Mohawk Industries, Inc. (MHK) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call provided mixed signals: strong restructuring savings and innovation efforts are positives, but weak market conditions and unclear management responses create uncertainty. The company's optimism about market recovery and strategic initiatives is countered by inflation and tariff challenges. Overall, the sentiment is balanced, suggesting a neutral stock price movement.
Key Financial Performance
Net Sales (Q4 2025) $2.7 billion, an increase of 2.4% as reported and a decrease of approximately 3.3% on a constant basis year-over-year. The increase was driven by stable commercial demand, while the decrease on a constant basis was due to weak housing turnover and sluggish home construction in the U.S.
Adjusted EPS (Q4 2025) $2, up approximately 3% year-over-year. The increase was attributed to productivity, restructuring initiatives, product mix, and lower interest expense, offset by market pressures and increased input costs.
Full Year Sales (2025) $10.8 billion, flat year-over-year. Sales were impacted by weak housing turnover and economic uncertainty, with 55% of sales in the U.S., 30% in Europe, and 15% in other geographies.
Adjusted EPS (Full Year 2025) $8.96, a decrease of approximately 7.5% year-over-year. The decline was due to weak market conditions and increased input costs.
Free Cash Flow (2025) $620 million, reflecting operational efficiencies and cost management.
Stock Buyback (2025) 1.3 million shares repurchased for $149 million as part of the stock buyback authorization.
Gross Margin (Q4 2025) 23% as reported and 24.3% excluding charges, in line with the prior year. Benefits from productivity and restructuring initiatives ($41.5 million), favorable FX ($21 million), and improved price and mix offset weaker volume ($29 million) and increased input costs ($22 million).
SG&A Expense (Q4 2025) 19.8% as reported and 18.7% excluding charges, in line with prior year levels.
Operating Income (Q4 2025) $68 million as reported (2.5%) and $152 million on an adjusted basis (5.6%). Adjusted operating income declined by 50 basis points year-over-year due to reduced volume ($29 million), competitive market conditions, and increased input costs ($32 million), partially offset by productivity and restructuring benefits ($51 million).
Interest Expense (Q4 2025) $1 million, a decrease year-over-year due to reduced short-term debt and increased interest income.
Global Ceramic Sales (Q4 2025) Just under $1.1 billion, a 6.1% increase as reported and flat on a constant basis. Gains in international markets, particularly Europe, and improved price and mix offset softening in the U.S. builder channel.
Flooring North America Sales (Q4 2025) $893 million, a 4.8% decrease as reported and 6.2% decrease on a constant basis. The decline was driven by weaker residential soft surface business, partially offset by stable hard surface performance.
Flooring Rest of the World Sales (Q4 2025) $737 million, a 6.5% increase as reported and a 3.5% decrease on a constant basis. The increase was driven by panels and insulation business growth, while residential remodeling weakness impacted flooring categories.
Free Cash Flow (Q4 2025) $270 million, reflecting strong operational performance.
Inventory (End of 2025) $2.7 billion, with inventory days at 139. Growth in inventory year-over-year was mainly due to the weakening dollar.
Capital Expenditures (2025) $435 million, about 30% below depreciation levels, reflecting reduced spending in response to market conditions.
Gross Debt (End of 2025) $2 billion, with leverage of 0.9x adjusted EBITDA, indicating a strong financial position.
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Operating Highlights
Premium Product Launches: Introduced premium collections with advanced design and proprietary printing technologies, enhancing product mix and offsetting pricing pressures.
Quartz Production Line: New quartz production line ramping up to deliver higher-value products with advanced veiling technology.
Porcelain Slab Production: Enhanced with state-of-the-art printing technology for higher-value products.
PureTech PVC-free Hybrid Flooring: Growing as an alternative with authentic visuals, better scratch resistance, waterproof performance, and dimensional stability.
Hero Flooring Acquisition: Acquired a niche U.S. rubber flooring company to support high-performance commercial channel growth.
Geographic Sales Distribution: 55% of sales in the U.S., 30% in Europe, and 15% in other geographies.
European Market Conditions: Interest rates at lowest since late 2022, inflation eased, and employment steady, supporting housing market participation.
Latin America Market: Soft demand with aggressive pricing competition; Mexico expanding customer base and Brazil facing high interest rates.
Restructuring Actions: Implemented numerous restructuring actions and operational improvements to lower cost position and benefit long-term performance.
Productivity Gains: Achieved productivity gains of $41.5 million in Q4, offsetting weaker volumes and increased input costs.
Cost Management: Reduced capital spending by 30% in 2025 to $435 million, focusing on product innovation, cost reduction, and maintenance.
Pricing Actions: Implemented pricing actions across regions and product categories to partially cover inflation and manage tariffs.
Supply Chain Optimization: Optimized supply chain to manage tariff impacts and improve cost efficiency.
Focus on High-Performance Commercial Channel: Acquired Hero Flooring to enhance commercial offerings and expand in niche markets.
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Risk or Challenges
Housing Turnover and Construction: Continued weakness in housing turnover and sluggish home construction in the U.S. impacted volume. Builders completed fewer homes in the U.S. as they focused on reducing inventories. In Europe, high building costs, land shortages, and labor constraints impeded residential construction.
Economic Uncertainty and Consumer Confidence: Consumer confidence remained weak due to inflation, employment concerns, and geopolitical tensions, leading to postponed discretionary investments such as home renovations.
Competitive Pressures: Heightened competition to absorb industry fixed costs continues to pressure pricing, particularly in residential markets.
Input Costs and Tariffs: Increased input costs and the impact of U.S. tariffs created financial pressures, though partially mitigated by pricing actions and supply chain optimization.
European Market Challenges: In Europe, pricing weakened due to excess industry capacity and heightened competition. Geopolitical events and consumer uncertainty further pressured discretionary spending.
Latin American Market Challenges: In Brazil, restrictive central bank policies and high interest rates compressed the flooring market. Competitors in Latin America pursued aggressive pricing strategies.
Operational Costs and Restructuring: Restructuring actions and operational improvements were necessary to lower costs and manage the challenging environment, but these actions also incurred nonrecurring charges.
Soft Residential Demand: Residential remodeling and construction remained soft across most regions, with discretionary spending under pressure.
Supply Chain and Inventory Management: Inventory reductions in the retail channel and challenges in managing supply chain costs impacted operations.
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Guidance & Outlook
Housing Market Recovery: The company anticipates that lower U.S. mortgage rates, combined with potential government actions, will benefit housing turnover. In Europe, lower interest rates, record consumer savings, eased inflation, and steady employment are expected to support greater participation in the housing market as consumer confidence improves.
Commercial Construction and Renovation: Lower interest rates are expected to encourage additional investments in commercial construction and renovation.
Capital Expenditures for 2026: The company plans to invest approximately $480 million in 2026, focusing on product innovation, cost reduction, and general maintenance of the business.
First Quarter 2026 Guidance: The company expects first quarter adjusted EPS to be between $1.75 and $1.85, excluding any restructuring or one-time charges. Market conditions are expected to remain competitive, with benefits from product mix, productivity, and cost reductions offsetting higher energy and labor costs.
2026 Sales and Earnings Outlook: The company expects sales and earnings to improve in 2026, driven by economic improvements, housing market recovery, and restructuring actions. However, growth will depend on economic conditions, interest rates, geopolitical events, and the rebound of residential remodeling.
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Shareholder Return Plan
Stock Buyback: Repurchased approximately 1.3 million shares of stock for $149 million as part of the current stock buyback authorization.
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Key Q&A
Q:What are the expectations for price and mix in 2026, and how will inflation be managed?
A:The company anticipates continued market pressure with inflation levels similar to 2025, driven by energy, labor, and tariffs. Pricing, improved mix, and productivity are expected to offset inflation.
Q:What is the outlook for inventory management ahead of the spring selling season?
A:Inventories were reduced in the fourth quarter and are now close to optimal levels. There is optimism among customers for the year.
Q:What is the sentiment across different channels regarding market optimism?
A:The residential side is optimistic about customers returning to the market, with expectations of slight improvement in existing home sales. Commercial and builder expectations are stable.
Q:How does the company view 2026 in terms of market conditions and earnings?
A:2026 is seen as a transitional year with improvements in remodeling activity, lower mortgage rates, higher home equity levels, and increased housing supply benefiting existing home sales. Earnings are expected to exceed last year's.
Q:What is the impact of inflation and productivity on earnings in 2026?
A:Earnings improvement is based on an adjusted number, with price/mix and productivity expected to offset inflation, including tariffs.
Q:What is the company's strategy for gaining market share and momentum in hard surfaces?
A:The company focuses on leading products, innovation, and merchandising in the home center channel. Waterproof laminate and hybrid LVT alternatives are performing well, benefiting from tariff increases and improved visuals and performance.
Q:What are the new CFO's priorities and approach to capital allocation?
A:The focus remains on cost and capital discipline, investing in new products, and preparing for market recovery.
Q:What is the outlook for price, mix, and volume in 2026?
A:Price, mix, and volume are expected to increase, supported by pricing initiatives, higher-value products, and stable commercial and new construction markets.
Q:What is the outlook for the U.S. ceramic market and the impact of tariffs?
A:The company is performing better than the market, leveraging domestic manufacturing, improved style and design, and better service. Tariffs have increased costs but are being offset by price and mix improvements.
Q:What is the significance of the company's innovations in printing technology and hybrid products?
A:Innovations in higher-end products, hybrid materials, and new equipment are enhancing product mix and offsetting inflation. These efforts are ongoing and contribute to differentiation in the market.
Q:What is the impact of AI on transportation and distribution costs?
A:AI is expected to provide incremental improvements in freight efficiency. The company benefits from its own transportation system, which reduces costs and improves service.
Q:What are the main drivers of inflation in 2026, and how are they being managed?
A:Wage and benefit increases, energy costs, tariffs, and material costs are key drivers. The company is addressing these through pricing actions and productivity improvements.
Q:What is the outlook for productivity and restructuring savings in 2026?
A:Restructuring savings are expected to be around $60 million, with additional productivity initiatives contributing to cost reductions.
Q:What is the pricing environment in the builder channel?
A:The builder channel is weak, with significant pressure to maintain prices. The company is implementing targeted price increases to offset inflation.
Q:What are the expectations for first-quarter 2026 EPS and sales?
A:First-quarter EPS is expected to be $1.75 to $1.85, with lower volumes and soft market conditions. There are four extra selling days year-over-year and one extra day sequentially.
Q:What is the company's approach to free cash flow and share buybacks in 2026?
A:The company expects strong free cash flow and will continue share buybacks as part of its strategy.
Q:What is the impact of tariffs on costs and competitive positioning?
A:Tariffs range from 15% to 50%, with actions taken to offset costs through pricing, supply chain management, and freight cost reductions. The company has gained share in certain categories due to domestic manufacturing advantages.
Q:What is the pricing outlook for the Flooring Rest of World segment?
A:The segment faces slow demand and strong price competition, but targeted price increases are expected to have a slightly positive effect in 2026.
Q:Can the company grow EPS in 2026 if volumes are flat?
A:EPS growth assumes some volume growth in addition to other factors.
Q:What is the pricing outlook across different product categories in 2026?
A:Price increases of 3% to 5% are being implemented across most categories, with a focus on higher-value products and adjustments to competitive conditions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of price and mix assumptions, the exact impact of tariffs on costs, and the precise benefits of innovations and AI on operations. Responses often lacked numerical specificity and relied on general statements about optimism and ongoing efforts.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Eastern Europe
Europe building
Europe improvement
Mohawk Industries
SGA
action housing
action improvement
affordability
basis decrease
benefit productivity
builder channel
builder home
chain optimization
challenge
charge line
collection sale
competition
customer base
design
education
health care
home center
home construction
hospitality
improvement price
increase decrease
increase input
inflation employment
input tariff
mix volume
product category
product launch
record
rubber
sale channel
sale increase
start
technology
weakening
MHK Transcript
Mohawk Industries, Inc. (MHK) Q4 2025 Earnings Call Transcript
Unknown2-13
The earnings call provided mixed signals: strong restructuring savings and innovation efforts are positives, but weak market conditions and unclear management responses create uncertainty. The company's optimism about market recovery and strategic initiatives is countered by inflation and tariff challenges. Overall, the sentiment is balanced, suggesting a neutral stock price movement.
Mohawk Industries, Inc. (MHK) Q3 2025 Earnings Call Transcript
Unknown10-24
The earnings call presents a mixed outlook. Positive elements include restructuring benefits, new product launches, and share repurchases. However, ongoing inflation, tariff impacts, and uncertain recovery timing are concerns. The Q&A section reveals management's reluctance to provide specific guidance, which could worry investors. Overall, the sentiment is neutral, with no strong catalysts for significant price movement.
Mohawk Industries, Inc. (MHK) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call summary presents a mixed picture. While there are positive elements like restructuring savings, product innovation, and optimistic long-term outlook, there are also challenges such as tariff impacts, inflation, and weak market conditions. The Q&A section highlights uncertainties in consumer response to price increases and unclear management responses on tariffs. The balance of positive and negative factors, without a clear market cap, suggests a neutral stock price movement over the next two weeks.
Mohawk Industries, Inc. (MHK) Q1 2025 Earnings Call Transcript
Unknown5-2
The earnings call reveals several challenges: a significant tariff impact, increased inventories, and a cautious market outlook. Despite restructuring efforts and planned price increases, management's vague responses in the Q&A raise concerns. Additionally, the market strategy is unclear, and while there's a focus on cost-cutting, the unpredictable market conditions and lack of clear guidance could negatively influence investor sentiment.
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Frequently Asked Questions
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