Mohawk Industries — Q3 2026 Earnings Summary

Financial Performance:

• Q3 2026 net sales were $2.8 billion, up approximately 1% year-over-year; adjusted net sales were nearly flat.
• Net earnings were $163 million (5.9% of net sales), compared to $108.8 million in the prior year quarter.
• Diluted EPS was $2.72, up approximately 55% from $1.75; adjusted EPS was $2.72, up approximately 2% from $2.67.
• Operating income was $188 million, up approximately $51 million from the prior year; adjusted operating income was $200 million, down approximately $5 million.
• Adjusted EBITDA was approximately $353 million with a margin of 12.7%.
• Net cash provided by operating activities was $471 million; free cash flow was $390 million.
• Year-to-date Q3 2026 free cash flow was $626 million, up 78% from the prior year period.
• Net debt to adjusted EBITDA ended the quarter at 0.7x.

Guidance and Future Outlook:

• Q4 2026 adjusted EPS guidance is set at $1.35 to $1.45.
• Management expects low single-digit growth in adjusted net sales for Q4 2026 versus the prior year.
• Assumptions for Q4 guidance include adjusted net interest expense of $4 to $5 million, adjusted depreciation and amortization of approximately $148 million, an adjusted tax rate of approximately 23.5%, and a weighted average diluted share count of approximately 58.5 million.
• Management anticipates underlying cost of sales inflation headwinds in Q4 2026 will be similar to Q3 2026 and expects to fully offset these through pricing, mix, and productivity.
• Similar dynamics regarding inflation and offsetting actions are expected for the first quarter of 2027.
• Full-year capital expenditures are now anticipated at approximately $445 million, revised down from a previous expectation of $460 million.

Business Segments and Product Lines:

• Global Ceramic: Net sales were $1.1 billion, up approximately 2% (up 1% adjusted). Operating income was $66 million (5.8% margin), down $6 million year-over-year; adjusted operating income was $74 million, down $16 million.
• Flooring North America: Net sales were $950 million, up approximately 1% (flat adjusted). Operating income was $72 million (7.6% margin), up $18 million; adjusted operating income was $77 million, up $9 million.
• Flooring Rest of the World: Net sales were $707 million, down approximately 1% (down 2% adjusted). Operating income was $66 million (9.3% margin), up $22 million; adjusted operating income was $66 million, up $6 million.
• Volumes declined approximately 4% on an adjusted basis across the company, primarily due to soft market demand.
• Price and mix improvements contributed approximately 4% to sales growth, driven by price increases taken to offset inflation.
• Price, mix, and productivity collectively offset higher underlying inflation of approximately $117 million by approximately $132 million.

Market and Competitive Landscape:

• The company operates in a weak demand environment with soft market demand across categories.
• Management expects demand conditions to remain challenging in the near term.
• Flooring market conditions are expected to be softer in Q4 2026 relative to Q3 2026.
• The company has implemented price increases to offset the impacts of rising inflation.

Risks and Challenges:

• Persistent higher costs and inflation in raw material prices, freight, and other input costs.
• Soft market demand and lower volumes impacting sales growth.
• Potential impacts from changes in economic conditions, interest rates, and construction/remodeling activity.
• Risks related to tariffs, trade restrictions, currency fluctuations, and geopolitical conflicts.
• Supply chain disruptions and labor availability/costs.

Management Commentary and Tone:

• CEO Paul De Cock described the quarter as "solid" despite a "weak demand environment."
• Management highlighted the successful execution of price increases to offset inflation and the efficient conversion of earnings into strong cash flow.
• The tone indicates confidence in the ability to offset inflation through pricing, mix, and productivity.
• Management noted that share repurchases in the third quarter were more than double those completed in the first half of the year.

Other Key Points:

• Returned $261 million to shareholders during the third quarter and $34 million during the fourth quarter to date.
• Repurchased 2.0 million shares in Q3, reducing outstanding shares by more than 3%; total reduction for the second half of the year is approximately 4%.
• Completed the previous share repurchase authorization and the Board authorized a new program of up to $500 million.
• Free cash flow for the nine months ended October 3, 2026, was $626 million, up 78% from the prior year.
• Adjusted operating income for the quarter was $200 million, down $5 million from the prior year, primarily due to lower volume and higher inflation.
• Global Ceramic volumes were down approximately 1% excluding shipping days; Flooring North America volumes declined approximately 3%; Flooring Rest of the World volumes were down approximately 10%.