Eric Bosshard • Cleveland Research Company

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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