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Operator: Good morning, everyone, and welcome to the Mohawk Industries, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please also note today’s event is being recorded. At this time, I would like to turn the floor over to Nicholas Manthey, Chief Financial Officer. Please go ahead.

Nicholas Manthey: Thanks, Jamie. Good morning, everyone, and welcome to the Mohawk Industries, Inc. quarterly investor conference call. Joining me today on the call are Jeffrey S. Lorberbaum and Paul De Cock. Today, we will update you on the company’s first quarter performance and provide guidance for 2026. I would like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, 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-Ks and press release in the Investors section of our website. I will now turn the call over to Jeff for his opening remarks.

Jeffrey S. Lorberbaum: Thank you, Nick. Our performance for the first quarter was in line with our expectations despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year. Our results include benefits from productivity, restructuring, and product mix, offset by inflation and volume. Last year was impacted by the system conversion and had four fewer days. Our net sales were approximately $2.7 billion, an increase of 8% as reported or a decrease of 2.6% on a constant basis. Across our regions, the commercial sector continued to outperform residential, new home construction remained soft, and consumers continued to defer home purchases and remodeling projects due to economic uncertainty.

We are implementing productivity actions and executing our previously announced projects to enhance our results. During the quarter, we repurchased 607 thousand shares of stock for $64 million as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise. In February, the conflict in the Middle East intensified, increasing uncertainty in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas. Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions and are contributing to a more cautious consumer outlook. Energy prices as well as the cost of oil and natural gas derivatives are also increasing, which affects the costs of many of our products.

Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. U.S. natural gas prices have been less impacted due to significant domestic production, though oil prices in the U.S. have risen as they follow worldwide trends. In the U.S., 10-year treasury yields have increased, creating a corresponding rise in mortgage rates. The European continent will be more affected due to the dependence on oil and gas from the Middle East. We have made forward purchases to limit our exposure. European governments are reviewing initiatives to lessen the impact on businesses and consumers, such as cutting energy taxes, implementing fuel price caps, and coordinating European gas storage.

The energy markets will remain volatile until the global supply normalizes. We are implementing price increases across many products and geographies and further price increases could be required. The impact of higher cost of raw materials will be greater in the second half of the year due to our flow-through of inventory. We are continuing to launch new product collections with industry-leading designs and features to enhance our sales and margins. We are implementing operational strategies that we have used to navigate past disruptions, prioritizing adaptability and cost control. We are maintaining flexibility to align with evolving demand, supply availability, and volatile costs. We are focused on the controllable parts of our business, including sales initiatives, inventory levels, and discretionary spending and investments.

Now Nick will provide the details of our financial performance for the quarter.

Nicholas Manthey: Thanks, Jeff. Our Q1 2026 financial results: Net sales for the quarter were $2.7 billion, up 8% as reported and a decrease of 2.6% on a constant basis. Our Global Ceramic segment delivered stronger mix, and we lapped the impact of the order management system conversion in Flooring North America, which partially offset the slower market conditions across our markets. Gross margin was 23.5% as reported and 24.8% on an adjusted basis. This is up 70 basis points from prior year, as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of $20 million offset the increased input costs of $28 million. SG&A expenses were 19.4% as reported and 19.3% excluding charges, in line with prior year levels.

That gave us operating income as reported of $112 million, or 4.1% of net sales. We had $38 million in nonrecurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million, or 5.5% of sales. That is an increase of 70 basis points versus prior year. The benefits of lapping the prior-year order management system conversion of $30 million and our restructuring and productivity initiatives of $36 million were partially offset by increased input costs of $38 million. Lower volumes given the weaker market conditions were offset by extra days in the quarter. Interest expense was $2 million, a decrease to prior year due to the reduction in short-term debt and the benefit of increased interest income.

Our adjusted tax rate was 19.4%, and we are forecasting the full-year 2026 tax rate to be between 19% and 20%. That gave us earnings per share on both a reported and adjusted basis of $1.90. Turning to the segments. Global Ceramic had net sales just under $1.1 billion. That is a 10.4% increase as reported and basically flat on a constant basis. The ceramic business delivered positive price/mix given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel. Adjusted operating income was $55 million, or 5% of sales. That is an improvement of 20 basis points compared to the prior year, as the combination of productivity initiatives of $21 million and positive price/mix of $13 million only partially offset an increase in input costs of $30 million.

Flooring North America net sales were $880 million. That is a 2% increase as reported, or a 4.1% decrease on a constant basis as sales were impacted by slower conditions in both new residential construction and residential remodeling. We had adjusted operating income of $35 million, or 4% of sales. That is an improvement of 100 basis points compared to prior year, as we lapped the impact of the order management system conversion of $30 million, which was partially offset by increased input costs of $13 million and the net impact of lower volumes. In Flooring Western World, we had sales of $751 million as reported. That is a 12.2% increase, or a decrease of 4.4% on a constant basis, with the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses.

Adjusted operating income was $74 million, or 9.8% of sales. That is an improvement of 70 basis points compared to prior year as the combination of productivity gains and lower input costs of $14 million were more than enough to offset negative price/mix. Corporate expenses and eliminations were $14 million in the quarter, and we estimate full-year 2026 expenses to be between $52 million and $55 million. Looking at the balance sheet, cash and cash equivalents ended the quarter at $872 million with free cash flow of $8 million in the quarter, which is in line with seasonal trends. Inventories were just shy of $2.7 billion, up less than 1% compared to prior quarter due to inflation. Property, plant, and equipment ended the quarter at just under $4.7 billion.

CapEx spending in the quarter was $102 million, and we plan to invest approximately $480 million in 2026, focused on cost reduction initiatives, product innovation, and maintenance. The balance sheet remains in a very strong position with net debt of $1.2 billion and a net debt to EBITDA ratio of 0.9. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers. Now Paul will review our Q1 operational performance.

Paul De Cock: Thank you, Nick. Our Global Ceramic segment delivered improved sales and profitability year over year. All regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial. Our premium collections increased our mix with advanced technologies that enhance the visuals. Across all regions, productivity improvements and restructuring actions are improving our results. In the U.S., we benefited from stronger commercial sales and increased retail partnerships, which offset ongoing weakness in the builder channel. In March, we introduced our spring collection, which emphasizes higher-end decorative wall tile and large polished floor tile to enhance our mix.

We announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation cost. We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher value products. The U.S. International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production, and the Commission is determining tariffs and quotas to safeguard the industry. In our European ceramic business, we delivered solid sales and margin improvement with investments in sales personnel, showrooms, and new collections. In the region, we have greater participation in the commercial channels, which is outperforming the residential markets.

The industry has announced limited price increases at this point given the market softness. We have purchased a portion of our natural gas requirements this year, which will reduce the impact of higher energy prices. Our Latin American ceramic businesses have been less impacted by the conflict. We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs. In Mexico, our volume improved as we expanded distribution, improved service times, and grew sales with large-sized polished porcelain collections. In Brazil, our new product introductions are improving our mix, with growth in the higher value porcelain category. U.S. reciprocal tariffs on Brazil significantly reduced, which will improve our export volumes to the United States.

Brazil’s economy remains sluggish and the Central Bank is now cutting interest rates to stimulate growth. Our Flooring Rest of the World segment’s results were driven by productivity, cost improvements, and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation. With the war in Iran, consumer confidence declined as fuel and energy costs increased. We are implementing price increases to offset the higher costs impacting our business. In the quarter, our laminate sales benefited from growing retail partnerships and the success of our new collections, which combined elevated style and performance. We updated our LVT designs, added offerings at new price points, and expanded our retail distribution.

Our sheet vinyl sales to the Middle East were disrupted, and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products, and we implemented price increases. We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs. Our insulation business performed well and improved our costs by reengineering our products. We are growing our insulation sales in Germany and Eastern Europe to support the start-up of our manufacturing facility in Poland. Our businesses in Australia and New Zealand improved results with favorable pricing, mix, and cost. Our new carpet collections, national promotions, and increased participation in the new construction channel enhanced our performance.

Our Flooring North America segment remained slow during the quarter given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring, system improvements, and additional days in the period, partially offset by lower volume and inflation. Commercial continued to outperform residential, and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material, energy, and transportation increases. Mortgage rates rose almost half a point in March, leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders.

We improved our hard surface mix with our best-in-class laminate, hybrid, and LVT collections. Our proprietary accessories coordinate with our hard surface offering, increasing complementary sales. Our new carpet introductions are being well received, with a focus on our premium polyester and SmartStrand collections. In February, we launched the industry’s first carpet collections certified by the Asthma and Allergy Foundation to significantly reduce household allergens using natural probiotics. Our commercial order backlog has seasonally improved, with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers and are creating additional specification opportunities for our other commercial products.

I will now return the call to Jeff.

Jeffrey S. Lorberbaum: Thank you, Paul. One month into the second quarter, we continue to adapt our business to changes caused by the Middle East conflict. Thus far, we have announced price increases across much of our portfolio due to inflation, and our order backlog has continued to grow. Across our regions, the commercial channel remains solid, while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high-end collections are performing better in the market, and our new products are enhancing our mix. We are maximizing our flexibility to react to changes in our supply chain, operating costs, and market demand. Presently, we are containing costs, reengineering products, and limiting capital expenditure.

We will not see the full impact of our pricing actions and rising costs until the third quarter. The degree to which the Middle East conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure. Given these factors and one less shipping day in the second quarter, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one-time charges. We are managing all aspects of the business we can control and responding to market changes as they arise. In the past, Mohawk Industries, Inc. has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for the long term. Increased new home construction is necessary to satisfy growing household formations, and we expect deferred remodeling of aging housing stock across our regions will significantly increase flooring demand.

As we navigate the current conditions, we are prepared to capitalize on the rebound in our industry that lies ahead. We will now open the call for questions.

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Operator: We will now begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to a single question and a follow-up. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Trevor Scott Allinson from Wolfe. Please go ahead with your question.

Trevor Scott Allinson: Hi. Good morning. Thank you for taking my questions. Jeff, I appreciate there is a lot of uncertainty in the market right now. At times in the past, you have given a range of outcomes for your business. Can you talk about what that range of outcomes looks like here as we move through 2026 and into early next year? What drives the high end versus the low end? And how are you running your business today to account for the uncertainty and prepare for either end of that spectrum?

Jeffrey S. Lorberbaum: There is a lot of uncertainty in the marketplace, and we are preparing for multiple options and staying flexible. We look at the best case as we think forward. The supply of the Middle East could open up in the near term and could return the supplies to normal over the next six months. This would remove the economic uncertainty and would improve the category and the flooring industry in the second half. We would expect the inflationary pressures to remain, though, throughout the year. The alternative view is that the disruption in the Middle East stays for a significant period of time. The inflation continues to increase, and it could result in a pullback by both consumers and businesses. In this case, we have alternative plans to adjust our business strategy to manage through at lower rates.

Our strategy is to remain flexible and to adapt to the changes that occur. As a reminder, most flooring projects being initiated today are really to meet the changing needs because they have been down since 2022 and should limit some of the downside if it gets worse. We expect a significant recovery given these four years of postponed flooring purchases.

Trevor Scott Allinson: Okay. Thanks for that. That was very helpful. And then second question, perhaps related to those comments. Last quarter, you talked about expecting both sales and adjusted earnings to be up on a year-over-year basis in 2026. Given all the macro uncertainty, should we still think that it is a good base case for you to be able to grow those sales and adjusted earnings this year?

Jeffrey S. Lorberbaum: In February, we had expected the category to improve, so we are really focused on maximizing opportunities this year. With the war interrupting things, the environment has really changed, and we are managing the inflation’s impact on our margins. At this point, as we just went through, the potential impacts are really unpredictable, and it is too early to tell where it is going to end up. We will have to see how the conditions evolve.

Operator: Thank you for all the color, and good luck moving forward. Our next question comes from John Lovallo from UBS. Please go ahead with your question.

John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is, can you provide some additional color on just maybe the magnitude of the price increases across regions and some of the key products? And what type of realization are you expecting given some of the challenges from a volume standpoint in the market?

Jeffrey S. Lorberbaum: The conflict in the Middle East has really dramatically increased our material, energy, and transport costs across all the different product categories. We are seeing some differences in each region and product categories given different dynamics, and as you would expect, Europe is more affected given their energy dependence on the Middle East. Some of our products are also delivered over long distances, so we have to increase the prices to cover the freight cost as well. We have announced increases across the businesses, generally in the mid to high single digits, with significant variations by both product and geographies. And just to note, the imported products that we and the industry have had really long supply chains, and the price increases due to that will lag some of the others.

John Lovallo: Got it. And then maybe to push a little bit more on this, if I can. Let us just say that things stay as they are today. Do you believe that you have enough pricing in the market to offset the current level of inflation, or would additional pricing be needed just to offset what we know today?

Nicholas Manthey: Yeah, John. Thanks. I think if you look at Q1, our price/mix and productivity offset the impact of inflation. We expect similar dynamics in Q2. As Jeff outlined, we announced some more price increases in response to the inflation, and we will really see the full impact of both the inflation and the pricing in the second half, and we will adjust as necessary as the environment evolves.

John Lovallo: Okay. Thank you, guys.

Operator: Thanks, John. Our next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead with your question.

Susan Marie Maklari: Thank you. Good morning, everyone. My first question is around the benefits of the new products. Can you talk about how the momentum you are seeing there is helping you to enhance the mix and incrementally perhaps offset some of that inflationary pressure that you are seeing? And do you also think that you are continuing to gain share with these new products?

Jeffrey S. Lorberbaum: Each of the different businesses has new product introductions. There is a significant portion of them that are higher-value products with more differentiation and command higher prices in the marketplace. With that, each of the different businesses is introducing unique products with different features and benefits. Ceramic is driven a lot by technologies of different sizes, as well as different visuals with different decorating technologies to be able to create them. On the other side, we are introducing LVT collections with all the latest technologies and multiple alternatives for PVC in the marketplace, with better performance, better scratch resistance, and other characteristics. The carpet categories are introducing premium products in polyester, and the anti-allergen carpets have never been done, which is a concern by many consumers.

In each of the categories, there are different products to provide reasons for the consumers to trade up and spend more money.

Susan Marie Maklari: Okay. Thank you for that. And then turning to the margins, you have done a lot in terms of cost cutting and you are realizing some nice productivity across the business despite the headwinds. Can you talk about the ability to continue to see further productivity? And then any thoughts on how we should think about second quarter margins just across the three segments?

Nicholas Manthey: Yes, Susan. On productivity, we generated over $200 million of productivity and restructuring savings last year. This year, we have another $50 million to $60 million of restructuring savings that we should realize. In addition to that, over the last few years, we have had additional productivity ranging from $80 million to $100 million. We will continue to evaluate different ways to rationalize our cost structure as we go forward and the environment changes. On Q2, we are assuming the present demand trends continue through the second quarter and there is somewhat of a limited impact from the conflict. The market volumes have been declining. We have seen oil and gas prices increase, which will begin to impact our cost in Q2. We do expect price and mix will improve and help address that higher inflation.

Jeffrey S. Lorberbaum: And then, back to your original point, productivity and restructuring will continue to lower our costs similar to Q1.

Susan Marie Maklari: Okay. So is it reasonable to assume that you see a fairly normal seasonal sequential lift in the margins?

Nicholas Manthey: Yes. Typically, Q2 is our strongest quarter of the year. So going from Q1 to Q2, that is what you would expect.

Susan Marie Maklari: Okay. Alright. Thank you. Good luck with the quarter.

Operator: Thanks, Susan. Our next question comes from Adam Baumgarten from Vertical Research. Please go ahead with your question.

Adam Baumgarten: Hey. Good morning, everyone. Just a question on input cost headwinds. Can you maybe size, as it stands today, what you are thinking about for the back half? As you said, you are going to kind of see the peak levels at that time frame?

Nicholas Manthey: I think we are seeing inflation across the different materials, energy, and transportation. We are not going to quantify a precise impact given it is changing pretty much daily. In terms of cadence, the impact will begin in Q2 and ramp up into Q3.

Jeffrey S. Lorberbaum: If you look at each of the different product categories, they are all driven by different things. Our carpet, LVT, and insulation are all oil-based and energy intensive, so the materials are being driven by the changes in gas and oil and the materials as well. In the ceramic business, it is really heavily caused by natural gas and transportation costs, and the transportation costs are both for raw materials as well as for shipping our products. The other businesses are wood-based, which is laminate, wood, and panels. They have significant chemical costs in them to put them all together, as well as energy and transportation costs. As we said before, inflation in Europe is higher, and we purchased a portion of the natural gas ahead to limit the volatility. We do see that the U.S. and Mexico have more stable natural gas prices and are less affected by it. We have announced price increases to cover all this as we go through.

Adam Baumgarten: Okay. Great. That is helpful. And then just, I believe you guys and maybe your competitors had some price increases out on certain products earlier in April, and it has been about a month. Just curious how those are going as it pertains to that.

Paul De Cock: Yes, that is correct. We have recently announced more price increases of mid to high single digits. With these levels of inflation, the industry must pass them through.

Jeffrey S. Lorberbaum: In the marketplace, all the prices are going up. The market seems to be understanding it, and we think we are going to have to push them through because we need it. It is possible, given what is going on with the energy markets, we could need more.

Operator: Got it. Thanks. Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Stephen Kim: Thanks very much, guys. Appreciate it. I think I heard you say in Flooring Rest of World that inputs were a positive, even though I think for the company as a whole, it was a headwind of, I think, $38 million. So just trying to understand, can you give us some context around that? I imagine you are anticipating that will probably flip negative again based on your comments. But could you just provide some context around the input in Flooring Rest of World?

Nicholas Manthey: Yes, Steve. We did see some positivity in Q1 on a year-over-year basis. You are right. Given the conflict, we are seeing the natural gas and oil prices go up in Europe, and so we would expect that inflation to begin in Q2 and ramp up in the back half.

Stephen Kim: Okay. That is helpful. Secondly, and maybe a little more broadly, I want to touch on the innovation comments that you made. There was a comment in your press release about reengineering products, and I wanted to get some understanding of what that meant. Are there certain products that you particularly want to call out? And then at a higher level, there is a lot about the wars, the lingering impact of the war that we do not know. The one thing we do know is that it has put a pause on shipments, and yet innovation is continuing, I would assume, uninterrupted. So what I am curious about is do you actually have a situation where that delay, this pause, if you will, in production and shipping could actually be a positive for you as you continue to work on innovation and R&D?

Is this something that could actually lead to a competitive advantage for you as you develop new products such that when the conflict ends, when consumer confidence improves, you could actually capitalize on the R&D that was done during, let us say, a more quiet period? Is that a reasonable way of thinking about it, or is that not?

Jeffrey S. Lorberbaum: It is a continuous process, and when you bring new products to market, depending on which market, it takes anywhere from nine months to a year and a half to flip them into the marketplace and then to mature over time. So it is not an immediate impact to get them pushed through the marketplace as normal. The big piece is that the industry and category started going down in 2022. It started with consumers pushing out things, housing sales going down around the world, and there is a huge pent-up demand and need for people in housing. The housing stock continues to get older, and when more confidence comes back, we are expecting many years of catch-up from what has not been spent the last three or four.

Stephen Kim: And the role of new products in that, particularly in areas like the hybrid products in North America, for example. I am curious as to whether or not you think that category will be a little more settled and allow you to scale up production better than if, let us say, the consumer response had occurred last year. Is that a reasonable way of thinking about it?

Jeffrey S. Lorberbaum: I do not think there is going to be that much difference relative to the new products because we have the capacity to support whatever is needed in the marketplace and react to it as we go through. I think the bigger impact is helping us increase the margins as the business increases and you get leverage in all the fixed costs over the business as it occurs.

Stephen Kim: Okay. Great. Thanks very much.

Operator: Thanks, Stephen. Our next question comes from Rafe Jason Jadrosich from Bank of America. Please go ahead with your question.

Rafe Jason Jadrosich: Hi. Good morning. Thanks for taking my question.

Paul De Cock: Good morning.

Rafe Jason Jadrosich: Just to start, can you give an update on the Russia business? Just how big it is and how it has been performing?

Jeffrey S. Lorberbaum: We do not break it out in that detail, but the Russian business has been performing well. There have been no impacts on the business and how we operate it. We continue to generate cash in the business. The business has slowed down with the general economy over there, and we are adapting to it. We have a leadership position in the category, and we are complying with all the regulations.

Rafe Jason Jadrosich: That is helpful. And then I think last quarter you gave a little bit of color on what you were expecting full year for inflation. Obviously, the environment is moving around a lot. Is there any way to quantify the level of inflation in the first half relative to what you are expecting in the second half?

Nicholas Manthey: Yeah, Rafe. The inflation will really begin to increase in Q2 and ramp up into the second half. Our pricing and other actions are intended to pass through those costs. As Jeff outlined, it really varies by product and region, and we will adjust our pricing as the levels of inflation change.

Rafe Jason Jadrosich: Just asking another way, for the first half, do you have an aggregate—what is the inflation embedded in the first half?

Nicholas Manthey: We are not going to break it out in that detail, but we do have inflation in the first half of the year, given the different aspects of our input costs.

Rafe Jason Jadrosich: Okay. That is helpful. Thank you.

Operator: Thanks, Rafe. Our next question comes from Philip H. Ng from Jefferies. Please go ahead with your question.

Philip H. Ng: Hey, guys. I think it is more of a recent practice, but any color on how much you buy ahead in Europe on the gas side of things? And were you able to lock in some of that price before the war? And then, Jeff, I think in 2022, some of your competitors in Italy had some issues on the energy side of things, and Italy is a big import of LNG. Are any of your competitors having trouble sourcing energy? Are they hedged? I was a little surprised with the comment that pricing in Europe for ceramics was a bit more muted.

Jeffrey S. Lorberbaum: Yes. We did buy gas before it went up. We continue to buy gas, and we continue to make decisions of what to buy on a going-forward basis to reduce the volatility of the European gas prices. We will have to see what happens in the marketplace with the inventories, gas prices, and the volatility. If the gas keeps going up, the industry will have to respond to it as we go through. There are other areas around the world like India where they do not have enough natural gas. That cut back the industry, and ceramic production we believe is off almost by 80% because they do not have the gas to do it. That should also create opportunities as we go around.

Philip H. Ng: Okay. That is helpful. On the North American carpet, I believe you and your biggest competitor have a large concentration in share. There are a bunch of smaller guys. Give us some perspective on how the cost curve looks for carpet in the U.S. between the two of you. Does that drop off pretty hard? And just given where raws are shaping up in the back half, if you do not see much traction, are some of these smaller guys cash flow negative, operating at a loss, and how would you stack up in that situation as well?

Paul De Cock: Thank you for the question. The market is soft in carpet in general. Remodeling and new construction sales have slowed. We have announced price increases to cover the inflation. We are introducing new products to also improve our mix, and we are taking further actions to cut our costs. Carpet volumes should improve as the market recovers.

Jeffrey S. Lorberbaum: There has been some limited capacity taken out of the industry by us and others. There have been some smaller ones to go out, but not enough to change anything.

Operator: Okay. Thank you so much. Thanks, Phil. Our next question comes from Richard Samuel Reid from Wells Fargo. Please go ahead with your question.

Richard Samuel Reid: Thanks so much, guys. I just wanted to circle back to the prepared remarks. I heard a comment about your order backlog growing. I am just curious, is that restricted to any particular end markets or categories? We would love some additional context there. And then I also heard a comment about some of your channel partners reducing inventories. So perhaps two things that might be a little diametrically opposed there. Just want to flush those out. Thanks.

Jeffrey S. Lorberbaum: As we came into the new year, the expectations for we and the entire industry were greater than they have turned out with the war. So we came into the year, and there were channels that started lowering some of their inventories as we started into the year. The backlog, as we have gone through, the trends of our business from March to April have not changed. The incoming orders are similar to those. The backlog has actually increased in April. We do not see any dramatic change in it now. On the other side, when you have price increases like we are having, there is some pull-forward, but we do not have enough view into the inventories of our customers to know how much that is.

Richard Samuel Reid: That is helpful. Maybe switching gears, it is great to hear the commercial end market strength. Restricting the question to the U.S., in the past you have called out institutions and hospitality as areas where you have been growing. What is the latest on commercial end markets, and where are the areas where you are seeing the most strength?

Paul De Cock: Around the world, we see the commercial channel continuing to outperform residential. The segments that are performing better would be hospitality, education, health care, and government. To increase specifications, we are expanding our showrooms, product features, and specialized sales forces to go after those segments.

Richard Samuel Reid: All helpful context. I will pass it on. Thanks.

Operator: Thanks, Sam. Our next question comes from Collin Verron from Deutsche Bank. Please go ahead with your question.

Collin Verron: Great. Thanks for taking my question. I just want to follow up on the backlog building. Is that across the portfolio, or are you seeing pockets of weakness and strength just given what is going on in the Middle East? I thought it sounded like there was probably a little bit of caution, so maybe some downside in volume trends into April, but it sounds like they are building. Any clarification there would be helpful.

Jeffrey S. Lorberbaum: It is generally across all the businesses. The backlogs are generally higher than they were a month or so ago. We are having difficulty separating the ongoing business trends from inventory changes in the customers. We are not going to be able to know that for a while.

Collin Verron: Okay. That is helpful. And then just following up on natural gas, is there any way to understand how much of the gas you have already hedged for this year versus how much you would need to buy just to service production levels for the remainder of the year?

Jeffrey S. Lorberbaum: It is different by business and different by country. In some countries, you cannot do it; the country purchases it and the price is the same. In other countries, we can purchase ahead. So it is not as simplistic an answer as you would like to have.

Collin Verron: Understood. Thank you, and good luck.

Operator: Thanks, Collin. Our next question comes from Michael Glaser Dahl from RBC. Please go ahead with your question.

Michael Glaser Dahl: Hi. This is Mike. Just a follow-up on the near-term demand comments. What are you guys specifically assuming in the 2Q guide in terms of demand trends? Is it more of the same from what you have seen in April? And then on that order backlog comment, the sequential increase, is there any way you could help frame that on a year-over-year basis?

Nicholas Manthey: Thanks, Mike. Again, we are assuming that the present demand trends continue through the second quarter, and there is limited impact from the conflict. Market volumes have been declining for a little while, and so we do not expect a big change in Q2.

Jeffrey S. Lorberbaum: At this point, we have not seen a decrease in the sales and order trends. We are going to have the impact of the increase in prices as we go through, starting in the second quarter and ramping up in the third quarter. We will have to see how things evolve. The question we all have to answer is what is going to happen to the consumer confidence and spending patterns given the inflation that is coming through the marketplace and how the consumer is going to react. We are all going to get to find out together.

Michael Glaser Dahl: Fair enough. From all the pricing that you have announced, are there regions or products where you could rank order where you think you have the most pricing power versus the least? Or if it is easier, just by segment, when we think about modeling the pricing tailwind.

Jeffrey S. Lorberbaum: I am not sure there is a dramatic difference in any of them. The biggest differences would be the amount of inflation based on how big the cost increases impact each product category. It may sound different, but the ones with the highest inflation may be the easiest because the industry has to force through more. The imported products with long supply chains—those product categories—it is going to take a while before the chemical costs flow through, but they are going to flow through.

Michael Glaser Dahl: Understood. Appreciate the color.

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

Michael Jason Rehaut: Thanks. Good morning, everyone. First question, I just wanted to circle back to the price increases relative to the cost inflation that you expect to see in the back half. I just wanted to be sure of two things. First, when you talk about the cost increases, it is the ones that you have already announced in April—mid to high single digits—if that is really, at this point, what we are talking about. And second, as you see the cost inflation today, are the price increases sufficient to offset the back half cost inflation?

Nicholas Manthey: Mike, our pricing that we have announced along with other cost actions are intended to offset the higher cost. We have announced mid to high single digits across most of our categories. Inflation is changing daily and weekly. We will adjust and adapt as we go through the second half of the year, and our intent is to pass them through. It is possible we will have to announce additional price increases if things keep inflating.

Michael Jason Rehaut: Right. Okay. And the second question, just on mix. If you are seeing any green shoots of mix—I am really thinking about North America here, ceramic and North America flooring. How would you characterize the mix trends in residential? Have they improved at all? And could this be any help as well in the back half as you combat some other margin pressures?

Jeffrey S. Lorberbaum: The higher-end consumer has more money and is spending more. That is helping on one side. On the other side, the middle is either postponing or trading down. There is huge pressure in the builder market to put in low-cost products in order to keep the prices of homes down. So you have both things going at the same time. I think that the people with money will continue to spend. We talked to some of our retailers. Some of them say the traffic is slower, but the people coming in are spending more money. We will have to see how the whole thing evolves. A lot of it is around consumer confidence and how they react to all this.

Michael Jason Rehaut: Alright. Thank you very much.

Operator: Thanks, Mike. Our next question comes from Keith Brian Hughes from Truist. Please go ahead with your question.

Keith Brian Hughes: Thank you. The last time we saw this kind of inflation, a couple years ago during COVID, you saw some pretty significant hit on mix. Is there anything that has changed in the industry? Any reason we would feel less of that pressure? These are pretty significant price increases you are talking about.

Jeffrey S. Lorberbaum: It is possible that we could see some declining mix in a piece. We are raising all the product categories to cover it, but it is not abnormal that some customers trade down. The higher-end customers have money, so it is not going to affect them. The higher end of the business has been doing better. But it is possible there will be some mix decline as people try to maintain budgets.

Keith Brian Hughes: Okay. And we talked a lot about price increases and cost increases on this call. Is carpet where you are seeing the biggest inflation coming right now just based on the fibers that you use?

Paul De Cock: No. We see inflation across the board in all the different categories. We have all the chemical input costs going up with similar levels, and as that filters through, we will have to take up the prices. In Europe, we see higher increases like we said. The impact of energy in Europe is much more significant, and so in some of our product categories, we see much higher impacts than on the flooring side, and we are acting appropriately.

Jeffrey S. Lorberbaum: If I had to pick one that was highest, in Europe our polyurethane insulation business has a chemical component, and there are some shortages in the marketplace. We are putting through really significant increases in the category along with the competitors in the marketplace.

Keith Brian Hughes: Okay. Thank you.

Operator: Our next question comes from Matthew Bouley from Barclays. Please go ahead with your question.

Matthew Bouley: Good morning. You have Anita Dahlia on for Matt today. Thank you for taking my questions. First off, we have seen industry peers announce price increases over the past few months, but as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry? Or is there evidence of share gain coming at the expense of price, either for Mohawk Industries, Inc. or competitors across LVT, carpet, and ceramic?

Jeffrey S. Lorberbaum: The increases are flowing through the marketplace. It takes a while to go through. We will not see the full impact of them for another few weeks or even more. So we will have to see. So far, we are seeing more discipline than normal given the amounts of the increases. Everybody needs more to cover the cost.

Matthew Bouley: Okay. That is helpful. Thank you. Then second, I wanted to talk a little bit more about the setup in Europe. You mentioned Europe has understandably become more impacted following the Middle East conflict. Any color on the trends you are seeing since last quarter? Specifically, are consumers deferring projects, or is it more a function of mix down?

Paul De Cock: The market was showing some improvements in January following the multiple rate cuts that the European Central Bank had executed. But after the start of the war, consumer confidence declined, and that reduced the discretionary spend in the market. As we discussed, energy prices are higher in Europe. They are causing greater inflation, and we will have to push up the prices more. But consumers have record savings, and mortgage rates are much lower in Europe, and that should support growth as confidence comes back.

Matthew Bouley: That is helpful. Thank you.

Operator: Our next question comes from Brian Biros from TRG. Please go ahead with your question.

Brian Biros: Hey. Good morning. Thank you for taking my questions today. How quickly can you pass on price in today’s market relative to previous price increases? Inflation pressures are well known, but the demand side is not really there. So I am curious how those conversations go and how quickly that can be reflected in today’s market once you announce an increase.

Jeffrey S. Lorberbaum: The entire world knows this is going on. Our customers know what is going on. Our competitors have the same pressures we do. So the marketplace understands that it has to happen. In some cases, it may feel a little easier up to this point or not, but we are not through fully implementing it. On the other side, there is a concern that there is more to come, and so all of those things are affecting the way the industry is acting.

Brian Biros: Okay. And then margins expanded in Q1. I think that might be the first time in maybe five or six quarters. Nice to see some level expansion even after all the restructuring efforts, and that was on lower volume still. It feels like there are still going to be pressures for the rest of the year, but do you guys look at Q1 as some type of indicator of what financials you can put up when things start to turn? Putting that in context would be helpful for thinking about Mohawk Industries, Inc. beyond the next few quarters. Thank you.

Nicholas Manthey: Q1 market conditions were still very pressured. Looking forward, in the near term, our margin will depend on how the conflict evolves. We will have the inflation, and we are taking price to mitigate it. As Jeff mentioned, consumer confidence could be lower and could impact volumes. We are really focused on our productivity and restructuring efforts to lower our costs, and we do believe that over the long term, there is potential for margins to grow from here.

Jeffrey S. Lorberbaum: As we said earlier, we talked about potential good outcomes and bad outcomes. Either one is still possible, and we have to be prepared to adapt to either one, hoping for the best.

Operator: Our next question comes from David MacGregor from Longbow Research. Please go ahead with your question.

David MacGregor: Thanks for taking the questions. I wanted to focus on the commercial business for a moment, and maybe it is a strategic question, Jeff. Given the relative resilience of the commercial businesses, as well as a different competitive structure and more opportunities for growth in that market segment, have you considered allocating capital to the expansion of that side of the business and bringing the residential/commercial mix more into balance?

Jeffrey S. Lorberbaum: The commercial business is much smaller than the residential business. The opportunities are much less. So achieving the same market shares, the commercial business is dramatically smaller than the other. With that, we continue to invest more money in product innovation in the commercial market. It is easier to sell and promote features and benefits that are differentiated. We continue to invest to create differentiated offerings that we can specify in the marketplace. We are investing in more showrooms and investing in our sales organization to create more specifications. We agree with you. It is a good place to be.

David MacGregor: I was asking the question more from an M&A standpoint.

Jeffrey S. Lorberbaum: From M&A, we would consider the right commercial businesses that fit with ours and we think we can add value to. There will be opportunities as they arise over time in both the U.S. markets as well as the world markets.

David MacGregor: Got it. Second question is the obligatory tariff expense question. A lot of noise and moving parts on this, but what is your current expectation for 2026 gross tariff expense prior to mitigating actions?

Nicholas Manthey: The tariffs were reduced from a few months ago.

Jeffrey S. Lorberbaum: But with the inflation occurring because of the conflict, the net effect is our costs are going to increase, and that is why we are taking the pricing adjustments to mitigate the higher cost.

David MacGregor: Okay. You have not quantified that for the street?

Nicholas Manthey: No. The tariff environment is changing, and we will see how it evolves.

David MacGregor: Understood. Thanks very much.

Operator: Thank you. And with that, ladies and gentlemen, we will be concluding today’s question and answer session. I would like to turn the conference call back over to Jeffrey S. Lorberbaum for any closing remarks.

Jeffrey S. Lorberbaum: We have managed global turmoil many times in our history, and it is always followed by an industry recovery. We expect multiple years of above-trend growth when it happens this time. As that occurs, in our industry the pricing and margins increase, our mix improves with people buying higher-value products, and we get significant leverage off of our cost structures and all the actions we have taken over the past few years. We appreciate you taking the time and being with us today. Thank you very much.

Operator: The conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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