Good day, and welcome to the Mohawk Industries 2nd Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Joe Allersmeyer, Vice President, Finance and Investor Relations. Please go ahead.

Thanks, Megan. Good morning, everyone, and welcome to the Mohawk Industries Quarterly Investor Conference Call. Joining me on today's call are Jeff Lorberbaum, Chairman and Chief Executive Officer, Paul DeCock, President and Chief Operating Officer, and Nick Manthe, Chief Financial Officer. Today we'll update you on the company's second quarter performance and provide guidance for the third quarter of 2026. 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 our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to gap amounts, please refer to our Form 8K and press release in the investor section of our website. I'll now turn the call over to Jeff for his opening remarks.

Thank you, Joe. Our second quarter results significantly exceeded our expectations as we outperformed our markets, 8% versus the prior year as reported, or up 5% on a – our performance benefited from volume growth, pricing, and product mix. Across our regions, our teams effectively executed our strategies and capitalized on opportunities with new and existing customers. We successfully introduced new collections, expanded product placements, and improved our mix. In a period, volume benefited from initial stocking of new product placements and limited increases in inventory by some customers ahead of announced price increases. Our second quarter reported EPS of $3.22, and adjusted EPS was $3.67, including a benefit of approximately 63 cents from tariff refunds, which were not included in our second quarter guidance. These refunds represent the reversal of costs that we have absorbed from higher tariffs. As part of our buyback program, we purchased over 600,000 shares during the quarter for approximately $60 million. Our second quarter forecast had reflected uncertainty related to the Middle East conflict, but market conditions proved more resilient than we anticipated. Residential channels remained soft during the quarter. The market had gained share in most regions. The commercial sector continued to outperform residential and our differentiated offering enhanced our mix and margins. The new home construction market remains pressured and existing home sales continue to be affected by affordability challenges. In the softer environment, we're proactively managing the controllable aspects of our business, including enhancing our sales strategy, pricing, operational improvements, and managing our inventory levels and costs. Across many of our products and geographies, we executed price increases in response to higher materials, energy, and transportation costs. In the second half of the year, these higher input costs will flow through inventory and impact our margins. With continued uncertainty, additional price increases may be required this year. We are bringing innovative products to the market with differentiated features to strengthen our sales and mix. Across the business, our teams are delivering significant productivity gains, and our results are benefiting from our prior restructuring projects. In addition, we've initiated new projects focused on operational simplification, organizational realignment, warehouse consolidation, and capacity optimization, which will reduce our costs to approximately $60 million, with most completed by the end of 2027. These savings will require cash restructuring costs of approximately $50 million. We recently released our 17th annual impact report, which highlights the successful completion of our 2025 sustainability goals, which lowered our emission intensity by 31%, waste the landfill intensity by 55% and water intensity by 50% from our base year. To read the report and see all of our accomplishments, visit the sustainability section of our website. On a personal note, we announced that I would be retiring as CEO and would be turning 25 years as Mohawk CEO. I've taken great pride in watching our talented organization transform Mohawk into the world's largest flooring manufacturer. Together, we've established leading market positions on four continents, grown our operations to 19 countries, and built a product portfolio encompassing every major flooring category as well as expanding into other product adjacencies. That Mohawk's best days are ahead, and the actions we have taken over the past years will strengthen our offering, streamline our operations, and enhance our competitive advantage. for two decades, and I'm confident that he will lead Mohawk to new heights to support him as Chairman of the Board. Gratitude to all those at Mohawk, as well as our customers, suppliers, analysts, and investors. Your trust, partnership, and unwavering commitment have been integral to Mohawk's success and all that we've accomplished together.

With that, thank you, Jeff. Congratulations. It's been a privilege to work with you, and I could not be more optimistic about our future. I'm confident with our strong foundation that we can grow profitably and enhance our shareholder returns. Now I'll take you through our operational performance in the quarter. In global ceramic, net sales were $1.2 billion, up 7.9% as reported, and up 4.6% on a constant basis. In the U.S., we gained momentum with new premium tile and countertop placements. In our Latin America businesses, we grew volumes and improved our market positioning. We are leveraging the innovation and technology capabilities of our Italian R&D center to drive product development across the world. New collections and expanded customer placements have positioned the business to accelerate as demand improves. In flooring North America, net sales were $976 million, up 3.1% as reported, and up 4.7% on a constant basis. We estimate that our market share has increased in both hard and soft surfaces. Soft surfaces benefited from new product introductions, and in hard surfaces, we expanded our presence in key channels. We're also strengthening our position in retail, and our laminate products continue to provide a compelling solution to home builders. In flooring rest of the world, net sales were $806 million, up 9.7% as reported, and up 6.2% on a constant basis. We are launching new collections in LVT and Laminate to strengthen our position in the premium segment of the market. Our insulation and panels businesses delivered strong results through disciplined pricing and cost management in a challenging environment. across all three segments our teams delivered meaningful productivity gains and our results are benefiting from our previously announced restructuring projects we have initiated new projects that will deliver incremental annual savings once complete these are permanent structural improvements to our cost base not temporary measures and they will support our earnings power when our markets turn supportive. Importantly, this operational excellence is generating consistent cash flow. Cash generation is one of the strengths of this business and it underpins our ability to both invest for growth and return capital to shareholders. We are focused on delivering profitable sales growth through new product innovation and expanding our competitive advantages. Our higher-end residential and commercial collections continue to perform well and enhance our mix, and the collections we have launched this year have quickly gained traction in the market. We are increasing our share with our customers, which will benefit us when the market improves. We are committed to returning capital to shareholders, and we continue to purchase shares during the quarter. We will continue to focus on generating cash flow to fund investments in growth and drive enhanced returns through capital discipline.

With that, i will turn the call over to nick to review our financial results in more detail thanks paul looking at our q2 2026 financial results net sales for the quarter were three billion dollars up 6.8 percent as reported and up five percent on a constant basis with growth across all three segments sales grew as we implemented price increases improved our mix and grew volumes by expanding placements in key retail channels. The return was 26.6% as reported and 27.4% on an adjusted basis, up 100 basis points from the prior year as the benefits of tariff refunds, pricing, and productivity offset the impact of higher inflation. SG&A expenses were 18.1% of net sales as reported and 17.7% on an adjusted basis. That's a 70 basis point improvement versus the prior year. Operating income was $254 million, and adjusted operating income was $290 million, or 9.7% of sales. That's an increase of approximately 170 basis points versus the prior year, as the benefits of price and mix of $54 million are restructuring and productivity initiatives of $43 million, and higher volumes of $13 million offset inflation. Net inflation for the quarter was $28 million, inclusive of the tariff refunds, with underlying inflation of $77 million. Net interest expense was $5 million, consistent with the prior year. Our adjusted tax rate was 21.1%, and we expect our Q3 tax rate to be approximately 22%. Our earnings per share for the second quarter was $3.22 as reported, or $3.67 on an adjusted basis. Now turning to the segments. Global Ceramic had net sales of $1.2 billion. That's a 7.9% increase as reported and a 4.6% increase on a constant basis. The ceramic segment delivered approximately 3% volume growth, led by strength in the U.S. and Europe, as well as improved price and mix. Adjusted operating income was $99 million, or 8.2% of net sales, including the benefit of tariff refunds. The underlying results were driven by productivity initiatives of $20 million and positive price mix of $13 million, which were offset by the underlying inflation of $35 million. Flooring North America net sales were $976 million, a 3.1% increase as reported or a 4.7% increase on a constant basis. Sales growth was led by volume strength and retail channels, with price and mix improving sequentially. Adjusted operating income was $111 million, and adjusted operating margin was 11.4%. Adjusted operating income increased $42 million, including the benefit of tariff refunds. The underlying improvement in our adjusted operating income was partially driven by productivity of $21 million, offset by underlying inflation of $16 million. In flowing rest of world, net sales were $806 million. That's a 9.7% increase as reported, or an increase of 6.2% on a constant basis. Sales growth was driven by the pricing actions we implemented to address higher energy and material costs, along with a modest mix improvement. Adjusted operating margin was $97 million, or 12% of sales, an improvement of approximately 160 basis points compared to the prior year, as price and mix of $41 million more than offset increased input costs of $23 million. Expenses and eliminations were $17 million in the quarter, and we estimate the full year 2026 expenses to be approximately $55 million. Turning to cash flow, year-to-date, we have generated free cash flow of $236 million, and we expect strong free cash flow generation in the second half of the year. Capital expenditures in the quarter were $88 million and we now plan to invest approximately $460 million in 2026, focused primarily on cost reduction initiatives, product innovation, and maintenance. The balance sheet remains in a very strong position with net debt just under $1.1 billion and a net debt to EBITDA ratio of 0.8 times. Our second quarter results reflects strong execution by our teams in a dynamic environment, and our business continues to generate strong free cash flow. I will now turn the call back over to Paul, who will cover our outlook in greater detail.

Thank you, Nick. We delivered strong second quarter results, even though the market has not yet improved. Across the world, the home resale market remains near multi-decade lows, and new home construction remains soft. Looking ahead to the third quarter, we anticipate flooring market conditions will remain challenging we expect commercial to keep outperforming residential and our higher end offerings will continue to improve our mix our sales to seasonally drop from the second quarter to the third quarter excluding the impact of effects and shipping days given our stronger performance in the second quarter this seasonal pattern could be more pronounced than in past years we will have one additional shipping day in the third quarter compared with both the prior year period and the second quarter of 2026. In the third quarter we will see higher input costs and further benefits from our price increases and we will continue our productivity efforts. We expect higher costs to persist into the fourth quarter and we may need to take additional pricing actions. Given these factors we expect our third quarter adjusting earnings per share excluding any restructuring or other one-time charges to be between $2.50 and $2.60, including approximately $0.12 from additional tariff refunds we have already received. Excluding these tariff refunds and any restructuring or other one-time charges, our outlook contemplates a baseline EPS range of between $2.38 and $2.48. sense. Since the announcement that I would become CEO, I have been engaging with employees around the globe to build on our strong foundation. Our operational excellence, leading market position, and financial profile will drive long-term value creation. With our strong balance sheet and robust cash generation, we have the flexibility to invest in growth initiatives while at the same time returning capital to shareholders. And with that, we are happy to take your question.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Susan McGlory with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. And Jeff and Paul, congrats to both of you on your moves here. Jeff certainly well-deserved, and Paul as well. And I look forward to working with you more, Paul. So my first question is, you know, the share gains are really impressive, right? And, you know, when we think back to Neocon and the buzz that was clearly evident in the showroom in Chicago, can you talk a bit more about the product categories that are leading some of these gains and maybe the end markets as well as you think about residential versus commercial customers and where you're seeing a lot of this coming from? yes thank you susan it was indeed good to see you at the neocon that's our main u.s commercial showcase of our products and we can show our products in an integrated way soft surfaces hard surfaces and our innovations were in full display there as you've seen

we also showed our new hero rubber flooring product that is made with recycled nike regrind And that product won three Best of Neocon Awards. And so this is just a testament of our innovation capabilities in the company. And those same capabilities exist also in our residential business. And like you alluded to, we've seen the benefit of that in all the new product placements that we got from our customers in the second quarter.

Okay, that's helpful. And then, Paul, you mentioned that you are engaging with the teams globally as you look to transition into the CEO role. I guess, can you talk a bit about what you're hearing from the teams and how that's motivating you and any initial areas of focus?

So we're going to definitely continue on the strong foundations that Mohawk has. You know, we have a very strong operational excellence culture. We are serving our customers very well. We're very focused on product innovation, and we have all our leading market positions across the world. And so we're going to continue focusing on those strengths and then combined with our financial strength that those will be very powerful drivers of future value creation. And so we really have, with the strong balance sheet we have and the strong cash flow generation, a lot of flexibility to invest in profitable growth opportunities and at the same time also return capital to shareholders.

Okay. All right. Thank you for the thoughts and good luck with the quarter.

Thanks, Susan.

Next question comes from John Lavallo with UBS. Please go ahead.

Good morning, guys. Thank you, or good afternoon, and thanks for taking my questions. The first one is, you know, just in relation to the seasonal sales decline in the third quarter being a little bit more pronounced perhaps than in prior years, I'm curious, you know, what's driving that? I mean, the second quarter was strong, but was that strength driven by, you know, pull forward ahead of the price increases and the initial stocking? You know, in other words, why wouldn't that strength in the second quarter continue into the third to some extent?

Yes. Thank you for your question, John. Well, we saw some limited pre-buying. We cannot precisely quantify that. But in many of our businesses, we control the distribution between the Mohawk and our customers. And so we really believe the pre-buy impact is limited. Our volume mainly benefited from initial stocking positions of new product placements, and those will obviously benefit us as the business moves forward. And our third quarter is seasonally slower, and so any pre-buying effect that there could be is factored into our outlook.

Okay, understood. And then in terms of potentially taking additional pricing actions later this year, I mean, how are you guys kind of thinking about that as we sit today? I mean, you know, things are a little bit softer than than, you know, most people had hoped, I think. And, you know, I'm curious the ability of or the thoughts on the ability to take more pricing. And along those same lines, have you seen substantial product mix shifts, you know, across the portfolio following the pricing actions that have been taken?

Well, with costs rising as much as they have, the whole industry really needs to take pricing to cover them. And the realization so far has been in line with our expectations, and the teams have executed well. We have many increases going in different products, in different geographies, with some products lagging and some products leading. And we still expect inflation to step up as we move through the second half here. And so all these efforts for the year, we think that the combination of price, mix, and productivity should suffice to offset inflation.

Okay. Thank you very much.

The next question comes from Trevor Allenson with Wells Fargo. Please go ahead.

Hi. Good morning. Thank you for taking my questions. Can you talk about what drove the surge in forming rest-of-world revenue growth? I think your core revenue went from down 4% to up 6% on a similar comp. So was that incremental pricing ahead of inflation, or what drove the acceleration, and would you expect similar levels of core growth rates in the foreign rest of the world as we step into the third quarter?

So the markets have been showing improvement earlier in the year following the rate cuts we saw in Europe. But after the start of the war, consumer confidence declined somewhat, and also inflation affected discretionary income. And also in Europe, inflation is running well ahead of other regions in the world, and so we had to manage with price, and we also had to manage with productivity. But that being said, our teams are executing very well, and our new product introductions have done very well. And so we have premium LVT and laminate collections going into the market, and those are gaining momentum and also allowing us to improve our mix. and also our panels and insulation volumes outperformed in a difficult market. And so I would say that we've executed very well in a challenging market.

And Trevor, I would just add that in Q2, sales, as Paul mentioned, really grew with positive price and mix as the teams implemented the price increases. FX also benefited us in the first half, given the current rates. And at the current rates, we don't expect those benefits to continue in the second half. And then just, you know, as we move into Q3, the positive price and mix should continue, you know, going forward.

Okay. Thank you for that.

That was very helpful.

And then second question, maybe just following up on the price-cost commentary that was in your answer to the previous question. Sounds like you are still anticipating offsetting the inflation headwinds in the back half of the year. If you think about 3Q specifically, do you expect that to be the case in each of your segments? And then you mentioned maybe having to take additional price. As we step into 4Q, will you need that incremental price, do you think, to also offset the inflation in 4Q as well?

So from a price-cost perspective, in Q2, price mix and productivity exceeded our underlying inflation headwinds. Excluding the tariff benefits, we saw underlying inflation step up by about $35 million from Q1 to Q2. and we'll see a similar step up from Q2 to Q3. Based on what we know today, we think that price mix and productivity should offset that underlying inflation for Q3 in the year. And then to your last question, obviously the cost environment remains dynamic, and so more pricing may be required to offset if there's further inflation.

Thank you, Paul DeCuller, and good luck moving forward.

The next question comes from Adam Bongarton with Vertical Research Partners. Please go ahead.

Hey, guys. Just curious if you've seen any shift back to wood or tile from maybe LVT or even laminate broadly in the market at this point.

We haven't really seen any large product category shifts recently. Now, of course, most recently, you know, LVT demand has trended more in line with the overall flooring industry, given that LVT is becoming a more mature category. Relative market shares of different categories are relatively stable at this moment.

Okay, got it. And then just on the sort of new placements that you said drove a good amount of the volume growth, any way to size the impact there in the quarter?

Obviously, helping us to get new positions with our customers, and so they're driving up the volumes in our business. And so as we get reorders on those new bracelets, they will also give us additional benefits in the periods to come. And a large part of our performance in the second quarter really was the success of these placements.

Okay, got it. Thanks. Best of luck.

Thank you.

The next question comes from Phil in with Jefferies. Please go ahead.

Hey, guys. Congrats on the strong quarter. And then Jeff, appreciate all the help over the years. And, Paul, looking forward to working more with you going forward. Thank you. I guess just following up on the question right before, on the share gains and placement, Paul, any color in terms of, you know, what categories, channels, or markets where you picked up share? I know you called out quartz countertops, perhaps gaining momentum in retail. I believe there's some dumping duties for imports. Is that like an opportunity for you as a local producer to take share or at a minimum take price? Just give us a little color in terms of where you're gaining share and seeing momentum in the business.

Yes, so even with the flooring market down, we saw volume growth across many of our categories and many of our channels. And so we're focused on delivering these innovative products and an industry-leading service to the market. And we really saw strength across the world in many products and many categories and many geographies. And so on top of that, our strong brands are preferred by the customers, the professional customers, retail customers, consumers, and also in the commercial channel. And so we've really seen strong performance across the board. As far as your question on countertops, you're correct. The International Trade Commission has proposed minimum tariffs of 25% to protect the domestic industry. We're waiting on the final decision by the president, but it's expected soon. And so we've just expanded a second line of U.S. domestic manufacturing in countertops. And so we expect that line to ramp up quickly now.

Okay, super. And in the prepared remarks, I can help notice you guys highlighting the cash flow generation of business and then perhaps returning more cash to shareholders. Paul, any subtle shifts in terms of your approach in terms of capital deployment priorities and how do you access where you want to put capital to work, call it in the medium term?

Yes, our strong balance sheet provides us lots of flexibility and a lot of opportunity. And our capital allocation framework remains the same. First, we will continue to first and foremost invest in our business to drive the innovation we just talked about, enhance our product mix, improve our productivity. We'll also continue to evaluate profitable growth opportunities. They obviously have to meet our strategic priorities, the strategic fit to the company and the strategy. And then also they need to achieve our financial return criteria. And then share repurchases will remain also a very important part of our capital allocation policy going forward.

Will the buyback approach be more opportunistic, or it's going to be more regimented in terms of your philosophy? Certainly, it's going to be tied to free capital generation, but any more color to expand on that front?

No, I would just say that the share of purchases will remain an important part of our capital allocation policy.

Okay. Thank you. Appreciate the color, guys. Thank you.

The next question comes from Stephen Kim with Evercore ISI. Please go ahead.

Thanks very much, guys. Appreciate all the color so far. Yeah, Jeff, we're going to miss you. Best of luck in all your future endeavors. Paul and Nick, I guess I wanted to talk about a little bit more on this comment that you made that the strength, the outside strength you saw in 2Q may not transmit entirely into 3Q. 3Q, you said pre-buy really wasn't a big impact. It was really more from the initial stocking of the new products. And you said you've had a lot of success with those placements. And so I just wanted to press on that a little bit. Have you seen these placements show up in increased sell through yet? And why wouldn't this strength transmit into 3Q if these placements put you in such a good position, you know, why is it that we wouldn't expect to see at least, you know, some of this strength transmitted to 3Q? Yeah, so that's the first question.

Yeah, thanks, Stephen. So you're right. You know, our adjusted EPS came in about $1 ahead of our guidance in Q2. The tariff-free funds weren't included in that guidance, and that was about $0.63. You know, our teams, particularly employing the rest of the world, did a good job of navigating the cost environment and executing well on the price increases. So that contributed to the Q2 results. And then, of course, volume growth was a bit stronger than expected across many of our categories and channels. Looking at moving to 3Q, we expect the current demand trends to continue with the soft market conditions. And so we typically see normal seasonality from Q2 to Q3. And then the items that Paul mentioned earlier contribute to maybe more pronounced seasonality. And then at the EPS line, the big driver there is input cost headwinds will ramp up into the third quarter, really similar in magnitude to the underlying inflation we saw ramp up from Q1 to Q2. So that's the key drivers.

And as far as the product placement question, it's a normal pattern, right? You get the initial inventory when you get the placement for the product, and then as the product gains success in the market, you get reorders in the subsequent periods. And so we've seen the initial feedback on these product introductions to be very strong, and so we expect them also to significantly contribute in the next quarters.

Yeah, okay. I know that you talked a little bit about the seasonality, you know, the typical seasonal drop from 2Q to 3Q. That all makes sense. You know, if we go back and look over the last five years, it looks like, you know, you've had an average reduction of about 4.5% as you've moved from 2Q to 3Q in terms of sales. Are you messaging that you think that the drop in sales in 3Q will be greater than that sequential quarter on quarter 4.5%?

I think, you know, Q2 is stronger than anticipated given those new stocking positions Paul mentioned. And then Q2 is typically our strongest quarter. And so those two contribute to...

Okay. All right. Fair enough, guys. Thanks a lot.

The next question comes from Timothy, voice with Baird. Please go ahead.

Hey, everybody. Good morning. And yeah, Jeff will miss you. It's a good look. I guess maybe just on the refunds, Um, I guess, how do you anticipate the market kind of handling and absorbing the refunds? Um, do you expect kind of in, you know, your customer base to, to, to ask for, you know, some of that back in terms of reinvestment? Um, are there any specific product categories that, that kind of applied to maybe just kind of how you think about the market kind of digesting and absorbing these, uh, these refunds from you and I assume others?

Well, tariff refunds offset the costs that we previously incurred. And so for years we have absorbed these higher costs and our pricing has not fully covered these costs. And we also really see continued additional inflation flowing through all of our costs. And so I think you have to see the tariff refunds in that environment. Okay. Okay. Yeah.

I guess, you know, second question, just on the commercial market, how did that kind of track sequentially Q1 to Q2? Is it relatively stable, getting a little better, or just kind of any sort of data points of color you can provide there would be great.

Yeah, so around the world, the commercial market continues to outpace the residential market. And our commercial performance across all of our segments, broadly speaking, across all the products and all the geographies we are active in, it was stable-ish when you look at quarter-over-quarter sales performance.

Great. Thank you.

The next question comes from Sam Reid with Wells Fargo. Please go ahead.

Thanks, everyone, and congrats on this quarter. I wanted to ask another pricing question here. So just give me your sense as to the market's appetite for additional pricing. I believe you indicated you might need to take additional pricing later in the year in order to offset inflation. And do you need that pricing in order for normal Q3 to Q4 seasonality?

Well, in the second half, we expect the market conditions to remain soft, and so we're not really counting on a near-term recovery. And so we're driving our own results. We're expanding these new product placements, and then we're implementing the price. And so with the conflict escalating and with the current volatile environment and new news filtering through every day, costs could rise further, and if that's the case, we have to possibly, probably take more additional pricing actions. And so what we're also doing is, given the difficult environment we are in, we're also driving our productivity and our restructuring actions to manage through this difficult environment. And our teams are also executing very, very well on those. And then lastly, like Nick said, for the whole year, we expect the combination of price mix and productivity to offset the inflation.

That helps. And maybe let me ask a quick modeling question here. You mentioned you got an extra day in the third quarter. Any sense as to how much that's impacting earnings, incremental margins from that, we should be assuming? And then any day count noise in the fourth quarter we should be aware of? Thanks.

Yeah, so it's one extra day and one extra shipping day in Q3. And so, you know, similar to Q2, we had one-day variation. The bigger impact, Sam, is really Q4. We have four less shipping days in Q4. and so that will be probably bigger in magnitude than what we've seen adjustments we see in Q3. I hope I'll pass it on. Thanks. Thanks, Sam.

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Thanks very much for my questions. Jeff, congrats. I have a run, and Paul, congrats to you, too. Sorry, one more follow-up on the inflationary dynamic. I appreciate that it sounds like the 3Q guy assumes another kind of $35 million-ish sequential step up. As costs sit today, as far as you can see them, what does that mean in terms of 4Q? Would you still see another sequential step higher in inflation if current costs hold or any color you can give us on kind of the cadence, assuming current input costs were to persist.

Yeah, thanks, Mike. You know, you're correct in how you're thinking about it from Q2 to Q3. Obviously, you know, there's some more uncertainty in Q4 given, you know, energy prices are still fluctuating. But based on what we know today, you know, we would expect the Q4 to remain elevated. It might be slightly higher on a year-over-year basis, but we don't expect the same level of step-up that we saw from Q2 to Q3. And, again, obviously things can change in this environment pretty quickly.

Yeah, of course. That's helpful for context. And then just shifting gears, you know, one of the retailers reported last night, and it sounds like they're seeing pressure in laminate and vinyl and talking about excess capacity and maybe making it harder on pricing in those categories. Can you speak to, you know, I know you have some different channels and positions within those markets, but can you speak more specifically to that and what you're seeing from your ability to push through price and price-cost dynamics in those categories?

Yes, in those categories, we're really focused on the execution of our strategy, And that means we're bringing the best quality to the market, the best service. And like we said before, our new innovations in those two categories are being very well adopted by the market. And so the product placements that we've gotten is a testimony that our strategy is working. And so we're really focused on the execution strategy there. Specifically in Laminate, we see very strong adoption in the new home construction channel. And then in LVT, we have built out our portfolio in LVT and WPC and also in hybrid products, which is a very fast-growing subcategory of the LVT market. And so we really have a very broad product portfolio that can serve any market and any price point. And so that's what we're focused on in those two categories.

Okay, thank you.

The next question comes from Keith Hewis with Truist. Please go ahead.

Thank you. Again, my congratulations, Jeff. It's been a tremendous run. I know the last couple of years have been tough from the macro, but the MOAC today is so different than when you took over. So, again, congratulations. Just a quick question on flooring North America. Can you talk about the products within this 5-ish percent growth? Which products or markets were above or below the average?

So, in residential carpet, we are focused on the mid to high price points, and so we're adding new features. And one of the products that we've been very successful with is an anti-allergen carpet product, and that product is off to a strong start since the launch. And then, as I mentioned before, on the laminate side, we see very strong adoption in the new builder construction channel. And the products that we bring to market there, or laminate products, offer a superior value proposition versus all the alternative choices that are currently being offered in that channel. And so that were some of the highlights.

I assume commercial was still better than average in the segment. Is that correct?

Commercial is performing better. You know, we have a large exposure in our ceramic segment to the commercial market. And then also in our Flooring North America segment, we have a large commercial exposure. And we were happy with our performance. And like you say, I mean, more or less in line also with private.

And final question on this, was carpet still, I mean, you obviously got some wins here. Is carpet still below the average and hard surface growing faster than that in foreign North America.

I think, Keith, we gained share in both categories. The longer-term trend has been a shift to hard surfaces, so I think we're more or less in line with that.

Okay. Thank you.

The next question comes from Matthew Boley with Barclays. Please go ahead.

Morning, everyone. Thank you for taking the questions, and congratulations and best of luck to Jeff and to Paul as well. um so uh one more on the on the pre-buy i know you said it's it's wasn't as large and um and it's hard to really quantify it my question is really if there's any kind of finer point you can kind of put on that um just sort of any estimations around what you may have seen uh which type of customers you may have seen that and you know if you could sort of characterize uh inventories across the channel as a result. Thank you.

Like we said, look, we control the distribution in a lot of our markets, and so we really hold the inventory for the customer to service the customer. And so that's why the impact of pre-buying with us is limited. And also our customers have limited capability to store all the goods. And so that's why we thought it was a limited impact. It's not easy to quantify it because we have no visibility on the inventory position of our customers, but we think the impact was limited.

Okay, I appreciate that. And then secondly, just maybe one focus point in terms of the input cost with European natural gas, given that's a fairly important cost for you. I guess, number one, if you could maybe remind us how your hedging program has changed. obviously years ago used to not not hedge it and um does that uh or i guess you know if we kind of look forward you spoke about the incremental input cost impacts in q3 and q4 is you know how would you think about you know perhaps spreading out that input cost increase and would any more kind of carry over into 2027 as a result thank you natural gas has been less affected in north and south america compared to europe and so european gas markets are under more pressure and we have purchased a portion of our near-term requirements and we really do that to limit the impact of the

volatility of the input costs and we will continue to do so we'll continue to buy forward as conditions change and as we see opportunities to hedge our volatility thanks guys good luck Thanks.

The next question comes from Raif Jejurusuk with Bank of America. Please go ahead.

Good morning. Thanks for taking my questions. Can you talk about the cadence of the market performance in your share gain through the It seems like the improvement might have come after you gave the second quarter guidance at the end of April. So you just talked about sort of maybe the monthly trend, and then maybe you could touch on the exit rate into July as well.

Yeah, we entered the quarter assuming the conflict and inflation would soften demand, but our results ultimately exceeded our expectations as we outperformed in many markets and as we got the volume lift from these initial stocking positions and these new product placements. And so we see the continued benefit that in our current sales, and we haven't really seen a very large volatility across the different months recently.

All the segments are managing through a challenging environment. The market demand is focused on managing what we can control. Paul has highlighted in terms of pricing and mix and new placements and productivity.

The improvement you saw relative to expectations through the quarter, Did the market trend change or did the share gain outlook change? If you can sort of just break those apart and how it went through the quarter.

Yes, look, our expectations changed from the initial expectations or the impact of the conflict on the market. We felt there was more resilience in the market and that the market was less affected by the conflict. And then secondly, we also outperformed on our new product placements. I mean, the new innovation that we are currently putting into the market, and it's just a testament to the capability of this company, in many geographies, in many product categories, we have really leading innovation going into the market, and the customers are really taking that on, and we see some very good initial response to all that innovation going into the market.

Great, thank you. And then, Paul, maybe if you could just talk, because you're coming into the CEO role, a little bit about your background, how you initially came into Mohawk, and the breadth of your experience across the different businesses, I think, would be helpful.

Yes, so I was acquired by Mohawk in 2005 when Jeff acquired Unilin. And so after Jeff acquired Unilin, I moved to the U.S. and out of our Dallas office, I was managing the Unilum business in the U.S., and after that I went back to Europe to manage our European flooring business. And then seven, eight years ago I came back to run the Flooring North America segment. And then last year, in preparation for this transition, I took the COO role, and now I've been working with Jeff on the transition, and it's really going great. I have a good knowledge of our business around the globe, given these experiences. and I have also a good contact with all our leaders around the world and so I've been focused on talking to them recently, hearing their ideas, and that's been very exciting and motivating and so together with our teams, we'll focus on actions to improve our business as we go forward.

Great, thank you.

Thanks, Ray.

The next question comes from Brian Bureaus with TRG.

Please go ahead. Hey, good morning. and thank you for taking my questions today. So it's been talked about a lot, Q2, significantly upbeat expectations. Sounds like a large part of that was the success of the new product placements that you mentioned. Can you talk about the initial expectations you had for the product placements and kind of what drove the outperformance relative to what you thought was going to happen on the product placements?

Given the volatile market circumstances and given the current volatility in the market, It's not so easy to kind of predict what the initial success is going to be under the current market circumstances. But as we said, and that's really across the world, the market didn't seem to be that affected by the war. And people that needed flooring, they continued to buy flooring. And they continued to adopt and take on our new innovations in their stores. And so it has exceeded our expectations. That's really what we have to say.

And, Brian, just to be clear on your question, a lot of the new product placements were contemplated in our guide. And so when we're talking about it, that drives a lot of the year-over-year growth. And then, as Paul mentioned, the guidance is really about our expectations of the market as well as just general momentum across our geographies.

And then, secondly, I guess, can you just talk about what you're seeing in the market from competitors kind of in this challenging backdrop that has been for a while and it seems like it will persist for a little bit more. Are you seeing any outsized irrational behavior and how you're kind of just reacting to the battle that always happens between margin versus market share? Thank you.

Yeah, with costs rising as much as they do, the whole industry really needs to put the pricing through to cover them. And now we're active in a lot of geographies and a lot of products and a lot of channels. And so there's always very specific color to each of those. But in general, our realization of the price increases has been in line with our expectations. And so although it is a very competitive environment, chasing volume, given the slow end markets, we think our teams are executing well in this environment. And so we'll continue to monitor the situation. and if inflation continues to rise, we will take additional pricing actions and we'll continue to manage the business circumstances change.

This concludes our question-and-answer session.

I would like to turn the conference back over to Paul de Kock for any closing remarks.

Thank you, Megan. We're excited about Mohawk's future. We are proud of how our teams are executing and Mohawk is positioned well to outperform and create long-term value. Thank you for joining us today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.