Mohawk MHK Q4 2025 Earnings Call Transcript

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Date

Friday, Feb. 13, 2026 at 11 a.m. ET

Call participants

• Chairman and Chief Executive Officer — Jeffrey S. Lorberbaum
• Chief Financial Officer — James Brunk
• President, Flooring — Paul De Cock

Takeaways

• Revenue -- $2.7 billion for the quarter, representing a 2.4% increase as reported and a 3.3% decline on a constant-currency basis.
• Adjusted EPS -- $2.00 for the quarter, up approximately 3% with benefits from productivity measures, restructuring, improved product mix, and lower interest expense.
• Operating income (adjusted) -- $152 million or 5.6% margin, a decrease of 50 basis points versus prior year, impacted by volume reductions and increased input costs.
• Non-recurring charges -- $84 million, primarily related to restructuring and legal settlements.
• Global ceramic segment -- Sales just under $1.1 billion; 6.1% increase as reported, flat on a constant basis; adjusted operating income $63 million (5.9% margin), up 60 basis points due to productivity and mix benefits.
• Flooring North America segment -- Sales of $893 million, down 4.8% as reported and 6.2% on a constant basis; adjusted operating income $39 million (4.4% margin), down 130 basis points from lower residential soft surface volume and higher shutdown/input costs.
• Flooring Rest of the World segment -- Sales of $737 million, up 6.5% as reported but down 3.5% on a constant basis; adjusted operating income $65 million (8.8% margin), down 120 basis points on weaker price/mix and residential remodeling volume.
• Full-year free cash flow -- $620 million, with $270 million generated in the quarter.
• Share repurchases -- 1.3 million shares repurchased for $149 million during the year.
• Tariff impact management -- The company stated, "We anticipate covering tariffs with pricing and supply chains with all the actions that we are taking."
• 2026 EPS guidance (Q1 adjusted) -- $1.75-$1.85 excluding restructuring and one-time charges, reflecting seasonally slower sales but more shipping days.
• Capital expenditures -- $435 million for the year, with 2026 CapEx planned at $480 million focused on innovation, cost reduction, and core maintenance.
• Leverage -- Year-end gross debt at $2 billion, with leverage of 0.9x adjusted EBITDA.
• Strategic actions -- Numerous restructuring and cost reduction initiatives in 2025, with an estimated $60 million in productivity and restructuring benefit expected to carry into 2026.
• Pricing actions -- Announced price increases in most categories generally in the 3%-5% range across geographies, with "the pricing is going in the market as we speak."
• Segment mix -- Sales composition: approximately 55% U.S., 30% Europe, and 15% other regions.
• Commercial vs. residential demand -- Commercial channels outperformed residential in all segments, especially in health care, education, and hospitality.
• CFO transition -- James Brunk to retire in April, with Nick Manthe assuming the CFO role.

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Risks

• Management cited "heightened competition" and "pressure on price" as ongoing headwinds, noting that "As residential demand remains weak, heightened competition to absorb the industry fixed cost continues to exert pressure on price."
• Input cost inflation highlighted as a persistent challenge, with particular reference to labor, energy, and tariffs—Well, for the full year, when you look at 2026 versus 2025, the first thing you always have is you have wage and benefit increases. So that is probably, looking at this year, number one. Also, we have seen energy costs, as Jeff said in prepared remarks, kind of fluctuate. So you see energy, especially in the U.S, somewhat spiking. So we will have to see how that kind of materializes over the full year. Obviously, tariffs are part of that, as I said, that inflation footprint as well, and then just kind of general expenses.
• Residential remodeling activity remains soft, with management stating that many of our large discretionary investments such as home renovations continue to be postponed.
• Ongoing softness in housing turnover and new construction, specifically in the U.S, directly impacting volume and outlook.

Summary

Mohawk Industries (NYSE:MHK) reported a mix of growth and ongoing challenges, with quarterly adjusted EPS rising despite underlying declines in volume and constant-currency sales. CEO Jeffrey S. Lorberbaum highlighted the company’s ability to offset tariff costs and input inflation using targeted price increases and supply chain measures, while acknowledging that market competitiveness and residential demand weakness continue to constrain profitability. The company forecast continued operational improvement and incremental restructuring benefits for 2026, with new product launches and capital allocation focused on sustaining innovation and pursuing select market opportunities.

• Management described 2026 as "a transitional year," anticipating gradual improvement contingent on better housing turnover and easing macroeconomic headwinds.
• Commercial segment growth offset persistent softness in residential channels, especially in North American and European markets.
• Actions to manage inventories, restructure operations, and control SG&A provided margin protection amid volatile demand patterns.
• Leadership confirmed announced pricing actions are being implemented, but cautioned that competitive dynamics may require further adjustments or postponements by category and region.
• The company expects capital discipline, product innovation, and cost controls to position Mohawk to benefit from a broader flooring market recovery.

Industry glossary

• LVT (Luxury Vinyl Tile): A resilient flooring product designed to mimic natural materials such as wood or stone, offering durability and water resistance for both commercial and residential use.
• MDF (Medium Density Fiberboard): An engineered wood product, used in panels and insulation, created by compressing wood fibers with wax and resin under heat and pressure.
• Hybrid flooring: A composite flooring product combining multiple materials (often PVC-free) to enhance performance features such as waterproofing and scratch resistance.
• Tariff-related pricing actions: Adjustments to product prices specifically undertaken to offset the impact of government-imposed import tariffs on raw materials or finished flooring goods.

Full Conference Call Transcript

Jeffrey S. Lorberbaum for his opening remarks. Thank you, Jim. Our fourth quarter net sales were approximately $2.7 billion, an increase of 2.4% as reported and a decrease of approximately 3.3% on a constant basis versus the prior year and in line with our expectation. Across our markets, commercial demand remained stable during the quarter, though continued weakness in housing turnover and sluggish new home construction in the U.S. impacted our volume. Our adjusted EPS for the quarter was $2.00, up approximately 3% versus the prior year, with benefits from productivity, restructuring initiatives, product mix, and lower interest expense offset by market pressures and increased input costs.

For the quarter, we managed the impact of U.S. tariffs, covering the cost as planned.

Operator: For the full year, our sales were approximately $10.8 billion, flat with the prior year's reported.

James Brunk: Approximately 55% of our sales were in the U.S., 30% were in Europe, and 15% in other geographies. Our adjusted EPS for the full year was $8.96, a decrease of approximately 7.5%. For the year, we generated free cash flow of approximately $620 million and repurchased approximately 1.3 million shares of our stock for $149 million as part of our current stock buyback authorization. The fourth quarter reflected a continuation of the macroeconomic factors our industry has faced since 2022. Housing turnover in our major regions remains at historical lows due to affordability challenges and economic uncertainty. Consumer confidence remained weak due to inflation, employment concerns, and geopolitical tensions.

As a result, many of our large discretionary investments such as home renovations continue to be postponed. Remodeling activity that did take place was primarily driven by more affluent customers or those addressing essential needs. Throughout 2025, most central banks took actions intended to stimulate economic growth and housing markets, including recent interest rate cuts by the U.S. Federal Reserve. While 2025 U.S. existing home sales did not improve, sales in December increased over the prior year. Currently, U.S. mortgage rates are at their lowest levels since September 2022. We anticipate these lower rates combined with potential government actions will benefit housing turnover. In Europe, interest rates are also the lowest since late 2022.

In addition, consumers have built record levels of savings, inflation has eased, and employment has remained steady. These conditions should support greater participation in the housing market as consumer confidence improves.

Jeffrey S. Lorberbaum: Across our markets, construction levels have not kept pace with household formations since the great financial crisis. In the U.S., builders completed fewer homes in the fourth quarter as they focused on reducing inventories and lowering the supply of new homes. In Europe, high building costs, land shortages, and labor constraints continue to impede residential construction. Completed housing units in Europe have declined in 2025, though moderate building recoveries in Southern and Eastern Europe have emerged. As housing demand increases, European governments are evaluating options to stimulate construction. The commercial channel outperformed residential throughout the year with strength in health care, education, and hospitality. We anticipate that lower interest rates will encourage additional investments in commercial construction and renovation.

In response to ongoing conditions, we took actions during the year to stimulate sales and enhance our mix in soft markets through innovative product introductions, marketing actions, and promotional activities. Our premium product launches deliver differentiated design and performance features to incentivize remodeling, and our new commercial collections help us gain momentum in both new construction and remodeling projects. As residential demand remains weak, heightened competition to absorb the industry fixed cost continues to exert pressure on price. To partially cover inflation, we took pricing actions in regions and product categories as market conditions allowed. In the U.S., we manage the impact of tariffs through pricing actions and supply chain optimization.

If necessary, we will adjust our strategies based on the Supreme Court's upcoming rulings and changes in the global trade landscape. During 2025, we initiated numerous restructuring actions and operational improvements that lowered our cost position and will benefit our longer-term performance. In 2025, our markets did not improve and in response, we reduced capital spending to $435 million, about 30% below our depreciation levels. We continue to take the proper actions to manage the present environment, pursue profitable growth opportunities, and strengthen our position when housing markets rebound. Now Jim will share our financial report.

James Brunk: Thank you, Jeff. Sales for the quarter at $2.7 billion, a 2.4% increase as reported and a decrease of approximately 3% on a constant basis. The 23% as reported, and 24.3% excluding charges, in line with the prior year, as the benefit from our productivity and restructuring initiatives of $41.5 million, favorable FX of $21 million, and improved price and mix offset weaker volume of $29 million and increased input costs of $22 million. SG&A expense was 19.8% as reported, 18.7% excluding charges, also in line with prior year levels. It gave us an operating income as reported of $68 million, 2.5%.

Our nonrecurring charges were $84 million during the quarter, primarily related to restructuring actions undertaken by all segments and legal settlements. It gave us an operating income on an adjusted basis of $152 million or 5.6%. That was only a 50 bps decline versus prior year, as the benefits from our productivity and restructuring initiatives of $51 million, our pricing actions to offset the impact of new U.S. tariffs, and improved product mix were offset by the reduction in volume of $29 million, competitive market conditions, and an increase in input costs of $32 million. Interest expense for the quarter was $1 million.

That is a decrease versus prior year due to a reduction in short-term debt and a benefit of increased interest income. Non-GAAP tax rate for the quarter was 17.1% versus 17.8% in the prior year, and we are forecasting the full-year tax rate for 2026 to be between 18.5% and 19.5%. That gave us an earnings per share on a reported basis of $0.68 or on an adjusted basis of $2.00. Turning to the segments. Global Ceramic had sales of just under $1.1 billion. That was a 6.1% increase as reported and basically flat on a constant basis.

We experienced softening in the U.S. builder channel offset by gains in our international markets led by Europe, as well as improvements in price and mix driven by the U.S. and our European operations. Operating income on an adjusted basis was $63 million or 5.9%. That was an increase of 60 basis points as the combination of our productivity initiatives of $22 million and a benefit of improvement in price and mix of $16 million offset the increase in input costs of $22 million and decreased volume of $13 million. In Flooring North America, our sales were $893 million. That was a 4.8% decrease as reported or 6.2% on a constant basis.

The decrease was primarily in our residential soft surface business, directly impacted by the slower builder channel, partially offset by our hard surface performance through home centers and retail, which were relatively flat versus the prior year. It gave us an operating income of $39 million or 4.4%. That was a decrease of 130 basis points, as the lower volume of $12.5 million, in conjunction with an increase in shutdown costs of $12 million and input costs of $70 million, offset the benefit of productivity and restructuring actions of $24 million and an improvement in price and mix.

And in Flooring Rest of the World, we had sales of $737 million, or a 6.5% increase as reported and a 3.5% decrease on a constant basis, with the decrease in volume especially seen in residential remodeling, impacting our flooring categories, as both our panels and insulation business units saw an increase in year-over-year volumes. That gave us an operating income of $65 million or 8.8% excluding all charges for a 120 basis point decrease from the prior year. This was led by a weakening in price and mix of $15 million and lower volume, partially offset by increases in productivity and lower input costs. Corporate and eliminations were $15 million for the quarter, in line with the prior year.

In 2026, we estimate the full-year impact of corporate expenses to be between $52 million and $55 million. And now the balance sheet. Looking at cash and cash equivalents of $806 million with free cash flow of $270 million in the quarter and $620 million on a year-to-date basis. Inventories were just shy of $2.7 billion. The growth in inventory year over year was mainly a result of the weakening dollar as inventory days ended the year at 139 days. Property, plant, and equipment was just shy of $4.8 billion with CapEx for Q4 at $189 million and full year at $435 million. The company plans to invest approximately $480 million in 2026 with D&A of $626 million.

The capital expenditures will be focused on product innovation, cost reduction, and general maintenance of the business. The balance sheet ends the year in a very strong position with gross debt of $2 billion and leverage of 0.9 times adjusted EBITDA. The company enters 2026 well positioned to leverage the housing recovery. I will now turn the call over to Paul De Cock for our Q4 operational performance.

Paul De Cock: Thank you, Jim. Our Global Ceramic segment delivered improved

Paul De Cock: sales and profitability year over year as each region executed specific strategies to overcome market challenges. Across our geographies, our performance benefits from successful product launches over the past two years. In particular, our premium collections improved our mix and helped to offset pricing pressures from competition. We extended our advantage at the high end of the market by combining advanced design expertise and proprietary printing technologies to deliver collections with more sophisticated visuals and textures. Though residential remodeling and construction remain soft in most of our regions, our innovative commercial collections continue to enhance our results.

We have worked in all markets to expand our customer base across channels by emphasizing the breadth of our product offering and our superior service. Operationally, we continue to find ways to drive productivity gains, reengineer products, and contain SG&A costs to protect margins against higher input costs and pricing compression. In the U.S., volumes were challenged as new home construction slowed in the quarter. We offset this impact through productivity gains as well as improved product and channel mix. Our price increases mitigated the effect of tariffs on our sourced offering. With lower ocean freight costs and suppliers absorbing some of the expense, tariffs have thus far impacted the U.S. ceramic market less than expected.

As our countertop business continues to grow, the ramp-up of our new quartz production line remains on schedule and will deliver higher value products through an advanced veining technology that creates unique visuals. In Europe, we improved our volumes despite soft demand as we increased sales in the higher-end categories. Spending on large discretionary purchases remains under pressure from consumer uncertainty related to geopolitical events. Pricing weakened during the quarter as excess industry capacity led to heightened competition. We partially offset this through improved mix, productivity gains, and lower energy costs. The commercial channel remains stronger than residential in most parts of Europe, though we also saw improvements in our higher-end residential offering.

We enhanced our porcelain slab production with state-of-the-art printing technology that delivers higher value products. In Latin America, demand remains soft and competitors are pursuing volume with aggressive pricing. In Mexico, we are expanding our customer base, improving service with our expedited shipping programs, and gaining sales with our large-size polished collections. And lastly, in Brazil, the Central Bank's restrictive policies have increased the benchmark interest rates to 15%, compressing the flooring market. In our Flooring Rest of the World segment, our panel and insulation businesses delivered improved sales and margins, while the flooring category experienced lower volumes as well as pressure on our pricing and product mix.

Rising building costs, elevated home prices, and economic uncertainty continue to suppress both residential remodeling and new construction. To manage these factors, we continue to reduce our cost structure through product reengineering, supply chain optimization, and SG&A controls. While we pursued volume to improve plant utilization, we also selectively announced price increases in most product categories to offset higher input costs. To benefit our flooring category, we expanded our presence in home centers and extended our participation in better-performing geographies. In the European LVT market, we maintained our volume through expanded retail partnerships and we are enhancing our rigid and loose-lay collections this year. Our panel business increased volume, grew sales, and expanded margins across product categories.

We are improving the production and operational process at our new MDF recycling plant, which will improve our material costs when optimized. Though insulation markets remain soft, we increased volumes in most geographies and continue to prepare for the start-up of our new plant in Poland with expanded distribution and growth in Germany and Eastern Europe. Our Flooring North America results this quarter varied by channel. In the quarter, we saw inventory reductions in the retail channel given softer conditions. In the builder channel, sales declined as new home and multifamily construction remained weak and builders slowed new home starts. With lower interest rates improving affordability, we do expect residential construction to improve slightly as we progress through the year.

Our commercial business remained stable with strength in hospitality, education, and healthcare,

James Brunk: offsetting

Paul De Cock: softness in office and main street. Given this, overall volume for the quarter was lower, though productivity gains and benefits from our restructuring actions helped offset the impact of the decline. We initiated pricing actions across most residential product categories to mitigate higher material, labor, and tariff costs. Our hard surface category continued to outperform, driven by our laminate, hybrid, and LVT collections, which are expanding across sales channels. Our PureTech PVC-free hybrid flooring is growing as an alternative with authentic visuals, better scratch resistance, waterproof performance, and dimensional stability. The success of our hard surface portfolio is also benefiting our accessories sales as consumers select coordinating trim, stair treads, and moldings.

In residential soft surfaces, our high-end fashion collections improved our product mix and we are expanding our premium polyester collections to grow sales in the mid-price range. To offset higher input costs and tariffs, our commercial business announced selective price increases. The commercial order backlog remains solid and our enhanced commercial LVT offering will create additional opportunities for the business. To support sales growth in the high-performance commercial channel, we acquired Hero Flooring, a small niche U.S. rubber flooring company and authorized licensee of products made with Nike Grind Rubber. I will now return the call to Jeffrey S. Lorberbaum for his closing remarks. Thank you, Paul.

Jeffrey S. Lorberbaum: As we previously announced, Jim Brunk will retire as CFO in April and will continue with us in a consulting role to ensure a smooth transition. Jim has been with Mohawk for twenty years and has played a leading role growing our business into the world's largest flooring company. His leadership is reflected in the strength of our financial team as well as our financial position. In April, Nick Manthe will assume the CFO role after serving as VP of Corporate Finance and Investor Relations for the past year and leading the Flooring North America finance team for the prior five years. Nick brings to the role strong financial expertise and extensive knowledge of our business.

Now turning to our outlook, first quarter market conditions thus far have been similar to the fourth quarter. While home renovation remains soft, the NAHB Remodeling Index has shown improvement for the last two quarters. We expect our markets to remain competitive and we are implementing price increases across most regions and product categories. We continue to manage the impact of tariffs through pricing actions and supply chain optimization.

James Brunk: We anticipate benefits from product mix, productivity, and cost reductions

Jeffrey S. Lorberbaum: to offset headwinds from higher energy and labor costs. Our 2026 product introductions are entering the market throughout this quarter; the initial feedback has been positive. Our first quarter seasonality is our slowest and this year includes four additional shipping days. Given these factors, we expect our first quarter adjusted EPS will be between $1.75 and $1.85 excluding any restructuring or one-time charges. The global flooring industry has been in a recession for almost four years and historically we have multiple years of higher growth as markets recover. This year, we anticipate economies in most of our regions will improve with housing markets benefiting from mortgage rates and greater availability.

We expect some increases in industry volume as we proceed through the year, though pricing pressures are likely to remain. In response, we will execute our announced restructuring actions and continue to implement productivity initiatives to lower our cost. Given this, we expect our 2026 sales and earnings to improve. The extent of our growth this year will depend on economic conditions, interest rates, geopolitical events, and most importantly, the degree to which residential remodeling rebounds. With our global reach, product advantages, and operational strengths, Mohawk Industries, Inc. is uniquely positioned to deliver long-term profitable growth as we transition into the recovery cycle. We will now be glad to take your questions. Thank you.

Operator: We will now begin the question and answer session. At any time your question has been addressed and you would like to withdraw your question, please press star then 2. We do ask that you please limit yourself to one question and a single follow-up.

Jeffrey S. Lorberbaum: At this time, we will pause for just a moment to assemble our roster.

Operator: And today's first question comes from Eric Bosshard with Cleveland Research. Please go ahead.

Jeffrey S. Lorberbaum: Thank you. Just curious, as you look into 2026, what you are expecting in terms of price and mix and mostly focused on receptivity of retail and what the actions of consumers are in terms of trading up or trading down. Well, Eric, as we look at price

James Brunk: and mix, we are anticipating continued pressure in the market. Inflation levels should be somewhat similar to 2025, really led by energy, labor, and tariffs. For the year, we would see both the combination of pricing, improved mix, and productivity should help offset that inflation.

Jeffrey S. Lorberbaum: That is helpful to know that there is an offset. Is the

Mike Dahl: you just give us a sense of the magnitude of the assumption on price and mix. Is that in the market today? Mostly trying to figure out if that is a number that is there, or is that a number that has some degree of risk to it based on how the consumer or retail behaves?

Jeffrey S. Lorberbaum: The price increases are being implemented. The market conditions are pressured. Some have been postponed as the competitive environment evolves and we react to it. We anticipate covering tariffs with pricing and supply chains with all the actions that we are taking.

Mike Dahl: Okay. Thank you.

Operator: Thank you. And our next question comes from Philip H. Ng with Jefferies. Please go ahead.

Jeffrey S. Lorberbaum: Hey, guys. Jim, congratulations. Thanks for all the great help. Really appreciate the partnership.

James Brunk: Thank you, Phil. I guess to kind of kick things off, demand obviously trailed off a bit in the fourth quarter. Some of that is the builders seeing a weakness, and you called out some destocking. Any early read out of the gates in terms of how the channel is managing inventory ahead of spring selling season, whether it is wholesale, retail, or the builders, any green shoots to call out at this point?

Jeffrey S. Lorberbaum: The inventories were taken down in the fourth quarter by different channels as the business softened. We think most of the inventory has been taken out and is close to where they need it to be. We are in the middle of the different shows we are in, and we are a little surprised at the optimism that many of the customers are expecting this year. Jeff, any color between channels in terms of optimism? Is it more

James Brunk: heavy in R&R, retail, just builder side of things? Just give us a little more

Jeffrey S. Lorberbaum: perspective on that front. Listen. The residential side of the business, people are optimistic about customers coming back into the market, that the existing home sales will pick up a little bit. And on the other side, the commercial builder is mostly expectations of stable, which is in line with most of the forecast by the marketplace.

Operator: Thank you. And our next question today comes from Mike Dahl at RBC Capital Markets. Please go ahead.

Mike Dahl: Hi. Thanks for taking my question. I guess just to start picking up on that last

James Brunk: comment, Jeff. I am still trying to square what is an expectation versus what you are seeing because your comments are that 1Q is actually tracking similar to 4Q, but then there is this hope or this optimism that things can get better.

Paul De Cock: Is the

Mike Dahl: so what you are hearing from the customers,

James Brunk: are they actually seeing activity come back, or they are just expressing the

Mike Dahl: same type of hope, hey, look at these macro indicators,

James Brunk: maybe things can get better because

Mike Dahl: consumer confidence readings and some of the recent housing readings certainly do not seem to have inflected.

Jeffrey S. Lorberbaum: I think it is what I am reflecting is the attitude that people are giving us and that I am getting feedback from the sales organization in all the markets that we are having. And as an overview, our view is that 2026, we call it a transitional year with some improvement in the remodeling activity. The expectation we have is that the lower mortgage rates, higher home equity

Operator: levels,

Jeffrey S. Lorberbaum: and the increased housing supply should benefit existing home sales. There is pent-up demand for large renovations that have been postponed since 2022. We are anticipating both pricing mix as well as volume increasing somewhat as we go through the year. Our restructuring and productivities will lower our own cost structures, and given that, what our expectations are, which we have said, is to exceed last year's earnings.

Mike Dahl: Okay. Got

James Brunk: the second question, I guess, drilling down on that

Mike Dahl: expectation. And then, Jim, I think I heard you say that

James Brunk: inflation level is similar in 2026 to 2025, and that price

Mike Dahl: mix productivity should help

Paul De Cock: to offset. So when we

Mike Dahl: think about the earnings bridge, we have two questions. One would be when you make that comment about earnings expected to improve, you did have the headwind in 1Q 2025 from the systems conversion. So is that relative to the $896 million or also saying relative to kind of a further adjusted number ex that conversion? And then on that point about inflation and productivity and price mix,

James Brunk: are you suggesting that net combination will be

Mike Dahl: neutral to slightly negative for the year?

James Brunk: No. On the contrary, so two parts to your question. One is the increase in earnings would be against that adjusted number, number one. And number two is that my comment on the combination of price mix and productivity that will offset the inflation. Because remember, what you have also in there is in both price actions and in inflation, tariffs are included in that number.

Operator: Thank you. And our next question today comes from Susan Marie Maklari with Goldman Sachs. Please go ahead.

James Brunk: Thank you. Good morning, everyone.

Susan Marie Maklari: First question is going back, good morning, is going back to some of the product side of things. Can you talk a bit about what you are seeing in terms of your ability to gain share, especially perhaps with the home centers and how that is helping you in the channel? And then with that, you remarked about some of the momentum you are seeing on hard surfaces. Can you talk about how that is coming through and the benefits you will see this year?

Paul De Cock: Susan, on the home center side, the home center channel is very important to us. And we are providing leading products, leading innovation, leading merchandising. We are supporting their efforts to grow their business on the consumer side and the pro side with differentiating products. And so we are continuing to optimize our business together. And then the comment on the hard surfaces, yes, our hard surface business is doing well. That is fueled by our waterproof laminate business that continues to provide an excellent alternative to LVT, and our domestic laminate is also benefiting from the tariff increases that have increased the cost of other alternatives.

And in general, in LVT, our new hybrid alternatives, with improved visuals and performance, are being very well respected and accepted by the market. And in general, we see the LVT kind of continuing to perform in line with the flooring market.

Operator: Okay.

Mike Dahl: That is helpful color. And then maybe a question for Nick.

Susan Marie Maklari: As you step into that CFO role, can you talk about how you are thinking of the initiatives and the areas of focus there and any change to capital allocation? Also, I want to add my congrats to Jim on your retirement.

Paul De Cock: Thank you, Susan.

Jeffrey S. Lorberbaum: Thanks, Susan.

James Brunk: You know, from a strategy perspective, I do not think there is really any change at this point. We are obviously navigating a difficult business environment, and so we will continue our focus on cost and capital discipline. And we will also continue to invest in new products and be able to take advantage when the market recovers.

Paul De Cock: Thank you.

Operator: Our next question today comes from Michael Jason Rehaut with JPMorgan. Please go ahead.

James Brunk: Hi, good morning, and thanks for taking my questions. And Jim, great working with you. All the best. And Nick, congrats on the promotion.

Jeffrey S. Lorberbaum: Thank you. Thank you, Michael. First question,

James Brunk: I wanted to focus on the outlook for 2026. Jeff, I believe you said that you expect price mix and volume all to be up,

Paul De Cock: and so I was wondering how that squares with the market outlook

Jeffrey S. Lorberbaum: and underlying market outlook? And, if, you know, what are the reasons for that optimism

Stephen Kim: aside from maybe some of the optimism that you quoted in the channel,

Jeffrey S. Lorberbaum: which

Stephen Kim: could arguably be somewhat premature just relative to what we are seeing at least in the fourth quarter into the first?

Jeffrey S. Lorberbaum: Pricing, we have announced a lot of initiatives across the marketplace to try to recover some of the inflation that we have been having. We have the tariff pricing that we are putting through. We see pricing compared to the prior year improving. We have our mix, which are internal actions to create higher value products that have more margin in them. And then our view is, as we have stated earlier,

James Brunk: that

Jeffrey S. Lorberbaum: we see the commercial business and the new construction business being relatively stable. We are anticipating some improvement in the remodeling business as we go through,

James Brunk: as the

Jeffrey S. Lorberbaum: along with the existing home sales, which are supposed to increase somewhat.

Paul De Cock: Okay. I appreciate that. I guess, secondly,

Stephen Kim: I am curious around the outlook for ceramic in the U.S. You know, obviously, there has been a lot of movement with tariffs, and I believe you kind of said that the impact of tariffs from a cost standpoint have been less than anticipated. I am curious if there has been any share shifts as a result of your domestic manufacturing and advantage there. Or if the impact of tariffs being a little bit more muted did not kind of translate to any type of significant share shifts because of your manufacturing advantage.

Jeffrey S. Lorberbaum: We believe that we are doing better than the marketplace in our U.S. ceramic business. We have a much larger commercial business in that business than the other parts of our U.S. businesses. So the commercial business is doing better. We have been enhancing our style and design using the knowledge that we have in our Italian businesses so that we are able to offer higher value products and replace some of the products that are coming in at higher cost from Europe as we go through.

James Brunk: The

Jeffrey S. Lorberbaum: as you know, the volumes declined recently with the residential new construction markets. So the balance is we are getting improvements out of price and mix. And then we have been able to have better service than the importers bringing the stuff in as well. We are also increasing our participation in the countertop business where we put in a new quartz countertop line to enable us to expand that business further.

Operator: And our next question today comes from Stephen Kim with Evercore ISI. Please go ahead.

Mike Dahl: Yeah. Thanks very much, guys.

Susan Marie Maklari: I guess,

James Brunk: you have referred a couple of times to, I guess, a higher-end or a high-end proprietary printing technology. And you just mentioned, Jeff, about the Italian style and design allowing you to compete better against. I am just kind of curious if you can talk a little bit more about the innovation that you have been working on over the last few years. Are we at a point now where you are starting to see a particularly significant impact or benefit from some of these innovations, whether it be this

Mike Dahl: state-of-the-art printing technology or whether it be this hybrid, you know, PVC-free. I think this is, I just want to make sure

James Brunk: that we understand how significant in your mind these innovations are as they come into the market this year?

Jeffrey S. Lorberbaum: It is not just an immediate process. We have been doing this for a period of time. In the ceramic industry, as in other ones, it takes specific equipment to make higher-end products. And the complexity is dramatically different as you go up in the scale. And so we have been investing in new equipment as well as the ability to execute the complexity in the factories, which have allowed us to improve our higher-end business. At the same time, you are making

James Brunk: both larger sizes,

Jeffrey S. Lorberbaum: which the equipment has to be modified. And if you go to the other extreme, think of a two-inch piece; it is much different than handling something that is three feet by three feet. So all of it is very specialized. In all of our different markets across the world, we are enhancing the style and design and sizing across, which is helping us get product mix to offset some or a lot of the inflation which at different times we are not able to pass through. In our other product categories, you mentioned hybrid products that are made out of different materials than LVT. And so those come with different performance features as well.

In all the categories, we are putting in new designs and strategies to differentiate them as you go through. And in there, in each category, trying to find new ways, like the countertop business where it is moving from stone products to manmade products. And we are putting in new equipment that has design capabilities we are introducing as we speak that are not in the market at this point. So every division is taking different strategies to get there.

Stephen Kim: Yeah. That is really

James Brunk: helpful. Thanks for that. Wanted to switch gears, if I could, to your transportation side of your business.

Rafe Jason Jadrosich: You know, yesterday, there was a lot of noise about AI potentially dramatically reducing deadhead rates and things of that nature. I was curious if you could talk a little bit about the distribution side, if you will, or the transport side of your company, and to what degree you have been seeing improved deadhead rates over the past, let's say, the past year. Has that been something notable to call out? And do you expect AI tools to be a needle mover to your input costs this year? The ability to find

Jeffrey S. Lorberbaum: freight back and forth and enabling it to lower the cost has been going on for a significant period of time. And AI will just add another incremental improvement over the top of it. The biggest freight differences right now are the international freight coming in where the freight rates have dropped as the capacity has increased and the volume has decreased, so those are making up for a lot of the tariff costs or a significant portion of the tariff costs. And then in our own system, most of our system is set up with our own transportation from our factories to our regional distribution points. In most cases, we are backhauling our own raw materials.

And that gives us a significant advantage on the fill rates and the time it takes to go through, which is why it costs us less to run our operations than it does to go on third parties.

Stephen Kim: Thank you.

Operator: Next question today comes from Keith Brian Hughes at Truist. Please go ahead.

Mike Dahl: Thank you. You talked a lot about input costs going up on this call. Can you

James Brunk: talk

Mike Dahl: or give us kind of a rank order of where you are facing the most inflation causing this finished good increase to offset?

James Brunk: Well, for the full year, when you look at 2026 versus 2025, the first thing you always have is you have wage and benefit increases. So that is probably, looking at this year, number one. Also, we have seen energy costs, as Jeff said in prepared remarks, kind of fluctuate. So you see energy, especially in the U.S., somewhat spiking. So we will have to see how that kind of materializes over the full year. Obviously, tariffs are part of that, as I said, that inflation footprint as well, and then just kind of general expenses.

Operator: The

James Brunk: wildcard right now is really on material cost. As I think I said earlier, it kind of varies across our different regions. In some cases, we are seeing reductions, but in others, we are still seeing some inflation.

Mike Dahl: So following up on that, we have seen crude come off. They have been moving down pretty ratably through the year. Is there any sign that carpet or LVT inputs are starting to lighten up as we head into the new year?

Jeffrey S. Lorberbaum: We anticipate continued inflation in the cost. At this point, at least for the first four or five months, whatever we have in inventory is what is going to flow through our costs as we go through. And so how they evolve over time we will have to see if they come down or not. Most of the people supplying us, we think their margins are very low, so we will have to see how it evolves in the market cost.

Stephen Kim: Thank you.

Operator: Our next question today comes from Richard Samuel Reid at Wells Fargo. Please go ahead.

James Brunk: Thanks, everyone, and congrats, Jim, on the pending retirement. Great partnership there.

Jeffrey S. Lorberbaum: Thank you, could text a lot.

James Brunk: A little bit on the benefit you are expecting to get in 2026 specifically from productivity. You know, you have done a good job of pulling costs out of the business. So just love to see how big of a lever productivity could be in isolation in 2026. And then remind us, but I believe you have about $60 million to $70 million planned for this year. Just want to double confirm and make sure that is the right number.

James Brunk: Yeah. It is a good place to start, Sam, on restructuring. As both Jeff and Paul said, we have taken numerous actions over the last few years. We have delivered in 2025 about $115 million cumulative savings from restructuring. You are right. We are looking at somewhere in that $60-plus million range of carryover into 2026. We also did announce some additional actions in the fourth quarter, most of which is about $30 million of savings. Most of that will actually help and carry over into 2027 given the timing of those projects. In addition, we continue across the company, both in manufacturing and on the administrative side, to look for ways to reduce our day-to-day operating costs.

So we also have, on top of that, just normal productivity. For the year, when you look at 2025 versus 2024, we hit over about $200 million. 2026 versus 2025, certainly, we will be building and working towards achieving the highest level we can. But, again, it is kind of restricted to restructuring about that $60 million range and then other projects. No. That is all helpful, Jim. And then maybe switching gears here, it does sound like the builder channel was particularly weak in the fourth quarter. Obviously, we know the builders are pushing back aggressively on price in particular.

Mike Dahl: Can you contextualize maybe what the pricing backdrop looks like specifically within that piece of your business? And I am obviously talking here in the context of the U.S. business. Thanks.

Jeffrey S. Lorberbaum: As you described, the category is weak. There is plenty of pressure to maintain prices with it. Our input costs are going up, and we are trying to get some of it covered through the marketplace as we go through. We have announced targeted price increases in the different pieces to offset inflation. And as you said, it is not easy.

Operator: Thank you. Our next question today comes from John Lovallo at UBS. Please go ahead.

James Brunk: Hey, guys. Thanks for taking my questions as well. I guess, Jim, embedded in that first quarter EPS outlook of $1.75 to $1.85, how are you kind of thinking about sales and margins, ideally by segment, either year over year or

Jeffrey S. Lorberbaum: sequentially, and can you confirm that there are four extra

James Brunk: selling days year over year and one extra day sequentially? Yes. So you are correct that there is one extra day sequentially and four extra days from a year-over-year perspective. With respect to the guidance, a couple things I would say is as we are coming into January and Q1, we have said that market conditions are expected to remain soft. And lower volumes right now are versus the prior year. Obviously, in the first quarter, you tend to have a slower period in terms of sales and volume, and weather, obviously, never helps the situation as well. Housing turnover and consumer confidence continue, right now, to constrain the industry.

But we are taking actions, and Jeff talked about a number of them on the product side and on the cost side, to try to protect our earnings the best we can. The international markets continue to be pressured by geopolitical events as well. And, overall, we will again continue to see benefits from our productivity and restructuring initiatives. Okay. Gotcha. And then you guys generated $620 million of free cash flow in 2025.

Laura Champine: Is it fair to assume that you are targeting above that for this year? And along those same lines,

Mike Dahl: I think it was $40 million of stock repurchased in each quarter over the past three quarters.

James Brunk: In the event that free cash flow is stronger, would you anticipate being able to step up the repurchase activity? Thank you. Yeah. We did, as you said, generate about $620 of free cash flow in 2025 with CapEx of about $435. CapEx, we do expect, as I said in the prepared remarks, to be a little bit higher at $480 million, and that is a combination of about 80% in cost reduction, product innovation, and maintaining the business. Then we are also looking at about 20% on targeted growth initiatives, mainly around quartz, laminate, porcelain slab, and then also investing in a new insulation production as well. We should continue in 2026 to see and generate strong cash flow.

And with respect to the share buybacks, we will continue to use that as part of our strategy as we move forward.

Operator: Thank you. Our next question today comes from Rafe Jason Jadrosich with Bank of America. Please go ahead.

Mike Dahl: Hi. Good morning. It is Ray. Thanks for taking my questions. And, Jim, thanks for everything.

Stephen Kim: Thank you, Rafe.

Mike Dahl: You mentioned the tariff impacts are a little bit less than you are expecting. Can you just quantify what the mitigated and unmitigated headwind was in 2025? And then what you expect for 2026.

Jeffrey S. Lorberbaum: For the tariffs that we are paying, they range from about 15% to 50%. We have taken actions to offset them in all different ways in the supply chain with the freight rates we talked about earlier. We have announced price increases as required to go with them and offsetting those as we go through. We are continuing to implement more price increases as we speak. We have to adjust to the market conditions that we are in the middle of,

Rafe Jason Jadrosich: and

Jeffrey S. Lorberbaum: we are expecting to cover all the costs of them with all those actions combined.

Mike Dahl: I think earlier, earlier in 2025, you mentioned maybe $50 million mitigated. Is there a dollar amount that we should be thinking about for 2026 versus 2025 that you need to cover?

James Brunk: Well, I think you need to look at kind of over the span of when this started on annualized impact. We had said that we are about a $100 million of cost impact. As Jeff said, over 2024 to 2025, 2025 to 2026, we have taken actions both in pricing, supply chain management; freight costs coming down from an ocean freight standpoint is helpful as well. But our commitment is to offset that over that time period.

Operator: Thank you. And our next question today comes from Collin Verron with Deutsche Bank. Please go ahead.

James Brunk: Great. Thank you for taking my questions and congratulations, Jim and Nick. I guess just wanted to start on Flooring Rest of World. That has seen a lot of price pressure.

Jeffrey S. Lorberbaum: I guess, any comment as to how has pricing stabilized sequentially,

James Brunk: and sort of how you are thinking about prices on a full-year basis in 2026? And do you see any further margin pressure in that business in 2026, or have margins really bottomed here?

Jeffrey S. Lorberbaum: Yes. So in general,

Paul De Cock: the geopolitical events in Europe are still impacting consumer confidence as we speak. Markets continue to see slow demand and there is strong price competition. That being said, in a lot of our geographies and a lot of product categories, we have announced targeted price increases and we are at such low levels that they seem to be sticking as we speak. So we think we will have a slightly positive price effect as we move through the year in our Rest of World segment.

Mike Dahl: Okay. That is helpful.

James Brunk: And then just a clarification question on the EPS growth expectation in 2026. After you add back the system conversion, can you grow EPS if volumes are flat? Or does that growth expectation include volumes growing in 2026? Thank you. Yeah. It includes the assumption that the top line would grow as well in terms of volumes, at least somewhat.

Operator: Thank you. And our next question comes from Matthew Bouley with Barclays. Please go ahead.

Laura Champine: Good morning, everyone. Thanks for taking the questions, and congratulations again to Jim and to Nick.

Operator: So I just want to

Laura Champine: follow up on the pricing side. You have spoken about some being implemented. I think I heard you say some postponed, and, obviously, the overall comments around a competitive environment. So maybe you could be specific around soft surface, hard surface, commercial, residential, just kind of the specific categories where you are most confident that price is going to increase in 2026 versus which categories may still be a bit softer? Thank you.

Jeffrey S. Lorberbaum: We have announced price increases generally in the range of 3% to 5% across most of the categories in different places. In some cases, we have focused more on the higher value products in different pieces that have less competition. The pricing is going in the market as we speak. And we are having to react to competitive situations as we always do. No surprises there.

James Brunk: And, Matt, I think you have to also remember you are kind of dividing those price increases. One, you have very specific tariff situations, and we talked about LVT and some of the ceramic that some of the price increases that we announced in 2025 and then having to react to the changes in those tariff rates. So you have kind of a box of tariff-related pricing actions. And then, as Jeff just pointed out, you also have general inflation that we are having to attack as well.

Laura Champine: Okay. Got it. Thank you for that color. Secondly, maybe if we look back on the tariff and how that has impacted your competitive positioning, I guess I am looking for sort of a postmortem on it. Maybe that is too strong a word. But, can you point to, at this point, tariffs—you guys are a domestic manufacturer—any specific areas where the tariffs have really led to share wins or better margins as you have raised price, or we are still kind of too early in this to see any of that happening? Thank you.

Jeffrey S. Lorberbaum: We have seen benefits in different areas. The ceramic imports out of Europe, we have been able to increase our share of higher value products and help our mix in those categories. For instance, we talked about the difference in the sizes and design pieces. We are seeing our laminate business having some benefits from the LVT prices going up in some cases as we go through. We think that the service levels and pieces are helping us when the markets have difficulty with getting the products in and keeping them in stock. So we have seen some pieces within the category, and we have picked up some business with individual accounts.

Operator: Thank you. That concludes the question and answer session. I would like to turn the conference back over to Jeffrey S. Lorberbaum for any closing remarks.

Jeffrey S. Lorberbaum: Mohawk Industries, Inc. is well positioned today to take advantage of the recovery when it occurs. We cannot predict the inflection point, but we are going to have to come off the bottom that we have been at for a long time. We appreciate you joining us, and have a nice weekend.

Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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