Mohawk Industries (NYSE:MHK) released first-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.
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Summary
Mohawk Industries reported Q1 2026 adjusted EPS of $1.90, up 25% from the previous year, with net sales of $2.7 billion, an 8% increase.
The company is implementing productivity and restructuring actions to enhance results, repurchasing 607,000 shares for $64 million, and preparing for potential further price increases due to escalating energy costs from Middle East conflicts.
Guidance for Q2 2026 expects adjusted EPS between $2.50 and $2.60, with the company focused on cost control, product innovation, and maintaining flexibility amid challenging market conditions.
Full Transcript
OPERATOR
Good morning everyone and welcome to Mohawk Industries first quarter 2026 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. To ask a question, you may press star and then one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Nick Manthy, Chief Financial Officer. Please go ahead.
Nick Manthy (Chief Financial Officer)
Thanks, Jamie. Good morning everyone and welcome to Mohawk Industries Quarterly Investor Conference Call. Joining me today on the call are Jeff Lorberbaum, Chairman and Chief Executive Officer and Paul 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 2026. I’d like to remind everyone that our press release and statements that we make during the call may include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to, those set forth in our press release and our periodic filings with the securities and Securities and Exchange Commission. This call may include discussion of non GAAP numbers. For a reconciliation of any non GAAP to GAAP amounts, please refer to our Form 8K and press release in the Investors section of our website. I’ll now turn the call over to Jeff for his opening remarks.
Jeff Lorberbaum
Thank you, Nick. Our performance for the first quarter was in line with our expectations despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year. Our results include benefits from productivity restructuring and product mix offset by inflation and volume. Last year was impacted by the system conversion and had four fewer days. Our net sales were approximately 2.7 billion, an increase of 8% as reported or decreases 2.6% on a constant basis across our regions. The commercial sector continued to outperform residential new home construction remains soft and consumers continue to defer home purchases and remodeling projects due to economic uncertainty. We’re implementing productivity actions and executing our previously announced restructuring projects to enhance our results during the quarter, we repurchased 607,000 shares of stock for $64 million as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise at the end of February. The conflict in the Middle East intensified increasing volatility in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas. Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions and are contributing to a more cautious consumer outlook. Energy prices as well as the cost of oil and natural gas derivatives are also increasing which affects the costs of many of our products. Depending on the duration of the conflict, the economic impact will vary across our markets with increased inflation reducing consumer sentiment and discretionary spending. U.S. natural gas prices have been less impacted due to the significant domestic production, though oil prices in the U.S. have risen as they follow worldwide trends. In the US 10 year treasury yields have increased creating a corresponding rise in mortgage rates. The European continent, will be more affected due to the dependence on oil and gas from the Middle East and we have made forward purchases to limit our exposure. European governments are reviewing initiatives to lessen the impact on businesses and consumers such as cutting energy taxes, implementing fuel price caps and coordinating European gas storage.. The energy markets will remain volatile until the global supply normalizes. We’re implementing price increases across many products and geographies and further price increases could be required. The impact of higher cost of raw materials will be greater in the second half of the year due to our flow through of our inventory. We are continuing to launch new product collections with industry leading designs and features to enhance our sales and margins. We’re implementing operational strategies that we’ve used to navigate past disruptions which prioritize adaptability and cost control. We’re maintaining flexibility to align with evolving demand, supply, availability and volatile costs. We’re focused on the controllable parts of our business including sales initiatives, inventory levels and discretionary spending and investments. Now Nick will provide the details of our financial performance for the quarter. Thanks Jeff.
Nick Manthy (Chief Financial Officer)
Looking at our Q1 2026 financial results, net sales for the quarter were $2.7 billion, up 8% as reported and a decrease of 2.6% on a constant basis. Our global ceramics segment delivered stronger mix and we lapped the impact of the order management system conversion in flowing North America which partially offset the slower market conditions across our markets. Gross margin was 23.5% as reported and 24.8% on an adjusted basis. This is up 70 basis points from prior year as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of 20 million offset the increased input costs of $28 million. SG&A expenses were 19.4% as reported and 19.3% excluding charges in line with prior year levels. That gave us an operating Income as reported of $112 million or 4.1% of net sales. We had $38 million in nonrecurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million or 5.5% of sales. That’s an increase of 70 basis points versus prior year. The benefits of lapping the prior year order management system conversion of $30 million and our restructuring and productivity initiatives of 36 million were partially offset by increased input costs of $38 million. Lower volumes given the weaker market conditions were offset by extra days in the quarter. Interest expense was $2 million, a decrease compared to prior year due to the reduction in short term debt and the benefit of increased interest income. Our adjusted tax rate was 19.4% and we are forecasting the full year tax rate for 2026 to be between 19 and 20%. That gave us an earnings per share on both a reported and adjusted basis of $1.90. Turning to the segments, Global Ceramics had net sales just under $1.1 billion. That’s a 10.4% increase as reported and basically flat on a constant basis. The ceramic business delivered positive price mix given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel. Adjusted operating income was 55 million or 5% of sales. That’s an improvement of 20 basis points compared to the prior year as the combination of productivity initiatives of 21 million and positive price mix of 13 million were only partially offset by an increase in input costs of $30 million. Flooring North America, net sales were $880 million. That’s a 2% increase as reported or a 4.1% decrease on a constant basis as sales were impacted by slower conditions in both new residential construction and residential remodeling. We had an adjusted operating income of 35 million or 4% of sales. That’s an improvement of 100 basis points compared to prior year as we lapped the impact of the order management system conversion of $30 million which was partially offset by increased input costs of 13 million and the net impact of lower volumes. In Flooring Rest of the World, we had sales of $751 million as reported. That’s a 12.2% increase or a decrease of 4.4% on a constant basis. With the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses. Adjusted operating income was $74 million or 9.8% of sales. That’s an improvement of 70 basis points compared to prior year as the combination of productivity gains and lower input costs of 14 million were more than enough to offset negative price mix. Corporate expenses and eliminations were 14 million in the quarter and we estimate the full year 2026 expenses to be between 52 and 55 million. And now looking at the balance sheet, cash and cash equivalents ended the quarter at 872 million. We had free cash flow of 8 million in the quarter which is in line with seasonal trends. Inventories were just shy of 2.7 billion, up less than 1% compared to prior quarter due to inflation. Property, plant and equipment ended the quarter at just under 4.7 billion. Capex spending in the quarter was $102 million and we plan to invest approximately 480 million in 2026. Focused on cost reduction initiatives, product innovation and maintenance. The balance sheet remains in a very strong position with NET debt of $1.2 billion and a net debt to EBITDA ratio of 0.9. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers. Now Paul will review our Q1 operational performance.
Paul De Kock (President and Chief Operating Officer)
Thank you Nick Our global ceramics segment delivered improved sales and profitability year over year. Our regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial. Our premium collections increased our mix with advanced technologies that enhance the visuals. Across our regions, productivity improvements and restructuring actions are improving our results. In the U.S. we benefited from stronger commercial sales and increased retail partnerships which offset ongoing weakness in the builder channel. In March, we introduced our spring collection which emphasizes higher end decorative wall tile and large polished floor tile. To enhance our mix, we announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation cost. We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher value products. The U.S. International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production and the Commission is determining tariffs and quotas to safeguard the industry. In our European ceramic business, we delivered solid sales and margin improvement with investments in sales, personnel, showrooms and new collections in the region. We have greater participation in the commercial channels which is outperforming the residential markets. The industry has announced limited price increases at this point given the market softness. We have purchased a portion of our natural gas requirements this year which will reduce the impact of higher energy prices. Our Latin American ceramic businesses have been less impacted by the conflict. We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs in Mexico. Our volume improved as we expanded distribution, improved service times and grew sales with large size polished porcelain collections in Brazil. Our new product introductions are improving our mix with growth in the higher value porcelain category. U.S. reciprocal tariffs on Brazil were significantly reduced which will improve our export volumes to the United States. Brazil’s economy remains sluggish and the central bank is now cutting interest rates to stimulate growth. Our flooring rest of the world segments result were driven by productivity, cost improvements and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation. With the war in Iran, consumer confidence declined as fuel and energy cost increased. We are implementing price increases to offset the higher costs impacting our business in the quarter. Our laminate sales benefited from growing retail partnerships and the success of our new collections which combined elevated style and performance. We updated our LVT designs, added offerings at new price points and expanded our retail distribution. Our sheet vinyl sales to the Middle East were disrupted and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products and we implemented price increases. We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs. Our insulation business performed well and improved our costs by re engineering our products. We’re growing our insulation sales in Germany and Eastern Europe to support the startup of our manufacturing facility in Poland. Our businesses in Australia and New Zealand improved results with favorable pricing mix and cost. Our new carpet collections, national promotions and increased participation in the new construction channel enhanced our performance. Our flooring North America segment remained slow during the quarter given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring system improvements and additional days in the period partially offset by lower volume and inflation. Commercial continued to outperform residential and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material, energy and transportation increases. Mortgage rates rose almost half a point in March leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders. We improved our hard surface mix with our best in class laminate, hybrid and LVT collections. Our proprietary accessories coordinate with our hard surface offering increasing complementary sales. Our new carpet introductions are being well received with a focus on our premium polyester and Smart Strand collections. In February, we launched the industry’s first carpet collections, certified by the Asthma and Allergy foundation to significantly reduce household allergens using natural probiotics. Our commercial order backlog has seasonally improved with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers and are creating additional specification opportunities for our other commercial products and I will now return the call to Jeff.
Jeff Lorberbaum
Thank you Paul One month into the second quarter, we continue to adapt our business to changes caused by the Middle east conflict. Thus far, we’ve announced price increases across much of our portfolio due to inflation and our order backlog has continued to grow across our regions. The commercial channel remains solid while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high end collections are performing better in the market and our new products are enhancing our mix. We’re maximizing our flexibility to react to changes in our supply chain, operating costs and market demand. Presently, we’re containing cost, reengineering products and limiting capital expenditure. We’ll not see the full impact of our pricing actions and rising costs until the third quarter. The degree to which the Middle east conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure. Given these factors and one less shipping day in the second quarter, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one time charges. We are managing all aspects of the business we can control and responding to market changes as they arise. In the past, Mohawk has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for …
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