybe just building on the outlook for 2025. Can you talk a bit more on how you're thinking of the sequential lift from first quarter to second quarter for both the top line and the margins? And then as we do think to the back half of the year, any thoughts on the margin expectations there? Especially as you think about Flooring North America and some of the various factors around some of the new products gaining momentum, the productivity initiatives relative to some of those headwinds that you've spoken about?

As you look for the rest of the year, the government policies are slowing the economy and reducing consumer confidence, which is lowering the housing and remodeling activity. As we said, we've begun price increases and expect to compensate for present tariff levels, and we'll have to adjust if they change. We'll benefit from the restructuring savings of more than $70 million left for the balance of the year. We are driving additional productivity to reduce our cost structure to help offset it. We anticipate some tailwinds in the fourth quarter from lower energy. Our interest cost this year will also be lower given that we've reduced our debt and the interest income is higher. And then we still see a potential that central banks are reducing rates and could stimulate growth, which could help our category. Europe, they keep the rates should be getting low enough to help if the consumer confidence will help it a little bit. And we continue to be flexible and will continue to adjust to the changing environment.

Okay. That's helpful, Jeff. And then it was good to hear and see that you bought back some stock again this quarter. Can you talk a bit to your thoughts on capital allocation in this environment? And maybe with that too, Mohawk's ability to continue to generate really strong free cash flows even in a tougher macro?

Yes, Susan. You know, we still forecast even with the use of cash in the first quarter, strong free cash flow for the total year. I mentioned that CapEx forecast is about $530 million, but we may reduce that depending on as conditions materialize for the balance of the year. We did buy back about $26 million, and we'll continue to use that as part of our overall capital allocation strategy.

Okay. Thank you. Good luck with everything.

Thank you.

Our next question comes from Collin Verron from Deutsche Bank. Please go ahead with your question.

Good morning. Thank you for taking my question. Flooring North America sales, they were down modestly in the quarter. But when you start to parse out sort of the system conversion impact, it looks like sales could have been up to low single digits. If first, is that the right way to think about it? And if it is, can you just talk about what's driving an improvement either by end markets or product categories? And do you think you saw any pull forward just as customers got ahead of some tariffs here?

Yes. So in Flooring North America, our performance was in line with expectations. As our shipments recovered well from the disruption that was caused by the order system conversion. Although residential remodeling is at low levels, because of low housing turnover, elevated interest rates, and weakening consumer confidence, we performed well in the market. We are capturing volume share with differentiated products and promotions. And also, our commercial business performed quite well. In North America and the Flooring North America segment and in the Dow Tile business, we have a larger exposure to commercial than in our other businesses. And so commercial is holding up well and pricing is more resilient, and we are increasing investments in that segment.

Great. That's helpful color. And I guess just following up on that, how sustainable are those trends in commercial just given sort of the uncertain backdrop? Have you seen any changes in customer behavior as you look out into sort of projects that might hit in the back half of the year, or is it still pretty strong relative to the other end markets? Thank you.

Yes, you're correct that we are, of course, still benefiting from projects that were started last year. But at this time, we don't see the incoming orders on commercial projects tapering down. And so we are hopeful for the remainder of the year that this continues.

Thank you for all the color.

Thank you very much.

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

Thank you. I think in prepared statements, you said that price mix was up in both ceramic and flooring North America. That's the first time in a couple of years that we've seen that. Can you talk about what's going on in those sectors driving that up?

Well, in Flooring North America and in global ceramic, you are seeing the premium first of all, you're seeing the premium product do well. Both on the higher end versus carpet, laminate, porcelain slab, and in Europe. And then, also, you have that mix of channel that Paul just described where commercial, which is a larger piece of North America and global ceramic compared to flooring rest of the world, has done well so far this year. Which is also helping their mix. So it's really a combination of a little bit of product mix and a little bit of channel mix.

Second question. As you look in North America, specifically on LVT, the vast majority is imported. United States somewhat asked earlier. When do you think the price issue the price result of everything that's going on, how long is that gonna take to hit the industry?

Well, we and market participants have already increased prices to compensate for these tariffs. And as the tariffs change, the industry will highly likely push those through with more price increase.

The announcements are just going out on a pricing with different pieces. And the implementation will go through. We think you're gonna see it, you know, as we go through the second quarter. We're gonna see more and more of it getting into the marketplace.

Is there enough inventory out there to kinda carry through the second quarter before the impact or are we going to see it before then?

It depends on each. Us in us, he said it was probably gonna be somewhere in the third quarter before we flow through the inventory.

Okay. Alright. Thank you.

Our next question comes from Tim Wojs from Baird. Please go ahead with your question.

Hey, everybody. Good morning. Maybe just to kinda hop on Keith's question. Just is there a way that you could kinda give us some color on just what those competitive price increases are in terms of percentages or dollars? And kinda what you're thinking various, you know, kinda import competitors are gonna have to raise prices? I mean, is there a way that you can just kind of frame how much imports might have to go up in terms of price relative to domestically manufactured product?

It's really too early to tell. They're just getting out there. The announced increases of some of them are somewhere around 8% at the moment, but that's only for a portion of it. We'll have to see how they average out and what they're gonna end up with at the end. It's just the first announcements are just rough directions of where it's going, then they get to the individual product prices don't come out until later.

You know, Tim, the good news is, you know, we really focus back on the fact that our domestic capacity as Jeff had previously said. And if you think about, you know, our capacity in the US on, you know, ceramic tile, carpet, laminate, sheet vinyl, LVT, and quartz countertop. It really puts us in an advantaged situation as these tariffs increase.

Okay. And then just thinking about productivity, I mean, it seems like just given the general pressure on price kind of ex tariffs that if you continue to see sluggish demand, I mean, we're going to a point where pricing keeps going down maybe, and you have to kinda do bigger chunkier productivity, you know, kind of improvements again. I mean, is there something, you know, three to six months from now where, you know, the volume environment still isn't improved and there's another kind of reassessment of, you know, the footprint? Or have you taken as many actions as you can in this environment and everything else is gonna be kinda smaller?

Well, listen. Start out with, I'm not sure. You know, this our category of flooring when the interest rates started falling in '22, the industry's been going down since then. I'm not so sure how much there is left to go down. As you go through. As if on the other side with our own stuff, we're continuing to take costs out. We have to the balance of a hundred million, 70 million. We're looking at additional productivity actions. Can take. And if we can find more, we're gonna take them.

Yeah. And that 70 million is just on the restructuring savings, so we still have ongoing initiatives just kind of on day to day looking at each of the facilities.

Okay. Appreciate the color, guys. Thank you.

Our next question comes from Adam Baumgarten from Zelman. Please go ahead with your question.

Hey. Good morning, guys. Just on the positive price mix in Flooring North America and Global Ceramic, sounds like it was mix driven. You give us some color on how pricing behaved? Was it down or maybe closer to flattish?

No. We did take some selective price increases in some of our more premium ceramic products. We also took price increases in our laminate flooring business because of higher input costs. And so we are continuing to look very strategically where we can take price to compensate some of the inflation that is in the market right now. So we're continuously working on it on all categories.

Okay. Got it. Thanks. And then just on the cost side, just with oil prices down, I think that's historically the benefit from cost perspective in areas like Flooring North America. Do you expect that to flow through at some point later in the year as well? I know you mentioned nat gas costs in 4Q being a positive. But maybe as it relates to oil, and the timing there.

Well, as we said, you know, we have seen natural gas prices come down, which we believe we should get some benefit later in the year from our energy costs. In terms of raw materials, we really haven't seen a whole lot at this point. But you're right. If, you know, any petrochemicals stayed down longer, that would help us. But, again, it would have to flow through inventory, so it'd be more of a second half later in the year benefit.

Great. Thanks.

Our next question comes from Brian Biros from Thompson Research Group. Please go ahead with your question.

Hey. Good morning. Thank you for taking my questions. Can you expand on the earlier question about balancing your market share versus price and margin? And I get between the two options, are you more inclined to take share or protect margins and keep your current market share?

Look, we're always trying to take market share in the markets. We never lead with price to take market share, but we focus on our past portfolio of differentiated products and phenomenal innovations that we have. So we focus on that. And we focus on our service capabilities, we focus on our quality capabilities. In the market and we never really use price to drive market share, and we will continue to do that.

Also, given where the markets are, the prices are pretty compressed everywhere in almost all the markets because everybody has excess capacity. The costs are the same whether you run it or you don't in many cases. So that one of the reasons our margins are as low as they are is we're three years into this downturn in volume. At some point, it's gotta turn up, and when it does, it's gonna go back to the historical trends, and we're gonna have multiple years of historically high growth rate each year.

Got it. And secondly, can you talk about, I guess, your inventory levels and, I guess, really the level in the channel? Is there any work down that needs to be done there? You kinda talked about some advanced imports on your part. We'd heard there was some maybe prebuy activity in the retail channel in advance of the price increases as well. So just wondering kinda how that all fits now with the weaker market to sell into. And how that might flow back through the supply chain. Thank you.

Well, I'll start with our inventory and, you know, it did increase to about $80 million. And as I previously said, it's primarily due to the increase in imported goods ahead of the new tariffs. And given the possibility of tariffs increasing further, you know, we'll expect to kinda hold that at this level for really, for the time being.

We haven't seen a significant change we can identify with the customers given that we haven't announced price increases, we haven't seen a large increase in the downstream volumes from us.

Our next question comes from Michael Rehaut from JPMorgan. Please go ahead with your question.

Hi. Thanks. Good morning. Thanks for taking my questions. First, I just wanted to get a little more granularity on, you know, in Flooring North America where you've, you know, put across some incremental pricing. What type of impact, you know, from a percent revenue basis should we be thinking about for 2Q and 3Q? As it currently stands with what you've announced so far?

Yeah. Michael, at this point, as Paul said, it's really been more on a select basis to offset some short-term increases in raw material. I would expect as we go through the year, as Jeff indicated, with the demand being constrained that you'll continue to see pressure on pricing, which is why it's so good to see that we're getting benefit from mix both on our premium products and with the strength of the commercial channel.

Okay. I guess just secondly, on the roughly $500 million of imports that you expect the $50 million tariff hit. Just circling back to that, if you can break down it would be appreciated which countries those come from, you know, either order of magnitude or rough breakdown of, you know, the top two, three, four countries, you know, that you're getting that $500 million from, that would be very helpful. Thanks.

Yes. So the $500 million or the tariff imports, of course, as Jeff said, we have barely any exposure to China, which is obviously a good thing. And then besides that, a big component of that $500 million is LVT. And a large component of that comes out of Vietnam. And then we have also other countries we source from, India, we have countries we source from, like Korea. That would be the main ones. And then I can also remind you that Mexico or the products we make in Mexico are non-tariff at this moment. And so these are not part of this $500 million. But we have tariffs all over the place from countertops coming in from different countries and other product categories as well. Ceramic, we're buying from different ones to supplement our total portfolio.

Next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Yeah. Thanks very much, guys. Kind of two issues kinda working in opposite directions. One, on the one hand, you obviously have less tariff exposure than probably a lot of your competitors. And on the other side, you also have been leaning into the premium kind of product selection, particularly in North America. But I believe most of those products are imported, and so maybe a little more exposed to the tariff. So let me start with that part first. So on the higher-end products in Flooring North America and ceramic, how much is it is imported? Would you say the majority of it is imported? And is it your view that the tariffs and the necessary pricing to cover the tariffs would crimp demand there? Or is it your view that that customer is pretty immune, and so you're just gonna continue to target the higher-end consumer there. You continue to lean into it and just figure you'll just drive pricing to cover that. And that really will not suffer from a demand perspective due to price.

There's two parts to the question. One part is that over the last few years, we have increased the capabilities of our US manufacturing and we have continued to push up the value proposition of the US manufacturer. On the other hand, a super high premium all comes out of Italy, and we're buying it from our own facilities, and it's gonna keep coming over. And there is no alternatives for it, so either the consumer's gonna pay more for it or they'll move to some lower value option.

My understanding, though, I think you showed us the Karastan black, and I think there was also the Karastan LVT product. And those are are those imported products?

Some are. Some aren't. Some of the high-end wool products we import from our own facilities in Australia. Other cases, we import some from India. And in other cases, part of the collection is manufactured here. So all of the above.

So okay. Gotcha. It's you can't really say that all the premium is imported and the mid is made in America. I mean, we are very focused on getting the right products with the right price from the right plant within Mohawk or from the right supplier. And so we're optimizing the full product line.

Okay. Yeah. That makes sense. Okay. Then second question relates to sort of the opportunistic pricing opportunity, I guess, that maybe some others have touched on. So you talked about the fact that you have FIFO accounting and that, therefore, it's going take a certain amount of time. I think you said late 3Q before the impacts, you know, flow through. From any potential tariffs. And yet, your competitors are not all on FIFO, obviously, and so they're putting through pricing. Seems probably a little bit earlier than you might need. Is it reasonable to think, therefore, that you might actually see price cost be a near-term positive perhaps, you know, in late 2Q, 3Q into 3Q. And then, you know, you would have the offset to that, you know, on the back end, maybe sometime in the future when pricing decelerates. But in the near term, you would actually potentially see a price cost benefit. Is that a reasonable possibility?

Anything's possible. What happens is that not enough information in the market where the prices are gonna go, how they're gonna get implemented, and the structures of them. And we're waiting to adjust to the market circumstances.

Yeah. The price increases that have been announced are very, very specific at this point. So we'll have to see how it evolves. But as I said earlier, you we still have the higher cost material and energy that, you know, was purchased at the end of the year that will flow through. So that has nothing to do with the tariffs. And the general demand outside of tariffs is still very, very competitive.

Okay. Well, we can hope, though, anyway. Yes. Alright. Thanks a lot, guys.

Our next question comes from Trevor Allinson from Wolfe Research. Please go ahead with your question.

Hi. Good morning. Thank you for taking my questions. First one, I just want to follow-up on some of the energy commentary with nat gas prices coming down here. Can you quantify what you expect the energy cost headwind to be that's assumed in your 2Q guide? And then you're talking about some benefits of lower nat gas by the fourth quarter. Are you talking about just less inflation from nat gas in the fourth quarter? Or are you actually expecting nat gas to turn into a tailwind on a year-over-year by the fourth quarter?

When I look at, you know, the input cost in total, in the first quarter was, you know, just over $40 million as I previously noted. I would expect that to be slightly higher in the second quarter. And, again, that's driven by all three, you know, main categories of raw materials, wages and benefits, and energy. So all three of those. So I would expect the impact of inflation from a year-over-year perspective that was considered in our guidance to be higher in Q2 versus Q1. Then the second part of your question, again, it really depends on, you know, the stability of that natural gas prices. You know, it could just be, you know, sequentially, it could be better as we get into the fourth quarter. But from a year-over-year standpoint, it really depends on where that price lands over the next, really, the next quarter.

Okay. Gotcha. Makes sense. And a question on Europe and perhaps maybe the knock-on effects of the US tariffs on China. If US competitors who are currently importing LVT from China specifically, if they begin sourcing from other countries, do you see a risk of Chinese LVT finding its way into the European market and perhaps weighing on pricing in Europe? Thanks.

Europe is already importing vast amounts of China-produced LVT at this moment. And so the market is saturated with the product. And the demand of the market is satisfied. So we don't really expect any additional cost or price pressure in the European markets given all the changes. We do expect the China supply chain to move to other countries for the US, of course.

Okay. Thanks for that, Paul, and thanks for all the color. Good luck moving forward.

Thank you.

Our next question comes from Phil Ng from Jefferies. Please go ahead with your question.

Hey, guys. Curious to get your thoughts on intra-quarter trends in 1Q and how April's kinda progressed. By geography. Certainly, North America is particularly hard hit with consumer confidence coming down. With tariffs and whatnot, but curious to get your thoughts on just broadly worldwide, how you're seeing trends kinda progress into quarter and into April.

Listen. We're anticipating continued slow conditions. It doesn't matter what country you're in. We're seeing lower consumer confidence and business investments being pushed out. Again, home sales and remodeling have been in a downturn across the entire world. And what we don't know is the outside the US, we've seen interest rates start falling mainly in Europe and that could help demand. But up to this moment, we haven't seen it yet. The tariff impact is still evolving around the world and with the countries that we're in that are shipping products here, it's too early to tell how it's gonna affect those economies. As we go through, we do expect inflation to keep being a problem. And we're thinking it's gonna be mitigated through our strategic pricing, product cost containment, and product mix as we go into the second quarter.

Jeff, I'm trying to gauge just, like, April. I mean, certainly, March and February softened, but did April get worse, or it's kinda stabilized? I'm just trying to get a gauge from that standpoint.

I think it followed the same trends that we've been at so far.

Okay. So some level of stability. And then, for Jim, a lot of moving pieces. The FIFO piece gives you some line of sight on raws. But based on what you know today, would you expect raws to kinda in terms of year-over-year inflation peaking in February, or that could actually get materially worse in the back half? And certainly from a price cost standpoint, you know, a lot of moving pieces on pricing. How do you see that equation kinda evolving from a price cost standpoint as well? Is February kinda your biggest pinch point quarter or or it actually get worse in that?

First, you have we have to see if the lower oil prices follow through with changing the commodity prices that are related to it. To remind you, we have outside of the plastic pieces, we have large businesses in ceramic that had limited use of it. Wood products that aren't impacted by it. So at this point, there's a possibility to come down or there's a possibility that the supply chain, given the low margins that are at, we're not sure what's gonna happen.

Okay. Alright. Thank you.

Our next question comes from Laura Champine from Loop Capital. Please go ahead with your question.

Thanks for taking my question. I'm wondering if there's a material amount of product that you're going to resource into your US facilities? And if so, what the short-term cost might be of moving that production and what the longer-term sort of capacity utilization benefits might be?

I'm assuming you asked that question on LVT.

Yes.

We have ceramic, I guess, it's a good question for ceramic too because I know you make some in Mexico that you import here. I'm not sure what the plan is there.

The Mexican stuff doesn't have any tariffs because of the USMCA, so there's no changes in it. So given the impact of the tariffs, we got we're, obviously, going to balance our internal resources with our external supply. Not all products can be made in our factories. Not all products can be sourced. So we have some limitations there. But as we move forward, we're going to continue to maximize capacity utilization of our internal factories and we have a little bit of capacity at this moment across the two categories we just discussed. And we will also continue to import from the appropriate locations, minimizing our cost and minimizing our import duties.

Got it. And then a quick follow-up on your comments on Chinese production impacting the European business. I'm aware that you're already there, but couldn't an influx impact your pricing there? And are you already accounting for that in your plans for this year?

We don't know exactly what's gonna happen with the Chinese producers. We know the prices are already low in the European market. And I'm not sure there's a lot lower to get. So we'll have to see.

And our next question comes from Mike Dahl from RBC Capital Markets. Please go ahead with your question.

Hi. Thanks for taking my questions. I want to circle back on channel inventories. I know you mentioned, Jeff, you hadn't necessarily seen a meaningful difference in customer activity, but one of the large foreign retailers last night seemed to suggest that they had done a material amount of prebuy, specifically with some Chinese product, and our sense has been home centers have done some. So do you just not have the level of intelligence in the market to get granular into your customers and see those inventory positions, or are you just seeing something different there?

I thought I answered a different question. The question was, have they increased the inventories of my products in their stores? I assume everybody in the industry is doing what we're doing and on imported products expecting high tariffs that everybody raise the inventories.

Okay. Got it. Thanks. Maybe misinterpreted your answer then. Appreciate the clarification. Second comment or question like, Jim, in response to Rafe's question about earnings, you suggested still the potential for earnings to be up year on year. You know, here's what I'm wondering. Seasonally speaking, your 3Q is usually flat to down versus 2Q and 4Q is almost always down a decent amount. Seasonally. And so, you know, with demand weak, and you know, the incremental pressures that could come in the second half, it would take an atypically seasonally strong second half to get anywhere close to flat to up for the full year even ex ERP. So, you know, I'm just trying to understand that bridge. It seems like the base case should be that there's gonna be some continued year on year pressure.

Well, first of all, everything is excluding the impact of what has happened in Flooring North America with the system conversion. So you set that, you know, $30 million impact aside. You know, as we go through, you know, the balance of the year, one, you know, one difference is the benefit of the restructuring savings that we have, you know, flowing through still in Q3, Q4 as Jeff said, we have about $70 million that we should see for the balance of the year. We have additional productivity initiatives as well that will help in Q3 and Q4. And then if we do get some of that tailwind on energy, that would also help that situation as well. The other point, and that's why I gave the range in my prepared remarks, you know, interest costs with the strength of the balance sheet is certainly a help this year. You know, it's down year over year just in the quarter. It was down nicely for the period. Almost $9 million. So that's gonna help us as we go through the balance of the year. And then the last point is on the FX side, we are obviously exposed to the euro. It's our largest currency outside of the US. And with the weakening dollar, you've seen the euro certainly increase. And from a translation standpoint, that also helps. So, you know, a combination of productivity, the strengthening mix that we've talked about, and then if we see some of those tailwinds on raw materials or energy as we get to the back half of the year, it is still possible. Now obviously, we do need assistance from, as I've said, some stabilization from the macro economy to make really that happen.

Okay. Got it. Thanks for those pieces. Appreciate it.

Thank you.

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

Our local manufacturing should be a greater competitive advantage. We're gonna continue to flexibly manage the environment as it changes. The postponed housing remodeling that's been pushed out over the last few years will return to historical levels. And we'll see a rebound from it when it occurs. We appreciate your interest in Mohawk. Thank you.

Ladies and gentlemen, that does conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.