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Q & A Highlights

Q: Should we expect normal seasonality from Q1 to Q2, excluding the impact of the order management system? A: Yes, we expect normal seasonal improvements in Q2. We will continue to seek volume to maximize absorption of our cost structures and benefit from cost reductions and restructuring. However, pressures from pricing mix and higher costs will continue.

Q: Can you discuss the impact of rising natural gas prices on your global ceramics segment and your ability to offset these costs? A: U.S. gas prices have increased, impacting Q1 costs. In Europe, costs have risen but remain below peak levels. We have hedged a portion to limit volatility. We aim to recover costs through takeouts and improved mix, but passing all costs through pricing will be challenging.

Q: Regarding the Flooring North America issue, can you break down the $25 million to $30 million impact on income between extraordinary costs and sales impact? A: The extraordinary costs, including correcting the system and additional man-hours, are about $15 million to $20 million. The sales impact is estimated at $25 million to $50 million for the quarter.

Q: Do you expect to grow earnings year-on-year in Q2? A: We anticipate mix improvements, productivity initiatives, and specific pricing actions to offset rising costs and currency headwinds. Excluding the Flooring North America issue, we expect a slight improvement in overall earnings.

Q: How do you view the competitive dynamics in the U.S. tile market, and what impact do tariffs have? A: Excess global capacities are impacting U.S. pricing. Our strong operational performance and restructuring actions have benefited us. Tariffs on Chinese wood flooring should benefit our sales of laminate, LVT, and wood.

Q: Can you discuss your long-term margin goals and the impact of current market conditions? A: We aim to reach a 10% margin, but current conditions are challenging. We expect a recovery to historical trends, which will improve asset utilization and mix. Our restructuring savings of $285 million will also help achieve higher margins.

Q: How are you thinking about cash flow usage, including buybacks and M&A? A: We plan to increase investments in product innovation and cost reductions as the market improves. M&A activity is currently quiet, but we will continue share buybacks as part of our strategy. Since 2020, we've repurchased about 14% of our shares.

Q: How do you view the potential for tariffs on imports from Mexico and their impact on your business? A: We import around $300 million from Mexico and export approximately $200 million to Canada. Tariffs could negatively impact imports but may benefit U.S. manufacturing. We are reviewing alternatives to mitigate potential impacts.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.