Impact of Tariffs and Trade Negotiations on Supply Chain Strategy
Mohawk emphasizes the importance of local production, with about 85% of U.S. sales produced in North America, including Mexico under USMCA.
The company is actively monitoring and adjusting to tariffs, with a new deadline of August 1 for tariff negotiations.
Tariffs initially ranged from 10% to 50%, with ongoing negotiations causing uncertainty.
Mohawk is promoting domestically produced collections and optimizing supply chains to mitigate tariff impacts.
The company is adjusting prices and supply chain strategies in response to evolving tariffs, with no current inclusion of potential tariff impacts in guidance.
Adjusted earnings per share were $2.77, driven by strong productivity, restructuring actions, favorable FX impact, and lower interest expense, offset by higher input costs and plant shutdowns.
Adjusted operating income: Global Ceramic $90 million (8.1%), Flooring North America $69 million (7.3%), Flooring Rest of the World $76 million (10.4%).
Capital expenditures were $80 million in Q2 with planned investments reduced to approximately $500 million for 2025.
Cash and cash equivalents were $547 million with free cash flow of $126 million; share repurchases of approximately $42 million completed with a new $500 million authorization.
Gross margin was 25.5% as reported and 26.4% excluding charges, down approximately 70 basis points due to higher input costs, lower sales volume, and increased shutdown costs, partially offset by productivity gains and favorable FX.
Interest expense decreased to $5 million due to lower debt balance and interest income benefits.
Inventories increased by $130 million primarily due to FX and imported inventory from new tariffs.
Net sales for the second quarter were $2.8 billion, essentially flat as reported and on a constant basis.
Non-GAAP tax rate for Q2 was 19.3%, down from 20.9% prior year, with Q3 and full year tax rate forecasted at approximately 19%.
Nonrecurring restructuring charges of $34 million expected to deliver $100 million in annual cost savings in 2025.
Operating income on an adjusted basis was $223 million or 8% of sales, a decrease of approximately 120 basis points due to increased input costs, lower sales volume, and higher shutdown costs, partially offset by productivity and FX benefits.
Segment sales: Global Ceramic sales just over $1.1 billion (up 0.5% reported, 1.1% constant), Flooring North America sales $947 million (down 1.2%), Flooring Rest of the World sales $734 million (up 1% reported, down 3% constant).
Impact of Incremental Tariffs on Profitability and Margins
The net impact of tariffs was around the top end of the estimated range for the quarter, approximately $250 million to $350 million.
Tariffs impacted all three primary segments, with about 55% of the impact in Construction Industries, 20% in Resource Industries, and 25% in Energy & Transportation.
The company expects the net impact from tariffs for 2025 to be around $1.3 billion to $1.5 billion, net of mitigating actions.
Management emphasized the fluidity of trade negotiations and the uncertainty surrounding future tariff impacts, with plans to implement long-term mitigation strategies once clarity is achieved.
The company is considering all options, including sourcing adjustments and pricing strategies, to mitigate tariff impacts over the medium to long term.
Dafinchi