Mohawk Industries, Inc. (MHK) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Mohawk Industries Second Quarter 2026 Earnings Conference Call. Note this event is being recorded. I would now like to turn the conference over to Joe Ahlersmeyer, Vice President, Finance and Investor Relations. Please go ahead.

Thanks, Megan. Good morning, everyone, and welcome to the Mohawk Industries quarterly investor conference call. Joining me on today's call are Jeff Lorberbaum, Chairman and Chief Executive Officer; Paul De Cock, President and Chief Operating Officer; and Nick Manthey, Chief Financial Officer. Today, we'll update you on the company's second quarter performance and provide guidance for the third quarter of 2026. I'd like to remind everyone that our press release and statements that we make during this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 and which are subject to various risks and uncertainties, including, but not limited to, those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release in the Investors section of our website. I'll now turn the call over to Jeff for his opening remarks.

Thank you, Joe. Our second quarter results significantly exceeded our expectations as we outperformed our markets. Our net sales were $3 billion, up 6.8% versus the prior year as reported or up 5% on a constant basis. Our performance benefited from volume growth, pricing and product mix. Across our regions, our teams effectively executed our strategies and capitalized on opportunities with new and existing customers. We successfully introduced new collections, expanded product placements and improved our mix. In the period, volume benefited from initial stocking of new product placements and limited increases in inventory by some customers ahead of announced price increases. Our second quarter reported EPS of $3.22 and adjusted EPS was $3.67, including a benefit of approximately $0.63 from tariff refunds, which were not included in our second quarter guidance. These refunds represent the reversal of costs that we have absorbed from higher tariffs. As part of our buyback program, we purchased over 600,000 shares during the quarter for approximately $60 million. Our second quarter forecast had reflected uncertainty related to the Middle East conflict, but market conditions proved more resilient than we anticipated. Residential channels remained soft during the quarter, and we believe we outpaced the market and gained share in most regions. The commercial sector continued to outperform residential, and our differentiated offering enhanced our mix and margins. The new home construction market remains pressured, and existing home sales continue to be affected by affordability challenges. In the softer environment, we're proactively managing the controllable aspects of our business, including enhancing our sales strategy, pricing, operational improvements and managing our inventory levels and costs. Across many of our products and geographies, we executed price increases in response to higher materials, energy and transportation costs. In the second half of the year, these higher input costs will flow through inventory and impact our margins. With continued uncertainty, additional price increases may be required this year. We are bringing innovative products to the market with differentiated features to strengthen our sales and mix. Across the business, our teams are delivering significant productivity gains, and our results are benefiting from our prior restructuring projects. In addition, we've initiated new projects focused on operational simplification, organizational realignment, warehouse consolidation and capacity optimization, which will reduce our cost approximately $60 million, with most completed by the end of 2027. These segments will require cash restructuring costs of approximately $50 million. We recently released our 17th annual impact report, which highlights the successful completion of our 2025 sustainability goals, which lowered our emissions intensity by 31%, waste-to-landfill intensity by 55% and water intensity by 50% from our base year. To read the report and see all of our accomplishments, visit the Sustainability section of our website. On a personal note, we announced that I would be retiring as CEO and will be turning over the reins to Paul. With 25 years as Mohawk's CEO, I've taken great pride in watching our talented organization transform Mohawk into the world's largest flooring manufacturer. Together, we've established leading market positions on four continents, growing our operations to 19 countries and built a product portfolio encompassing every major flooring category as well as expanding into other product adjacencies. I truly believe that Mohawk's best days are ahead, and the actions we have taken over the past years will strengthen our offering, streamline our operations and enhance our competitive advantage. I worked closely with Paul for over two decades, and I'm confident that he will lead Mohawk to new heights. I look forward to continuing to support him as Chairman of the Board. I want to also express my gratitude to all those at Mohawk as well as our customers, suppliers, analysts and investors. Your trust, partnership and unwavering commitment have been integral to Mohawk's success and all that we've accomplished together. With that, I'll turn the call over to Paul.

Thank you, Jeff. Congratulations on your career with Mohawk and your retirement. It's been a privilege to work with you, and I could not be more optimistic about our future. I'm confident with our strong foundation that we can grow profitably and enhance our shareholder returns. Now I'll take you through our operational performance in the quarter. In Global Ceramic, net sales were $1.2 billion, up 7.9% as reported and up 4.6% on a constant basis. In the U.S., we gained momentum with new premium tile and countertop placements. In our Latin America businesses, we grew volumes and improved our market positioning. We are leveraging the innovation and technology capabilities of our Italian R&D center to drive product development across the world. New collections and expanded customer placements have positioned the business to accelerate as demand improves. In Flooring North America, net sales were $976 million, up 3.1% as reported and up 4.7% on a constant basis. We estimate that our market share has increased in both hard and soft surfaces. Soft surfaces benefited from new product introductions and in hard surfaces, we expanded our presence in key channels. We're also strengthening our position in retail and our laminate products continue to provide a compelling solution to homebuilders. In Flooring Rest of the World, net sales were $806 million, up 9.7% as reported and up 6.2% on a constant basis. We are launching new collections in LVT and laminate to strengthen our position in the premium segment of the market. Our insulation and panels businesses delivered strong results through disciplined pricing and cost management in a challenging environment. Across all three segments, our teams delivered meaningful productivity gains and our results are benefiting from our previously announced restructuring projects. We have initiated new projects that will deliver incremental annual savings once complete. These are permanent structural improvements to our cost base, not temporary measures, and they will support our earnings power when our markets turn supportive. Importantly, this operational excellence is generating consistent cash flow. Cash generation is one of the strengths of this business, and it underpins our ability to both invest for growth and return capital to shareholders. We are focused on delivering profitable sales growth through new product innovation and expanding our competitive advantages. Our higher-end residential and commercial collections continue to perform well and enhance our mix, and the collections we have launched this year have quickly gained traction in the market. We are increasing our share with our customers, which will benefit us when the market improves. We are committed to returning capital to shareholders, and we continue to purchase shares during the quarter. We will continue to focus on generating cash flow to fund investments in growth and drive enhanced returns through capital discipline. With that, I will turn the call over to Nick to review our financial results in more detail.

Thanks, Paul. Looking at our Q2 2026 financial results. Net sales for the quarter were $3 billion, up 6.8% as reported and up 5% on a constant basis with growth across all three segments. Sales grew as we implemented price increases, improved our mix and grew volumes by expanding placements in key retail channels. Gross margin was 26.6% as reported and 27.4% on an adjusted basis, up 100 basis points from the prior year as the benefits of tariff refunds, pricing and productivity offset the impact of higher inflation. SG&A expenses were 18.1% of net sales as reported and 17.7% on an adjusted basis. That's a 70-basis-point improvement versus the prior year. Operating income was $254 million, and adjusted operating income was $290 million or 9.7% of sales. That's an increase of approximately 170 basis points versus the prior year as the benefits of price and mix of $54 million, our restructuring and productivity initiatives of $43 million and higher volumes of $13 million offset inflation. Net inflation for the quarter was $28 million, inclusive of the tariff refunds, with underlying inflation of $77 million. Net interest expense was $5 million, consistent with the prior year. Our adjusted tax rate was 21.1%, and we expect our Q3 tax rate to be approximately 22%. Our earnings per share for the second quarter was $3.22 as reported or $3.67 on an adjusted basis. Now turning to the segments. Global Ceramic had net sales of $1.2 billion. That's a 7.9% increase as reported and a 4.6% increase on a constant basis. The ceramic segment delivered approximately 3% volume growth, led by strength in the U.S. and Europe as well as improved price and mix. Adjusted operating income was $99 million or 8.2% of net sales, including the benefit of tariff refunds. The underlying results were driven by productivity initiatives of $20 million and positive price/mix of $13 million, which were offset by the underlying inflation of $35 million. Flooring North America net sales were $976 million, a 3.1% increase as reported or a 4.7% increase on a constant basis. Sales growth was led by volume strength in retail channels, with price and mix improving sequentially. Adjusted operating income was $111 million, and adjusted operating margin was 11.4%. Adjusted operating income increased $42 million, including the benefit of tariff refunds. The underlying improvement in our adjusted operating income was partially driven by productivity of $21 million, offset by underlying inflation of $16 million. Flooring Rest of World net sales were $806 million. That's a 9.7% increase as reported or an increase of 6.2% on a constant basis. Sales growth was driven by the pricing actions we implemented to address higher energy and material costs, along with a modest mix improvement. Adjusted operating margin was $97 million or 12% of sales, an improvement of approximately 160 basis points compared to the prior year as price and mix of $41 million more than offset increased input costs of $23 million. Corporate expenses and eliminations were $17 million in the quarter, and we estimate the full year 2026 expenses to be approximately $55 million. Turning to cash flow. Year-to-date, we have generated free cash flow of $236 million, and we expect strong free cash flow generation in the second half of the year. Capital expenditures in the quarter were $88 million, and we now plan to invest approximately $460 million in 2026, focused primarily on cost reduction initiatives, product innovation and maintenance. The balance sheet remains in a very strong position with net debt just under $1.1 billion and a net debt-to-EBITDA ratio of 0.8x. Our second quarter results reflect strong execution by our teams in a dynamic environment, and our business continues to generate strong free cash flow. I will now turn the call back over to Paul, who will cover our outlook in greater detail.

Thank you, Nick. We delivered strong second quarter results, even though the market has not yet improved. Across the world, the home resale market remains near multi-decade lows and new home construction remains soft. Looking ahead to the third quarter, we anticipate flooring market conditions will remain challenging. We expect commercial to keep outperforming residential, and our high-end offerings will continue to improve our mix. We expect our sales to seasonally drop from the second quarter to the third quarter, excluding the impact of FX and shipping days. Given our stronger performance in the second quarter, the seasonal pattern could be more pronounced than in past years. We will have one additional shipping day in the third quarter compared with both the prior year period and the second quarter of 2026. In the third quarter, we will see higher input costs and further benefits from our price increases, and we will continue our productivity efforts. We expect higher costs to persist into the fourth quarter, and we may need to take additional pricing actions. Given these factors, we expect our third quarter adjusted earnings per share excluding any restructuring or other one-time charges to be between $2.50 and $2.60, including approximately $0.12 from additional tariff refunds we have already received. Excluding these tariff refunds and any restructuring or other one-time charges, our outlook contemplates a baseline EPS range of between $2.38 and $2.48. Since the announcement that I would become CEO, I have been engaging with employees around the globe to build on our strong foundation. Our operational excellence, leading market position and financial profile will drive long-term value creation. With our strong balance sheet and robust cash generation, we have the flexibility to invest in growth initiatives while at the same time returning capital to shareholders. And with that, we are happy to take your questions.

The first question comes from Susan Maklari with Goldman Sachs.

Jeff and Paul, congrats to both of you on your moves here. Jeff, certainly well deserved, and Paul as well, and I look forward to working with you more, Paul. So my first question is the share gains are really impressive, right? And when we think back to NeoCon and the buzz that was clearly evident in the showroom in Chicago, can you talk a bit more about the product categories that are leading some of these gains? And maybe the end markets as well as you think about residential versus commercial customers and where you're seeing a lot of this coming from?

Yes. Thank you, Susan. It was indeed good to see you at NeoCon. That's our main U.S. commercial showcase of our products, and we can show our products in an integrated way, soft surfaces, hard surfaces and our innovations were on full display there, as you've seen. We also showed our new Hero rubber flooring product that is made with recycled Nike regrind, and that product won three Best of NeoCon awards. And so this is just a testament of our innovation capabilities in the company. And those same capabilities exist also in our residential business. And like you alluded to, we've seen the benefit of that in all the new product placements that we got from our customers in the second quarter.

Okay. That's helpful. And then, Paul, you mentioned that you are engaging with the teams globally. As you look to transition into the CEO role, I guess, can you talk a bit about what you're hearing from the team and how that's motivating you? And any initial areas of focus?

So we're going to definitely continue on the strong foundations that Mohawk has. We have a very strong operational excellence culture. We are serving our customers very well. We're very focused on product innovation, and we have all our leading market positions across the world. And so we're going to continue focusing on those strengths. And then combined with our financial strength, those will be very powerful drivers of future value creation. And so we really have, with the strong balance sheet we have and the strong cash flow generation, a lot of flexibility to invest in profitable growth opportunities and at the same time also return capital to shareholders.

Okay. All right. And good luck with the quarter.

Next question comes from John Lovallo with UBS.

The first one is just in relation to the seasonal sales decline in the third quarter being a little bit more pronounced perhaps than in prior years. I'm curious what's driving that? I mean the second quarter was strong, but was that strength driven by pull forward ahead of the price increases and the initial stocking? In other words, why wouldn't that strength in the second quarter continue into the third to some extent?

Yes. Thank you for your question, John. Well, we saw some limited prebuying. We cannot precisely quantify that. But in many of our businesses, we control the distribution between Mohawk and our customers. And so we really believe the prebuy impact is limited. Our volume mainly benefited from initial stocking positions of new product placements, and those will obviously benefit us as the business moves forward. And our third quarter is seasonally slower, and so any prebuying effect that there could be is factored into our outlook.

Okay. Understood. And then in terms of potentially taking additional pricing actions later this year, I mean, how are you guys kind of thinking about that as we sit today? I mean, things are a little bit softer than most people had hoped, I think. And I'm curious the ability of, or the thoughts on the ability to take more pricing. And along those same lines, have you seen substantial product mix shifts across the portfolio following the pricing actions that have been taken?

Well, with costs rising as much as they have, the whole industry really needs to take pricing to cover them. And the realization so far has been in line with our expectations, and the teams have executed well. We have many increases going in different products in different geographies, with some products lagging and some products leading. And we still expect inflation to step up as we move through the second half year. And so all these efforts for the year, we think that the combination of price, mix and productivity should suffice to offset inflation.

The next question comes from Trevor Allinson with Wells Fargo.

Can you talk about what drove the surge in Flooring Rest of World revenue growth? I think your core revenue went from down 4% to up 6% on a similar comp. So was that incremental pricing ahead of inflation? Or what drove the acceleration? And would you expect similar levels of core growth rates in Flooring Rest of World as we step into the third quarter?

So the markets have been showing improvement earlier in the year following the rate cuts that we saw in Europe, but after the start of the war, consumer confidence declined somewhat and also inflation affected discretionary income. And also in Europe, inflation is running well ahead of other regions in the world. And so we had to manage with price, and we also have to manage with the productivity. But that being said, our teams are executing very well and our new product introductions have done very well. And so we have premium LVT and laminate collections going into the market, and those are gaining momentum and also allowing us to improve our mix, and also our panels and insulation volumes outperformed in a difficult market. And so I would say that we've executed very well in a challenging market.

And Trevor, I would just add that in Q2, sales, as Paul mentioned, really grew with positive price and mix as the team implemented the price increases, also benefited us in the first half. Given the current rates, we don't expect those benefits to continue in the second half. And then just as we move into Q3, the positive price and mix should continue going forward.

Okay. That was very helpful. And then second question, maybe just following up on the price cost commentary within your answer to the previous question. Sounds like you are still anticipating offsetting the inflation headwind in the back half of the year. If you think about 3Q specifically, do you expect that to be the case in each of your segments? And then you mentioned maybe having to take additional price. As we step into 4Q, will you need that incremental price, you think, to also offset the inflation in 4Q as well?

So from a price/cost perspective, in Q2, price mix and productivity exceeded our underlying inflation headwinds. Excluding the tariff benefits, we saw underlying inflation step up by about $35 million from Q1 to Q2, and we'll see a similar step-up from Q2 to Q3. Based on what we know today, we think that price mix and productivity should offset that underlying inflation for Q3 and the year. And then to your last question, obviously, the cost environment remains dynamic. And so more pricing may be required to offset if there's further inflation.

The next question comes from Adam Baumgarten with Vertical Research Partners.

Just curious if you're seeing any shift back to wood or tile from maybe LVT or even laminate broadly in the market at this point?

We haven't really seen any large product category shifts recently. Now of course, most recently, LVT demand has trended more in line with the overall flooring industry given that LVT is becoming a more mature category, but besides that relative market shares of different categories are relatively stable at this moment.

Okay. Got it. And then just on the sort of new placements that you said drove a good amount of volume growth. Any way to size the impact there in the quarter?

Well, those new product placements are obviously helping us to get new positions with our customers. And so they're driving the volumes in our business. And so as we get reorders on those new placements, they will also give us additional benefits in the periods to come. And a large part of our performance in the second quarter really was the success of these placements.

The next question comes from Phil Ng with Jefferies.

Congrats on a strong quarter. And then Jeff, appreciate all the help over the years, and Paul, looking forward to working more with you going forward. I guess on the following up on the question right before on the share gains in placement. Paul, any color in terms of what categories, channels or markets where you picked up share? I know you called out quartz countertop perhaps gaining momentum in retail. I believe there's some dumping duties for imports. Is that like an opportunity for you as a local producer to take share at a meditative price? Just give us a little color in terms of where you're gaining share and seeing momentum in the business.

Yes. So even with the flooring market down, we saw volume growth across many of our categories and many of our channels. And so we're focused on delivering these innovative products and an industry-leading service to the market. And we really saw strength across the world in many products, in many categories, in many geographies. And so on top of that, our strong brands are preferred by the customers, the professional customers, retail customers, consumers and also in the commercial channel. And so we've really seen strong performance across the board. As far as your question on countertops, you're correct. The International Trade Commission has proposed minimum tariffs of 25% to protect the domestic industry. We're waiting on the final decision by the President, but it's expected soon. And so we just expanded a second line of U.S. domestic manufacturing and countertops. And so we expect that line to ramp up quickly now.

Okay. Super. And in the prepared remarks, I couldn't help notice you guys highlighting the cash flow generation of the business and then perhaps return more cash to shareholders. Paul, any subtle shifts in terms of your approach in terms of capital deployment priorities? And how do you assess where you want to put capital to work, call it, in the medium term?

Yes. So strong balance sheet provides lots of flexibility and a lot of opportunity. And our capital allocation framework remains the same. First, we will continue to, first and foremost, invest in our business. We drive the innovation we just talked about, enhance our product mix, improve our productivity. We'll also continue to evaluate profitable growth opportunities. They obviously have to meet our strategic priorities, the strategic fit to the company and the strategy, and then also they need to achieve our financial return criteria. And then share repurchases will remain also a very important part of our capital allocation policy going forward.

Will the buyback approach be more opportunistic? Or it's going to be more regimented in terms of your philosophy? Certainly, it's going to be tied to free cash flow generation. But any more color to expand on that front?

No, I would just say that the share repurchases will remain an important part of our capital allocation policy.

Next question comes from Stephen Kim with Evercore ISI.

Appreciate all the color so far. Yes, Jeff, we're going to miss you. Best of luck in all your future endeavors. Paul and Nick, I guess I wanted to talk about a little bit more on this comment that you made that the outsized strength you saw in 2Q may not transmit entirely into 3Q. You said prebuy really wasn't a big impact. It was really more from the initial stocking of the new products. And you said you've had a lot of success with those placements. So I just wanted to press on that a little bit. Have you seen these placements show up in increased sell-through yet? And why wouldn't the strength transmit into 3Q if these placements put you in such a good position? Why is it that we wouldn't expect to see at least some of this strength transmit into 3Q? Yes. So that's the first question.

Yes. Thanks, Stephen. So our adjusted EPS came in about $1 ahead of our guidance in Q2. The tariff refunds weren't included in that guidance, and that is about $0.63. Our teams, particularly in Flooring Rest of World, did a good job of navigating the cost environment and executing well on price increases. So that contributed to the Q2 results. And then, of course, volume growth was a bit stronger than expected across many of our categories and channels. Looking at moving to 3Q, we expect the current demand trends to continue with the soft market conditions. And so we typically see normal seasonality from Q2 to Q3. And then the items that Paul mentioned earlier contributed to maybe more pronounced seasonality, and then at the EPS line, the big driver there is input cost headwinds will ramp up into the third quarter, really similar in magnitude to the underlying inflation we saw a ramp-up from Q1 to Q2. So that's the key drivers. And as far as your product placement question, it's a normal pattern, right? You get the initial inventory when you get the placement for the product, and then as the product gains success in the market, you get reorders in the subsequent periods. And so we've seen the initial feedback on these product introductions to be very strong, and so we expect them also to significantly contribute in the next quarter.

Yes. Okay. I know that you talked a little bit about the seasonality, the typical seasonal drop from 2Q to 3Q. And that all makes sense. If we go back and look over the last five years, it looks like you've had an average reduction of about 4.5%. And as you move from 2Q to 3Q in terms of sales, are you messaging that you think that the drop in sales in 3Q will be greater than that sequential quarter-on-quarter 4.5%?

Yes. I mean we're not going to find the exact amount, but I think Q2 was stronger than anticipated given those new stocking positions Paul mentioned. And then Q2 is typically our strongest quarter. And so those two contribute to the sequential movement maybe being a little more pronounced than normal.

Okay. All right. Fair enough, guys.

The next question comes from Timothy Wojs with Baird.

Hey, everybody. Jeff, Nick, good luck. I guess maybe just on the refunds, I guess, how do you anticipate the market kind of handling and absorbing the refunds? Do you expect kind of your customer base to ask for some of that back in terms of reinvestment? Are there any specific product categories that kind of applied to? Maybe just kind of how you think about the market kind of digesting and absorbing these refunds from you, and I assume others.

Well, tariff refunds offset the costs that we previously incurred. And so for years, we have absorbed these higher costs, and our pricing has not fully covered these costs. And we also really see continued additional inflation flowing to all of our costs. And so I think you have to see the tariff refunds in that environment.

Okay. Okay. I guess, second question just on the commercial market, how did that kind of track sequentially Q1 to Q2? Is it relatively stable, getting a little better? Or just kind of any sort of data points of color you can provide there would be great.

Yes. So around the world, the commercial market continues to outpace the residential market and our commercial performance across all of our segments, broadly speaking, across all the products and all the geographies we are active in, it was stable-ish when you look at quarter-over-quarter sales performance in commercial.

The next question comes from Sam Reid with Wells Fargo.

I wanted to ask another pricing question here. So just give me a sense as to the market's appetite for additional pricing. I believe you indicated you might need to take additional pricing later in the year in order to offset inflation. And do you need that pricing in order for normal Q3 to Q4 seasonality?

Well, in the second half, we expect the market conditions to remain soft, and so we're not really counting on a near-term recovery. And so we're driving our own results. We're expanding these new product placements, and then we're implementing the price. And so with the conflict escalating and with the current volatile environment and news filtering through every day, costs could rise further. And if that's the case, we have to probably take more additional pricing actions. And so what we're also doing is, given the difficult environment we are in, we're also driving our productivity and our restructuring actions to manage through this difficult environment, and our teams are also executing very well on those. And then lastly, like Nick said, for the whole year, we expect the combination of price/mix and productivity to offset the inflation.

That helps. And maybe let me ask a quick modeling question here. You mentioned you got an extra day in the third quarter. Any sense as to how much that's impacting earnings, incremental margins from that we should be assuming? And then any day count noise in the fourth quarter we should be aware of?

Yes. So it's one extra shipping day in Q3. And so similar to Q2, we had one day variation. The bigger impact, Sam, is really we have four less shipping days in Q4. And so that will be probably bigger in magnitude than what we've been adjusted to in Q3.

The next question comes from Mike Dahl with RBC Capital Markets.

My questions. Jeff, congrats to you, too. Sorry, one more follow-up on the inflationary dynamic. Appreciate that it sounds like the 3Q guide assumes another kind of $35 million-ish sequential step-up as costs sit today. As far as you can see them, what does that mean in terms of 4Q? Would you still see another sequential step higher in inflation if current costs hold? Or any color you can give us on kind of the cadence, assuming current input costs were to persist?

Yes. Thanks, Mike. You're correct in how you're thinking about it from Q2 to Q3. Obviously, there's some more uncertainty in Q4 given energy prices are still fluctuating. But based on what we know today, we would expect Q4 to remain elevated. It might be slightly higher on a year-over-year basis, but we don't expect the same level of step-up that we saw from Q2 to Q3. And again, obviously, things can change in this environment pretty quickly.

Okay. Yes, of course. That's still helpful for context. And then just shifting gears, one of the retailers reported last night, and it sounds like they're seeing pressure in laminate and vinyl and talking about excess capacity and maybe making it harder on pricing in those categories. Can you speak to, I know you have some different channels and positions within those markets, but can you speak more specifically to that and what you're seeing from your ability to push through price and price cost dynamics in those categories?

Yes, in those categories, we're really focused on the execution of our strategy, and that means we're bringing the best quality to the market, the best service, and like we said before, our new innovations in those two categories are being very well adopted by the market. And so the product placements that we've gotten is a testimony that our strategy is working. And so we're really focused on the execution of our strategy there. Specifically in laminate, we see very strong adoption in the new home construction channel. And then in LVT, we have built out our portfolio in LVT, in WPC and also in hybrid products, which is a very fast-growing subcategory of the LVT market. And so we really have a very broad product portfolio that can serve any market and any price point. And so that's what we're focused on in those two categories.

The next question comes from Keith Hughes with Truist.

My congratulations, Jeff. It's been a tremendous run. I know the last couple of years have been tough on the macro, but the Mohawk today is so different than when you took over. So again, congratulations. Just a quick question on Flooring North America. Can you talk about the products within this 5-ish percent growth? Which products or markets were above or below the average?

So in residential carpet, we are focused on the mid- to high price points. And so we're adding new features, and one of the products that we've been very successful with is an anti-allergen carpet product, and that product is off to a strong start since the launch. And then as I mentioned before, on the laminate side, we see very strong adoption in the new builder construction channel, and the products that we bring to market there, our laminate products, offer a superior value proposition versus all the alternative choices that are currently being offered in that channel. And so that were some of the highlights for the quarter.

I assume commercial was still better than average in the segment. Is that correct?

Yes. Commercial is performing better. We have a large exposure in our ceramic segment to the commercial market. And then also in our Flooring North America segment, we have a large commercial exposure, and we were happy with our performance. And like you say, commercial was performing more or less in line also with prior quarter.

And final question on this, was carpet still, you obviously got some wins here, carpet still below the average and hard surface growing faster than that in Flooring North America?

Yes. I mean I think, Keith, we gained share in both categories. The longer-term trend has been a shift to hard surfaces. So I think we're more or less in line with that.

The next question comes from Matthew Bouley with Barclays.

Congratulations and best of luck to Jeff and to Paul as well. So one more on the prebuy. I know you said it wasn't as large and it's hard to really quantify it. My question is really if there's any kind of finer point you can kind of put on that, just sort of any estimations around what you may have seen, which type of customers you may have seen that? And if you could sort of characterize inventories across the channel as a result.

No. Like we said, look, we control the distribution in a lot of our markets. And so we really hold the inventory for the customer to service the customer. And so that's why the impact of prebuying with us is limited. And also, our customers have limited capability to store all the goods. And so that's why we thought it was a limited impact. It's not easy to quantify it because we have no visibility on the inventory position of our customers, but we think the impact was limited.

Okay. I appreciate that. And then secondly, just maybe one focus point in terms of the input costs with European natural gas, given that fairly important cost for you. I guess, number one, if you could maybe remind us how your hedging program has changed. Obviously, years ago, you used to not hedge it. And I guess, if we kind of look forward, you spoke about the incremental input cost impacts in Q3 and Q4. How would you think about perhaps spreading out that input cost increase? And would any more kind of carry over into 2027 as a result?

Natural gas has been less affected in North and South America compared to Europe. And so European gas markets are under more pressure. And we have purchased a portion of our near-term requirements. And we really do that to limit the impact of the volatility of the input costs, and we will continue to do so. We'll continue to buy forward as conditions change and as we see opportunities to hedge our volatility.

The next question comes from Rafe Jadrosich with Bank of America.

Can you talk about the cadence of the market performance and your share gain through the quarter? It seems like the improvement might have come after you gave the second quarter guidance at the end of April. So you can just talk about sort of maybe the monthly trend? And then maybe you could touch on the exit rate into July as well.

Yes, we entered the quarter assuming the conflict and inflation would soften demand, but our results ultimately exceeded our expectations as we outperformed in many markets and as we got the volume lift from these initial stocking positions in these new product placements. And so we see the continued benefit of that in our current sales, and we haven't really seen a very large volatility across the different months recently.

Yes. And Rafe, if I would just add that obviously, all the segments are managing through a challenging environment. And in the near term, we don't expect the market demand to improve. And so we're focused on managing what we can control, which is all the actions that Paul has highlighted in terms of pricing and mix and new placements and productivity.

The improvement you saw relative to expectations through the quarter, did the market trend change? Or did the share gain, like the outlook, change? If you can sort of just sort of break those apart and how it went through the quarter?

Yes. Look, our expectations changed from the initial expectations or the impact of the conflict on the market. We felt there was more resilience in the market and that the market was less affected by the conflict. And then secondly, we also outperformed on our new product placements. I mean the new innovation that we are currently putting into the market is just a testament to the capability of this company. In many geographies, in many product categories, we have really leading innovation going into the market, and the customers are really taking that on, and we see some very good initial response to all that innovation going into the market.

And then Paul, maybe if you could just talk, because you're coming into the CEO role, a little bit about your background. I think you initially came into Mohawk and the sort of the breadth of your experience across the different businesses, I think, would be helpful.

Yes. So I was acquired by Mohawk in 2005 when Jeff acquired Unilin, and so after Jeff acquired Unilin, I moved to the U.S., and out of our Dallas office, I was managing the Unilin business in the U.S. And after that, I went back to Europe to manage our European flooring business. And then seven, eight years ago, I came back to run the Flooring North America segment. And then last year, as in preparation for this transition, I took the COO role. And now I've been working with Jeff on the transition, and it's really going great. I have a good knowledge of our business around the globe, given these experiences. And I have also a good contact with all our leaders around the world. And so I've been focused on talking to them recently, hearing their ideas, and that's been very exciting and motivating. And so together with our teams, we'll focus on actions to improve our business as we go forward.

The next question comes from Brian Biros with TRG.

So it's been talked about a lot, Q2 significantly outbeat expectations. It sounds like a large part of that was the success of the new product placements that you mentioned. Can you talk about the initial expectations you had for the product placements and kind of what drove the outperformance relative to what you thought was going to happen on the product placements?

Given the volatile market circumstances and given the volatility in the market, it's not so easy to kind of predict what the initial success is going to be under the current market circumstances. But as we said, and that's really across the world, the market didn't seem to be that affected by the war, and people that needed flooring, they continue to buy flooring and they continue to adopt and take our new innovations in their stores. And so it has exceeded our expectations. That's really what we have to say.

And Brian, just to be clear on your question, a lot of the new product placements were contemplated in our guide. And so when we're talking about it, that drives a lot of the year-over-year growth. And then as Paul mentioned, the guidance is really about our expectations of the market as well as just general momentum across our geographies and channels.

Okay. And then secondly, I guess, can you just talk about what you're seeing in the market from competitors kind of in this challenging backdrop that has been for a while and likely will persist for a little bit more? Are you seeing any outsized irrational behavior and how you're kind of just reacting to the battle that always happens between margin versus market share?

With costs rising as much as they do, the whole industry really needs to put the pricing through to cover them. And now we're active in a lot of geographies and all products and a lot of channels. And so there's always very specific color to each of those. But in general, our realization of the price increases has been in line with our expectations. And so although it is a very competitive environment, chasing volume, given the slow end markets, we think our teams are executing well in this environment. And so we'll continue to monitor the situation. And if inflation continues to rise, we will take additional pricing actions, and we'll continue to manage the business when circumstances change.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul De Cock for any closing remarks.

Thank you, Megan. We're excited about Mohawk's future. We are proud of how our teams are executing, and Mohawk is positioned well to outperform and create long-term value. Thank you for joining us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.