Mohawk Industries, Inc. 2026 Q2 Earnings Call

Good morning, everyone. Welcome to the Mohawk Industries quarterly investor conference call. Joining me on today's call are Jeff Lorberbaum, Chairman and Chief Executive Officer, Paul De Cock, President and Chief Operating Officer, and Nicholas Manthey, 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 GAAP amounts, please refer to our Form 8-K 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. Our net sales were $3 billion, up 6.8% versus the prior year as reported or up 5% on a constant basis. 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 the 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 $0.63 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, and we believe we outpaced the market and 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 cost 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 to 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 over the reins to Paul. With 25 years as Mohawk's 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.

I truly believe 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. I've worked closely with Paul for over two decades, and I'm confident that he will lead Mohawk to new heights. I look forward to continuing to support him as chairman of the board. I want to also express my 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, I'll turn the call over to Paul.

Thank you, Jeff. Congratulations on your career with Mohawk and your retirement. It has been a privilege to work with you, I could not be more optimistic about our future. I am confident with our strong foundation that we can grow profitably and enhance our shareholder returns. Now I will 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. In hard surfaces, we expanded our presence in key channels. We are also strengthening our position in retail. 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. 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. 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. 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. 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. 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 $3 billion, up 6.8% as reported and up 5% 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. Gross margin 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, our 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. 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.