MOHAWK INDUSTRIES INC (MHK) Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered adjusted EPS of $1.52, above both company’s prior guidance ($1.34–$1.44) and Wall Street consensus, driven by productivity gains, restructuring savings and a lower tax rate, despite pricing pressure and higher input costs .
• Revenue of $2.53B declined 5.7% y/y (down ~0.7% on constant days/ex-FX) as residential remodeling remained the weakest end market; Global Ceramic and FNA improved mix, while FROW faced competitive pricing and lower volume .
• Management guided Q2 2025 adjusted EPS to $2.52–$2.62 and highlighted $100M of 2025 restructuring benefit, with tariff-related cost headwinds ($50M annualized at current 10% rates) to be addressed through price increases and supply chain adjustments .
• Flooring North America order system conversion impact (~$30M) was “within expectations” and service levels returned to historical rates; company repurchased 225K shares for ~$26M, reinforcing capital allocation discipline .
• Near-term stock reaction catalysts: an EPS beat vs consensus and a stronger Q2 guide could be supportive; tariff pass-through and domestic manufacturing advantage may underpin margins as pricing actions roll through in 2H’25 .

What Went Well and What Went Wrong

What Went Well

• Productivity and restructuring offset headwinds: adjusted operating margin of 4.8% reflected +$51M productivity and ~$100M full-year restructuring savings plan; tax rate also lower (adj. ~17.9%) aiding EPS .
• Mix improvements and premium collections: Ceramic and FNA showed favorable price/mix, supported by premium products and stronger commercial channel participation (e.g., porcelain slabs in Europe, premium waterproof laminate in US) .
• Domestic capacity advantage amid tariffs: extensive US/Mexico manufacturing footprint positions Mohawk to mitigate import tariff impacts and maintain service levels; price increases have been announced and are being sequenced .

Quote: “Our earnings performance primarily benefited from productivity gains, restructuring actions and a lower tax rate...” — Jeff Lorberbaum .

What Went Wrong

• Revenue and margins compressed: net sales fell 5.7% y/y; gross margin and adjusted operating margin declined y/y, reflecting pricing pressure and higher input costs (~$41M in Q1) .
• FNA order system conversion: ~($30M) impact in Q1 from missed sales and extraordinary costs; while service recovered, the conversion weighed on the segment’s operating margin (adj. 3.0%) .
• FROW faced competitive pricing and lower volume: adjusted operating margin fell to 9.1% (down 100 bps y/y) amid unfavorable price/mix and weak discretionary demand in Europe .

Financial Results

Consolidated Performance (GAAP and Adjusted)

Q1 2025 vs Wall Street Consensus

Values retrieved from S&P Global*

Segment Breakdown

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy: optimize sales, reduce costs, simplify operations/product complexity, invest in new features; expect significant improvement when industry volumes normalize .
• Tariffs: ~$50MM annualized cost at 10% rates; offset via pricing and supply chain adjustments; domestic/Mexico capacity positions Mohawk advantageously .
• Restructuring/Cost Actions: ~$100MM 2025 benefit; additional productivity initiatives ongoing to mitigate inflation; FNA service back to historical levels .

Quotes:

• “At the current 10% rates, we estimate Mohawk will incur an annualized cost of approximately $50 million, which we expect to address through price increases and supply chain adjustments as needed.” — Jeff Lorberbaum .
• “We anticipate pricing pressure will continue in all regions given low demand and competitive markets.” — Jeff Lorberbaum .
• “Our shipments recovered from the disruption caused by the order system conversion.” — Paul De Cock .

Q&A Highlights

• Tariff timing and pass-through: FIFO inventory implies cost impact largely 3Q–4Q; price increases announced and staged; sourcing shifting away from China toward Vietnam/India/Korea; Mexico production not subject to tariffs .
• Pricing power vs promotional environment: tariffs likely passed through industry-wide; potential mix shift favoring laminate/ceramic/carpet as LVT costs rise .
• Commercial demand sustainability: order activity remains solid; no tapering observed yet; commercial exposure supports mix in FNA and US ceramic .
• Price-cost outlook: Q1 price-cost headwind ~$40MM; expected slightly higher in Q2; nat gas declines could benefit later in year; labor/benefits inflation persists .
• Capital allocation and FCF: despite Q1 FCF usage tied to delayed invoicing and tariff-related imports, full-year FCF expected strong; buybacks continue opportunistically .

Estimates Context

• Q1 2025: Adjusted EPS beat consensus ($1.52 vs $1.405), while revenue modestly missed ($2,525.8MM vs $2,559.7MM), reflecting productivity/tax tailwinds and pricing pressure/higher inputs respectively .
• Consensus recalibration: Q2 guidance ($2.52–$2.62 adjusted EPS) above prior trajectories suggests upward revision risk to near-term EPS; however, revenue trajectories may be tempered by tariff pass-through timing and continued demand softness .

Values retrieved from S&P Global*

Key Takeaways for Investors

• EPS quality improving: productivity and restructuring savings are offsetting input inflation; lower tax rate and interest expense also support earnings durability .
• Tariffs as a relative advantage: domestic/Mexico manufacturing footprint positions Mohawk to gain mix/share as imported LVT prices rise; watch laminate and ceramic substitution trends .
• Near-term margin path: expect sequential margin lift in Q2 with guidance, but competitive pricing and inflation could cap upside until pricing actions fully flow through 2H’25 .
• FNA systems risk receding: order system conversion effects were transitory; service restored, reducing operational execution risk .
• Capital discipline: strong liquidity, low leverage (~1.2x net debt/Adj. EBITDA) and continued buybacks provide downside support .
• Watch commercial channel and Europe: commercial remains comparatively resilient; European consumer discretionary demand remains weak—monitor rate cuts and confidence recovery .
• Trading setup: EPS beat plus stronger Q2 guide are near-term catalysts; monitor tariff pass-through, input cost trajectory (nat gas/oil) and pricing discipline for sustained margin expansion .