Eric Bosshard

Eric Bosshard sought clarification on whether the impact of tariffs was sufficient to push the company's raw material outlook above its original guided range.

Answer

Executive Allen Mistysyn answered directly, 'No. It's not, Eric.' He confirmed that the raw material outlook remains within the previously guided range of up low-single-digits. He did clarify, however, that while a broad price increase may not be necessary, specific businesses more heavily impacted by tariffs might need to implement price increases sooner.

Eric Bosshard asked about any observed price sensitivity or trade-down in the architectural business and inquired about the payback period for investments in new sales reps.

Answer

CEO Heidi Petz reported seeing the opposite of trade-down, with customers valuing productivity and choosing higher-end products. SVP & CFO Allen Mistysyn explained that the return on new reps is very quick, typically 1-2 quarters, especially in residential repaint where splitting territories allows for rapid sales growth.

Eric Bosshard asked about the long-term financial model, seeking to understand the point at which the curve of investment moderates, allowing for sustained market share growth and operating margin expansion.

Answer

Executive Allen Mistysyn confirmed this is the ultimate target. He explained that as the macro demand environment improves, volume growth will outpace the rate of investment, allowing the company to gain significant leverage on its SG&A spend. This will, in turn, drive operating margin to grow at a faster pace.

Eric Bosshard of Cleveland Research Company inquired about the performance of price and mix in fiscal 2025 versus expectations and the strategic outlook for pricing in 2026. He also sought clarification on retail category growth and Scotts' market share performance.

Answer

President & COO Nate Baxter explained that the approximate 1.5% price increase in 2025 was reinvested into retail activation programs and that the company intends to take further pricing in 2026. EVP, CFO & Chief Accounting Officer Mark Scheiwer confirmed that the price/mix impact aligned with initial expectations. Regarding market share, Nate Baxter stated that the lawn and garden market grew about 5% in units year-to-date, and Scotts Miracle-Gro captured two points of that share.

Eric Bosshard of Cleveland Research Company asked if the heightened promotional spending was planned, why the company aims to narrow the price gap to private label if its brand is strong, and how it reconciles a focus on units with its gross margin improvement goals.

Answer

CEO James Hagedorn and other executives clarified that the significant increase in promotional spending was planned, budgeted, and funded by reinvesting list price increases. On price gaps, Hagedorn explained the strategy is not just about competing with private label but making lawn care more accessible through a multi-bag approach, which will naturally lower the price per application over time. Executives stated that driving unit volume is complementary to margin goals, as higher volume improves plant utilization and absorbs fixed overhead, making it a key lever for margin expansion.

Eric Bosshard of Cleveland Research Company asked about the strategic interplay between price, market share, and gross margin, specifically whether increased promotional spending is needed to drive traffic or if brand investment alone is sufficient. He also questioned if 2025 POS growth could exceed 2024's strong performance.

Answer

Executive James Hagedorn described the company's significant investment in retailer programs as a 'virtuous' cycle that builds a competitive 'moat' and drives market share, stating they are not done spending. Executive Nate Baxter added that they are leaning into promotions and view private label as part of a healthy category structure, not a threat. Regarding POS growth, Hagedorn was cautiously optimistic, acknowledging potential upside but emphasizing the need to avoid overpromising due to the negative leverage on incentive compensation.

Eric Bosshard asked for clarity on the path to a 35% gross margin, seeking to reconcile that goal with the stated difficulties in raising prices, competition from private label, and persistent pressure in the lawn category.

Answer

CEO James Hagedorn clarified that private label losses were strategic decisions on low-margin business and not a sign of weakening brand commitment from retailers. COO Nate Baxter outlined the plan for the lawn category, which includes a renewed marketing focus on feeding and long-term investments in new active ingredients and biologicals. CFO Matt Garth reiterated that the path to higher margins is supported by cost savings, operational efficiencies, and innovation, in addition to targeted pricing.

Eric Bosshard of Cleveland Research Company asked for the basis of Whirlpool's confidence in offsetting tariff impacts with pricing. He also questioned why the company's North American market share was contracting even before the full effect of protective tariffs.

Answer

Marc Bitzer, Chairman & CEO, stated that the necessary pricing actions to offset tariffs were largely implemented in Q2, though their positive impact was masked by a negative product mix. He attributed the minor, temporary share loss to a deliberate choice not to participate in value-destroying promotions driven by competitor inventory, expressing confidence that share will be regained as new products roll out and the playing field levels.

Eric Bosshard of Cleveland Research Company asked for clarification on the timing and annualized run-rate of the 250 basis point tariff impact and questioned whether the source was primarily finished goods or components.

Answer

Marc Bitzer (executive) confirmed the impact is heavily back-half loaded and would be larger on an annualized basis. He specified the impact is largely from components that are not yet sourced domestically, plus some finished goods. Both he and James Peters (executive) cautioned against a simple annualization, as the company is actively rewiring its supply chain to mitigate these costs in the future.

Eric Bosshard questioned why the North American margin guidance isn't higher, given the one-time nature of the Q4 issue and new pricing actions. He also asked why the various positive pricing and mix factors don't sum to a benefit greater than 75 basis points for 2025.

Answer

CFO Jim Peters explained the 2025 guidance is conservative and does not assume a recovery in the discretionary housing market, unlike what may have been in prior expectations. He clarified that the 75 basis point price/mix benefit is partially offset by product transition costs. Furthermore, the most significant mix driver, the new KitchenAid line, launches later in the year, meaning its full benefit will extend into 2026 and be amplified when the discretionary market eventually recovers.

Eric Bosshard asked for more clarity on how Whirlpool is balancing the priorities of market share, promotions, and margin expansion in North America during the fourth quarter, given the expected unusual demand patterns.

Answer

CEO Marc Bitzer reiterated that the company's primary focus remains on margin expansion. He explained that during a U.S. election year with low consumer sentiment, the effectiveness of promotions is limited. Therefore, the company will continue its disciplined approach, only participating in promotions that create clear value and lift. He added that U.S. market share has been recovering since the pricing changes made earlier in the year and that the company feels good about the current trend.

Eric Bosshard questioned the consumer response to recent price increases, asking if it was impacting volumes or mix. He also asked about the competitive dynamics in LVT following the implementation of tariffs on Chinese imports.

Answer

Chairman & CEO Jeffrey Lorberbaum responded that it is too early to gauge the full consumer reaction but believes imported product prices must rise, which will advantage Mohawk's local manufacturing. President & COO Paul De Cock noted that while the industry awaits final tariff outcomes, some supply chains have already begun shifting away from China.

Eric Bosshard questioned if there were any new or different competitive dynamics, particularly in U.S. tile, that are limiting pricing or market share, and asked about the influence of tariffs on this environment.

Answer

Vice Chairman Chris Wellborn acknowledged that industry underutilization creates pricing pressure but pointed to Mohawk's strong operational performance and success in the commercial and builder channels. CEO Jeff Lorberbaum added that the U.S. ceramic market faces intense competition from global players who direct their excess capacity to the region.

Eric Bosshard asked if slowing commercial activity would create a negative mix pressure in 2025. He also sought to understand the level of conviction behind the forecast for demand improvement next year, given that a 2024 recovery did not materialize.

Answer

Chairman and CEO Jeff Lorberbaum confirmed that commercial is generally a higher-margin business and the company anticipates it will slow. Executive James Brunk added that commercial is only 25% of the business, while remodeling is nearly half, and an inflection in remodeling provides a significant mix and volume lift. Regarding 2025, Lorberbaum expressed strong conviction based on historical cycles, stating he has never seen a period where falling interest rates did not lead to a housing industry pickup.

Eric Bosshard from Cleveland Research Company inquired about current inflation trends for stick, brick, and land costs and the outlook for these expenses. He also asked if there were any notable changes in product or price point performance, including areas of outperformance.

Answer

SVP Jessica Hansen reported a 2% year-over-year decline in stick and brick costs and a slight sequential drop in lot costs. President and CEO Paul Romanowski added that he does not expect significant changes in lot valuations in the near term. EVP and COO Michael Murray noted strong buyer adoption of smaller floor plans, which is an encouraging trend.

Eric Bosshard of Cleveland Research Company asked about inflation trends for construction materials (stick and brick) and land costs. He also inquired about any notable changes or areas of outperformance in the company's product mix or price points.

Answer

SVP Jessica Hansen reported that stick and brick costs were down about 2% year-over-year, while lot costs were up mid-single-digits. President and CEO Paul Romanowski added that the land market hasn't shifted significantly. EVP & COO Michael Murray noted the company is seeing strong adoption of its smaller floor plans.

Eric Bosshard of Cleveland Research Company asked how the company would manage potential cost inflation from tariffs and whether their reduced pace creates an opportunity for concessions from land partners like Forestar.

Answer

President and CEO Paul Romanowski and other executives explained that managing tariff impacts would involve a combination of strategies at the community level, leveraging their scale as an advantage. EVP and COO Michael Murray addressed land partners, stating that they work collaboratively to adjust lot delivery schedules, framing it as a partnership with seasoned developers who understand market cycles.

Eric Bosshard of Cleveland Research Company asked if D.R. Horton is considering more meaningful product changes to address affordability beyond smaller homes. He also questioned if consumer behavior has changed with mortgage rates returning to 7%.

Answer

COO Michael Murray explained that significant near-term product shifts are difficult due to lot sizes and municipal approvals, but the company continues to focus on efficiency. Executive Jessica Hansen noted a 1% year-over-year decrease in average square footage and a rise in attached homes to 17% of closings. President and CEO Paul Romanowski stated that rate buydowns remain the most effective incentive and that traffic and sales pace have been pleasing so far in the quarter.

Eric Bosshard asked for clarity on rising incentive costs, questioning if it's a strategic investment to boost sales or simply a reflection of the higher cost to buy down rates. He also asked about other potential solutions to address housing affordability beyond incentives and smaller homes.

Answer

President & CEO Paul Romanowski explained that they expect to maintain elevated incentives to ensure affordability. EVP & CFO Bill Wheat added that rate volatility inherently increases the cost of these incentives. EVP & COO Michael Murray mentioned other affordability levers include evaluating product selections, strategic land acquisition, and driving efficiencies with trade partners.

Eric Bosshard of Cleveland Research Company questioned the key changes driving the reduced back-half revenue guidance, the underlying order trends in the underground construction business, and whether recent pricing actions were skewed by segment.

Answer

Chairman, President & CEO Richard Olson stated the guidance reduction is almost entirely driven by weaker homeowner behavior impacting the residential segment and some professional products. He affirmed that underlying demand and order trends for underground construction remain strong, with the company focused on managing down its backlog. Both Olson and VP & CFO Angela Drake clarified that pricing actions are not skewed but are a surgical, cross-company process based on specific markets, with implementation occurring in the second half of the year.

Eric Bosshard of Cleveland Research Company asked about the drivers behind the Residential segment's Q4 profit contraction and the change in the full-year 2025 revenue outlook, which was revised down from prior expectations.

Answer

CFO Angela Drake explained the Residential segment's Q4 margin pressure was anticipated due to lower volume, an unfavorable product mix with fewer snow products, and increased freight and manufacturing costs. CEO Richard Olson attributed the more cautious fiscal 2025 revenue guidance to continued softness in homeowner-related markets, which was first noted in Q3, and ongoing adjustments in the snow and compact utility loader categories.

Eric Bosshard sought to confirm if the change in the full-year revenue guidance was narrowly attributable to weaker dealer orders driven by homeowner caution. He also asked if this homeowner weakness was incrementally worse than previously expected or just a continuation of a known trend.

Answer

CEO Richard Olson confirmed that the revenue guidance adjustment was indeed primarily driven by caution from homeowners, which affected dealer orders. He characterized the situation as being consistent with the company's inventory reduction plan initiated a year ago, but noted the trajectory changed slightly with increased caution from customers and dealers in July, at the end of the summer season. He stressed that the company remains on track with its overall inventory reduction goals.

Eric Bosshard inquired about Lowe's response to consumer affordability challenges through its pricing and promotions, and asked about the strategy for managing expenses and margins amid sluggish demand and potential cost pressures.

Answer

EVP of Merchandising William Boltz explained the focus is on providing 'value' through a mix of price, product innovation, and member-exclusive offers. Chairman and CEO Marvin Ellison and CFO Brandon Sink reaffirmed their commitment to disciplined expense control and Perpetual Productivity Improvement (PPI) initiatives, highlighting the team's strong track record in managing costs regardless of the macro environment.