Mohawk Industries Inc: Form 10-Q for the period ended Mar 29, 2025

The following discussion and analysis of the Company’s financial condition and results of operations from management's perspective should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2024, which are included in our Annual Report on Form 10-K for the year ended December 31, 2024.

References to “Mohawk,” “the Company,” “we,” “our” and “us” refer to Mohawk Industries, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.

Business Summary

Mohawk is a significant supplier of every major flooring category with manufacturing operations in 19 countries and sales in approximately 180 countries. Based on its annual sales, the Company believes it is the world’s largest flooring manufacturer. A majority of the Company’s long-lived assets are located in the United States and Europe, which are also the Company’s primary markets. Additionally, the Company maintains operations in Australia, Brazil, Malaysia, Mexico, New Zealand, Russia and other parts of the world. The Company is a leading provider of flooring for residential and commercial markets and has earned significant recognition for its innovation in design and performance as well as sustainable business practices.

Macroeconomic Conditions

The Company continues to be impacted by soft consumer demand, inflationary pressures and fluctuating interest rates. Persistent inflation continues to hinder consumer discretionary spending, which has caused consumers to postpone large purchases of durable goods such as flooring. The Company derives a majority of its sales from residential and commercial construction and remodeling, with residential remodeling being the primary sales driver of flooring products. Typically, residential flooring is replaced before a home is listed for sale or just after a home purchase is completed. In recent years, the combination of high interest rates and inflation has made mortgages less affordable and has increased the cost of home improvement projects, impacting the demand for the Company’s products. Although the U.S. Federal Reserve and the European Central Bank cut interest rates in 2024, home mortgage rates remain elevated globally, “locking in” current homeowners and suppressing housing turnover rates. Due to low housing availability, aging stock and greater household formation, the Company believes demand in its markets will accelerate when interest rates decline. However, the ongoing impact of soft global demand, inflationary pressures and fluctuating interest rates to the Company’s business, financial condition, results of operations, and prospects cannot be determined at this time.

The Company has, to some extent, offset the impact of a soft housing market and decreased renovation activity through cost containment, productivity and lower input costs. During 2022 and 2023, the Company implemented a number of restructuring actions, productivity initiatives and manufacturing enhancements focused on reducing costs to enhance future performance, including certain facility, asset and product rationalizations and workforce reductions. The Company anticipates that when completed these projects will deliver annual savings of approximately $150 million, with an estimated cost of approximately $215 million. In 2024, the Company announced further restructuring actions, including additional facility, assets and product rationalizations and workforce reductions to further reduce costs and improve the business for the future. The Company anticipates that when completed, these projects will deliver annual savings of approximately $145 million, with an estimated cost of approximately $140 million. Execution timelines will vary by project, with some savings extending into 2026.

Tariffs Exposure

The Company is actively monitoring recent trade policy and tariff announcements, including various executive orders issued by the current U.S. presidential administration. Increased restrictions on global trade, including an increase in U.S. tariffs and any retaliatory responses thereto, could result in, among other things, increased input costs, supply chain disruptions, decreased consumer demand and volatility in foreign exchange rates and financial markets, any of which may adversely affect the Company’s business financial condition, results of operations, and prospects. Due to its global footprint and manufacturing operations across 19 countries, the Company is generally able to provide its customers with regional supply. In addition, certain products the Company manufactures in Mexico are exempt from recent tariffs announced against Mexico, as such products are compliant with the United States-Mexico-Canada trading agreement. However, certain of the Company’s sourcing and upstream and downstream supply chain processes occur outside the U.S. or with vendors, suppliers, or customers located outside the U.S. The Company is working to determine its overall tariff cost exposure, the potential impact of retaliatory responses thereto, if any, and mitigation plans. Given the timing, uncertainty and fluidity of the evolving global trade environment, the impact to the Company’s business, financial condition, results of operations, and prospects cannot be predicted.

Geopolitical Conflict

Due to its global footprint, Mohawk’s business is sensitive to geopolitical conflict, including the Russia-Ukraine conflict and the ongoing conflicts in the Middle East. Since the first quarter of 2022, the Company has suspended new investments in Russia in response to ongoing Russian military actions in Ukraine. In addition, an escalation of conflict in the Middle East region could result in supply chain disruptions, decreased consumer demand and increased transportation barriers, though the extent of the impact on the Company’s business, financial condition, results of operations, and prospects cannot be predicted. The broader consequences of current ongoing military conflicts, which may include further economic sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory actions, including nationalization of foreign-owned businesses; increased tensions between the United States and countries in which the Company operates; and the extent of the conflict’s effect on the Company’s business and results of operations, as well as the global economy, cannot be predicted.

Liquidity and Capital Expenditures Overview

The Company believes it is well positioned with a strong balance sheet. Based on its current liquidity and available credit, the Company is in a position to finance internal investments, acquisitions and/or additional stock purchases and pay current debt as it becomes due. For information on risks that could impact the Company’s results, please refer to Risk Factors in Part I, Item 1A in the Company’s 2024 Annual Report filed on Form 10-K.

In 2025, the Company plans to invest approximately $530 million focused on completing capacity expansion projects and targeted initiatives that will drive cost reduction while improving operational performance.

For the three months ended March 29, 2025, the net earnings attributable to the Company were $72.6 million compared to the net earnings attributable to the Company of $105.0 million for the three months ended March 30, 2024. The change was primarily attributable to higher input costs; the impact of the order management system conversion; higher restructuring, acquisition and integration-related, and other costs and lower sales volume, partially offset by productivity gains and lower income tax expenses.

For the three months ended March 29, 2025, the Company generated $3.7 million of cash from operating activities. As of March 29, 2025, the Company had cash and cash equivalents of $702.5 million, of which $458.8 million was in the United States and $243.7 million was in other countries.

Results of Operations

Quarter Ended March 29, 2025, as compared with Quarter Ended March 30, 2024

Net sales

Net sales for the three months ended March 29, 2025, were $2,525.8 million compared to net sales of $2,679.4 million for the three months ended March 30, 2024. The change was primarily attributable to fewer shipping days for the quarter ended March 29, 2025, of approximately $78 million; the unfavorable net impact of foreign exchange rates of approximately $57 million and the impact of the order management system conversion of approximately $50 million, partially offset by the favorable net impact of price and product mix of approximately $31 million.

*Global Ceramic—*Net sales for the three months ended March 29, 2025, were $993.8 million compared to net sales of $1,044.8 million for the three months ended March 30, 2024. The change was primarily attributable to the unfavorable net impact of foreign exchange rates of approximately $36 million and fewer shipping days for the quarter ended March 29, 2025, of approximately $28 million, partially offset by the favorable net impact of price and product mix of approximately $23 million.

*Flooring NA—*Net sales for the three months ended March 29, 2025, were $862.4 million compared to net sales of $900.2 million for the three months ended March 30, 2024. The change was primarily attributable to the impact of the order management system conversion of approximately $50 million and fewer shipping days for the quarter ended March 29, 2025, of approximately $28 million, partially offset by higher sales volume of approximately $25 million and the favorable net impact of price and product mix of approximately $17 million.

*Flooring ROW—*Net sales for the three months ended March 29, 2025, were $669.6 million compared to net sales of $734.4 million for the three months ended March 30, 2024. The change was primarily attributable to fewer shipping days for the quarter ended March 29, 2025, of approximately $22 million; the unfavorable net impact of foreign exchange rates of approximately $21 million and lower sales volume of approximately $12 million.

Gross profit

Gross profit for the three months ended March 29, 2025, was $583.3 million compared to gross profit of $649.5 million for the three months ended March 30, 2024. The change was primarily attributable to the higher input costs of approximately $30 million; order management system conversion of approximately $26 million; higher restructuring, acquisition and integration-related, and other costs of approximately $20 million and lower sales volume of approximately $12 million, partially offset by productivity gains of approximately $42 million.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 29, 2025, were $487.3 million compared to $502.9 million for the three months ended March 30, 2024. Selling, general and administrative expenses did not significantly change as a percentage of net sales for the three months ended March 29, 2025, compared to the three months ended March 30, 2024.

Operating income (loss)

Operating income for the three months ended March 29, 2025, was $96.0 million compared to operating income of $146.6 million for the three months ended March 30, 2024. The change was primarily attributable to higher input costs of approximately $41 million; the impact of the order management system conversion of approximately $30 million; higher restructuring, acquisition and integration-related, and other costs of approximately $18 million and lower sales volume of approximately $11 million, partially offset by productivity gains of approximately $51 million.

*Global Ceramic—*Operating income was $41.8 million for the three months ended March 29, 2025, compared to operating income of $48.8 million for the three months ended March 30, 2024. The change was primarily attributable to higher input costs of approximately $18 million and lower sales volume of approximately $10 million, partially offset by productivity gains of approximately $21 million.

*Flooring NA—*Operating income was $9.3 million for the three months ended March 29, 2025, compared to operating income of $45.0 million for the three months ended March 30, 2024. The change was primarily attributable to the impact of the order management system conversion of approximately $30 million; higher input costs of approximately $19 million and higher restructuring, acquisition and integration-related, and other costs of approximately $15 million, partially offset by productivity gains of approximately $27 million.

*Flooring ROW—*Operating income was $58.7 million for the three months ended March 29, 2025, compared to operating income of $70.9 million for the three months ended March 30, 2024. The change was primarily attributable to the unfavorable net impact of price and product mix of approximately $8 million.

Interest expense

Interest expense was $6.4 million for the three months ended March 29, 2025, compared to interest expense of $14.9 million for the three months ended March 30, 2024. The change was primarily attributable to strong cash flow and prepayments of the U.S. and European portions of the Term Loan Facility during the three months ended March 30, 2024, resulting in lower debt.

Other income and expense, net

Other income and expense, net was income of $0.5 million for the three months ended March 29, 2025, compared to other income of $1.1 million for the three months ended March 30, 2024. Other income and expense, net did not significantly change for the three months ended March 29, 2025, from the three months ended March 30, 2024.

Income tax expense

For the three months ended March 29, 2025, the Company recorded income tax expense of $17.5 million on earnings before income taxes of $90.1 million, for an effective tax rate of 19.4%. For the three months ended March 30, 2024, the Company recorded income tax expense of $27.8 million on earnings before income taxes of $132.8 million, for an effective tax rate of 21.0%. The increase in the effective tax rate was primarily driven by a tax benefit related to a prior period adjustment to deferred taxes during the three months ended March 29, 2025, partially offset by the Company’s geographic dispersion of profits and losses for the respective periods.

Liquidity and Capital Resources

The Company’s primary capital requirements are for working capital, capital expenditures and acquisitions. The Company’s capital needs are met primarily through a combination of internally generated funds, commercial paper, bank credit lines, term and senior notes and credit terms from suppliers.

Net cash provided by operating activities in the first three months of 2025 was $3.7 million, compared to net cash provided by operating activities of $183.7 million in the first three months of 2024. The change was primarily attributable to the change in accounts receivable; inventory and lower net earnings, partially offset by the change in accounts payable.

Net cash used in investing activities in the first three months of 2025 was $89.1 million compared to net cash used in investing activities of $86.8 million in the first three months of 2024. The amount of net cash used in investing activities did not significantly change for the three months ended March 29, 2025, from the three months ended March 30, 2024.

Net cash provided by financing activities in the first three months of 2025 was $90.8 million compared to net cash used in financing activities of $76.1 million in the first three months of 2024. The change was primarily attributable to payments of term loan facility of $912.3 million for the three months ended March 30 2024, partially offset by the lower proceeds from commercial paper of $787.3 million (net of payments) and higher share repurchase of $25.5 million.

As of March 29, 2025, the Company had cash of $702.5 million, of which $458.8 million was in the United States and $243.7 million was in foreign countries. The Company plans to permanently reinvest the cash held outside the United States. The Company believes that its cash and cash equivalents on hand, cash generated from operations and availability under its existing credit facilities will be sufficient to meet its capital expenditure, working capital and debt servicing requirements over at least the next twelve months. The Company continually evaluates its projected needs and may conduct additional debt financings, subject to market conditions, to increase its liquidity and to take advantage of attractive financing opportunities.

On February 10, 2022, the Company’s Board of Directors approved a new share repurchase program, authorizing the Company to repurchase up to $500 million of its common stock (the “2022 Share Repurchase Program”). As of March 29, 2025, there remained $42.3 million authorized under the 2022 Share Repurchase Program.

See Note 16, Debt, of the notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion of the Company’s long-term debt. The Company may continue, from time to time, to retire its outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amount involved may be material.

Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as disclosed in the Company’s 2024 Annual Report filed on Form 10-K except as described herein.

Critical Accounting Policies and Estimates

There have been no significant changes to the Company’s critical accounting policies and estimates during the period. The Company's critical accounting policies are described in its 2024 Annual Report filed on Form 10-K.

Impact of Inflation

Inflation affects the Company’s manufacturing costs, distribution costs and operating expenses. The Company expects raw material prices, many of which are petroleum-based, to fluctuate based upon worldwide supply and demand of commodities used in the Company’s production processes. Although the Company attempts to pass on increases in raw material, labor, energy and fuel-related costs to its customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be fully recovered. In the past, the Company has often been able to enhance productivity and develop new product innovations to help offset increases in costs resulting from inflation in its operations.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements as of March 29, 2025.

Seasonality

The Company is a calendar year-end company. Global Ceramic and Flooring NA typically have higher net sales in the second and third quarters. Flooring ROW typically has higher net sales in the second and fourth quarters. Because periods of economic downturn can affect the seasonality of each segment, sales for any one quarter are not necessarily indicative of the sales that may be achieved for any other quarter or for the full year.

As of March 29, 2025, approximately 72% of the Company’s debt portfolio was comprised of fixed-rate debt and 28% was floating-rate debt. A 1.0 percentage point increase in the interest rate of the floating-rate debt would have resulted in an increase in interest expense of $2.0 million for the three months ended March 29, 2025.

There have been no significant changes to the Company’s exposure to market risk as disclosed in the Company’s 2024 Annual Report filed on Form 10-K.

Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), which have been designed to provide reasonable assurance that such controls and procedures will meet their objectives, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective at a reasonable assurance level for the period covered by this report.

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in the Company’s risk factors from those disclosed in Part I, Item 1A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The risk factors disclosed in these reports, in addition to the other information set forth in this report, could materially affect the Company's business, financial condition or results.