Mohawk(MHK) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The fourth quarter net sales were approximately $2.7 billion, an increase of 2.4% as reported, but a decrease of approximately 3.3% on a constant basis compared to the prior year [4] - Adjusted EPS for the quarter was $2, up approximately 3% versus the prior year, while the full year adjusted EPS was $8.96, a decrease of approximately 7.5% [5][13] - Free cash flow for the year was approximately $620 million, with stock repurchases of approximately 1.3 million shares for $149 million [5] Business Line Data and Key Metrics Changes - Global Ceramic segment had sales of just under $1.1 billion, a 6.1% increase as reported, and flat on a constant basis [13] - Flooring North America sales were $893 million, a 4.8% decrease as reported, or 6.2% on a constant basis, primarily due to a decline in the residential soft surface business [14] - Flooring Rest of the World sales were $737 million, a 6.5% increase as reported, but a 3.5% decrease on a constant basis [16] Market Data and Key Metrics Changes - Approximately 55% of sales were in the U.S., 30% in Europe, and 15% in other geographies [5] - Housing turnover in major regions remains at historical lows due to affordability challenges and economic uncertainty [5] - In Europe, high building costs and labor constraints continue to impede residential construction, although moderate recoveries have emerged in Southern and Eastern Europe [8] Company Strategy and Development Direction - The company is focusing on innovative product introductions and marketing actions to stimulate sales in soft markets [9] - Capital expenditures for 2026 are planned at approximately $480 million, focusing on product innovation and cost reduction [18] - The company anticipates benefits from product mix, productivity, and cost reductions to offset headwinds from higher energy and labor costs [28] Management's Comments on Operating Environment and Future Outlook - Management noted that while home renovation remains soft, there is optimism for improvement in existing home sales due to lower mortgage rates and increased housing supply [44] - The company expects 2026 to be a transitional year with some improvement in remodeling activity and anticipates exceeding last year's earnings [44][46] - Management highlighted that pricing pressures are likely to remain due to competitive market conditions [32] Other Important Information - The company initiated numerous restructuring actions and operational improvements that lowered its cost position [10] - The balance sheet remains strong, with gross debt of $2 billion and leverage of 0.9 times adjusted EBITDA [18] Q&A Session Summary Question: Expectations for price and mix in 2026 - Management anticipates continued pressure in the market, with inflation levels similar to 2025, but expects pricing, improved mix, and productivity to help offset inflation [32][33] Question: Inventory management ahead of spring selling season - Inventories were reduced in the fourth quarter, and management believes they are close to where they need to be, with optimism from customers for the upcoming year [39][41] Question: Outlook for 2026 and pricing dynamics - Management expects price, mix, and volume to improve, driven by pricing initiatives and a stable commercial business [57][58] Question: Impact of tariffs and pricing strategies - Tariffs range from 15%-50%, and management has taken actions to offset these costs through pricing and supply chain management [93] Question: Pricing pressure in Flooring Rest of the World - Management noted strong price competition but anticipates a slightly positive price effect as they move through the year [97]