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MOHAWK INDUSTRIES INC (MHK) Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered an across-the-board beat versus S&P Global consensus: adjusted EPS $2.77 vs $2.61* and revenue $2.80B vs $2.76B*, supported by productivity gains and restructuring, despite elevated input costs and pricing pressure .
  • Guidance: management set Q3 2025 adjusted EPS to $2.56–$2.66 and reiterated ~19% non-GAAP tax rate for Q3 and full year; guidance excludes potential new tariffs’ impact .
  • Segment performance: Global Ceramic posted adjusted margin 8.1% on slight sales growth; Flooring North America margin compressed to 7.3% on higher input costs and shutdowns; Flooring ROW margin 10.4% amid competitive pricing .
  • Capital allocation: ~$42M buybacks in Q2 (393K shares) and a new $500M authorization announced, alongside $126M free cash flow and net debt/adjusted EBITDA of ~1.2x .
  • Near-term catalysts: beat on EPS and revenue, new $500M buyback, and price actions (including announced ~8% increases) to address tariffs and input cost inflation could support sentiment as mix shifts to premium/commercial .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EPS and revenue beat consensus; adjusted operating margin improved sequentially to 8.0% (from 4.8% in Q1), aided by $57M productivity and restructuring benefits and lower interest expense .
  • Global Ceramic strength: adjusted operating margin 8.1% with favorable mix and productivity; commercial demand and premium products supported sales, aided by new digital printing capabilities .
  • Strong cash generation and capital returns: Q2 free cash flow $126M and share repurchases of ~$42M; authorization to repurchase up to $500M of common stock .
  • Management quote: “Our restructuring actions are on schedule and delivering the expected savings… streamlin[ing] distribution and leverag[ing] technology to improve our administrative and operational costs.” .

What Went Wrong

  • Margin compression vs prior year: adjusted gross margin 26.4% (-70 bps YoY) and adjusted operating margin 8.0% (-120 bps YoY) due to higher input costs ($63M), lower volume ($21–22M), and increased shutdown costs (~$18M) .
  • Flooring North America softness: adjusted margin declined to 7.3% on higher input costs ($23M), negative net price/mix ($9M), and increased shutdown costs (~$11M); soft residential carpet offset by stronger LVT/laminate .
  • Competitive pricing pressures, especially in Flooring ROW and U.S. categories, continued to weigh on margins; management highlighted ongoing promotions and selective pricing actions to mitigate .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$2.64B $2.53B $2.80B
Diluted EPS (GAAP) ($)$1.48 $1.15 $2.34
Adjusted EPS ($)$1.95 $1.52 $2.77
Gross Margin % (reported)24.4% 23.1% (583.3/2,525.8) 25.5% (CFO)
Gross Margin % (adjusted)24.4% 24.1% 26.4%
Operating Income ($USD Millions)$121.8 $96.0 $188.7
Operating Margin % (reported)4.6% 3.8% 6.7% (CFO)
Adjusted Operating Income ($USD Millions)$159.8 $122.4 $223.0
Adjusted Operating Margin %6.1% 4.8% 8.0%
Free Cash Flow ($USD Millions)$236.2 -$85.4 $126.1
SegmentQ4 2024 Net Sales ($MM)Q4 2024 Adj Op Margin %Q1 2025 Net Sales ($MM)Q1 2025 Adj Op Margin %Q2 2025 Net Sales ($MM)Q2 2025 Adj Op Margin %
Global Ceramic$1,008.2 5.3% $993.8 4.8% $1,120.9 8.1%
Flooring NA$937.2 5.7% $862.4 3.0% $946.8 7.3%
Flooring ROW$691.8 10.0% $669.6 9.1% $734.4 10.4%
KPIsQ4 2024Q1 2025Q2 2025
Cash from Operations ($MM)$397.0 $3.7 $206.3
Capital Expenditure ($MM)$160.8 $89.1 $80.2
Net Debt ($MM)$1,570.2 $1,683.6 $1,654.3
Net Debt / Adjusted EBITDA (x)1.1x 1.2x 1.2x
Shares Repurchased (MM)~1.3 FY’24 0.225 (Q1) 0.393 (Q2)
YoY Comparisons (Q2)Q2 2024Q2 2025
Revenue ($MM)$2,801.3 $2,802.1
Diluted EPS (GAAP) ($)$2.46 $2.34
Adjusted EPS ($)$3.00 $2.77
Adjusted Gross Margin %27.1% 26.4%
Adjusted Operating Margin %9.2% 8.0%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSQ2 2025$2.52–$2.62 Actual $2.77 Beat vs prior guidance
Adjusted EPSQ3 2025N/A$2.56–$2.66 New
Non-GAAP Tax RateQ3 & FY 2025N/A~19% New
Restructuring SavingsFY 2025≈$100M ≈$100M Maintained
Capital ExpendituresFY 2025N/A≈$500M; D&A ≈$610M New
Share Repurchase AuthorizationOngoing$0.2M remaining under 2022 program New $500M program New
Guidance ExclusionsQ3 2025N/AExcludes potential impact from new tariffs Clarified

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Tariffs/macroQ4: industry pricing pressure; restructuring programs; FX headwinds . Q1: global tariffs announced; U.S. 145% on China; estimated ~$50M annualized cost at 10% tariffs; inventory build ahead of tariffs .Monitoring evolving tariffs; guidance excludes new tariffs; pushing price increases (~8% announced) and supply chain optimization; majority (≈85%) of U.S. sales produced in North America .Escalating impact; mitigation via pricing and domestic footprint
Product performanceQ4: hard surfaces growth; premium carpets gaining share . Q1: mix improving via premium collections & commercial .LVT/laminate growth; premium ceramic and soft surface collections driving mix; new tech (digital printing) improving visuals .Continued mix shift to premium/hard surfaces
Supply chain & operationsQ4: FNA ERP order system conversion issues expected to cost $25–$30M in Q1 . Q1: service returned to historical rates .Productivity initiatives across equipment, energy, supply chain; plant shutdowns increased costs; inventories elevated due to tariffs .Operational stabilization; ongoing productivity offsets
Regional trendsQ4: commercial stronger than residential; EU soft housing . Q1: EU consumer demand weak; rates may help .U.S. commercial backlog strong (education/hospitality); EU residential soft with promotions; laminate improving; Australia hard surface strong .Commercial > residential; EU still weak
Capital allocationQ4: $161M buybacks FY; leverage ~1.1x . Q1: $26M buybacks .$42M buybacks; new $500M authorization; balanced approach to buybacks/M&A/reinvestment .Increased flexibility/capital return

Management Commentary

  • CEO: “Our restructuring actions are on schedule and delivering the expected savings… Our industry faced continued pricing pressure from lower market volumes, which we are mitigating through strengthening product and channel mix.” .
  • CFO on margin drivers: “Gross margin… excluding charges was 26.4%, a decrease of ≈70 bps vs prior year, primarily due to higher input costs of $44M, lower sales volume of $22M and increased shutdown costs of $18M, partially offset by productivity gains of $47M and favorable FX of $15M.” .
  • COO on U.S. performance: “We had strong sales growth in the quarter from our LVT, laminate and hybrid products… Manufacturing enhancements… have increased operational efficiencies, improving our cost position…” .
  • CEO on tariffs and guidance: “Our guidance does not include the potential impact from new tariffs… we expect our third quarter EPS will be between $2.56 and $2.66 excluding any restructuring or one-time charges.” .

Q&A Highlights

  • Pricing dynamics and tariffs: Management implementing ~8% price increases; expects industry to pass through reciprocal tariffs (10% to 50%) with limited Q3 cost impact due to timing; domestic production footprint (~85% of U.S. sales) mitigates exposure .
  • Flooring NA pressure vs mix: Favorable product/channel mix minimized pricing pressures; soft residential carpet offset by LVT/laminate strength; productivity and restructuring actions to continue lowering costs .
  • Commercial outlook: U.S. commercial backlog remains strong (education/hospitality), but ABI below 50 suggests slowing; company investing in specified business and new products .
  • Seasonality and Q4 trajectory: Normal Q3→Q4 sales decline 5–6% and EBIT down 25%+ historically; restructuring benefits ($100M FY) and price/mix improvements expected to make Q4 better YoY .
  • Capital allocation: Balanced approach—ongoing buybacks under new $500M authorization; investments to increase as markets improve; opportunistic M&A when environment strengthens .

Estimates Context

  • Q2 2025 vs S&P Global consensus: adjusted EPS $2.77 vs $2.61*; revenue $2.80B vs $2.76B*; EPS estimates count: 18*, revenue: 16* .
  • Prior quarters: Q1 2025 adjusted EPS $1.52 vs $1.41* and revenue $2.53B vs $2.56B*; Q4 2024 adjusted EPS $1.95 vs $1.85* and revenue $2.64B vs $2.54B* .
  • Implication: EPS beats in Q4 and Q2, mixed revenue results; estimate models likely need to reflect higher productivity/restructuring benefits, price actions, and tariff-related pricing/mix assumptions.
    Values retrieved from S&P Global.*
PeriodEPS Consensus Mean ($)*EPS Actual ($)Revenue Consensus Mean ($MM)*Revenue Actual ($MM)
Q4 20241.851*1.95 2,536.1*2,637.2
Q1 20251.405*1.52 2,559.7*2,525.8
Q2 20252.606*2.77 2,757.0*2,802.1

Key Takeaways for Investors

  • Productivity and restructuring are materially offsetting inflation, with sequential margin improvement; watch for continued benefits in Q3–Q4 and into FY 2026 (annualized savings trajectory) .
  • Price actions and domestic manufacturing footprint provide a buffer against tariffs; monitor realized pricing, channel inventory digestion, and any finalized tariff levels .
  • Mix shift to premium hard surfaces (LVT/laminate) and commercial channels is ongoing; this should support margins as residential remodeling remains subdued .
  • New $500M buyback authorization and low leverage (~1.2x) create flexibility for capital returns; potential support for EPS accretion in a soft demand environment .
  • Guidance: Q3 adj EPS $2.56–$2.66 with tax rate ~19%; exclude tariff impact—models should incorporate pricing and input cost peak in Q3, with improvement into Q4 .
  • Watch U.S. commercial backlog (education/hospitality) and European trends; ABI softness indicates potential moderation—track conversion rates and order intake .
  • Risk factors: input cost inflation peaking in Q3, competitive pricing in ROW, and potential tariff-driven demand impacts; company plans selective pricing and supply chain optimization .

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