MHK - Earnings call transcript Q4 2018 | Mohawk Industries, Inc.

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Operator

Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. reminder, Friday, gentlemen, February a being conference As today recorded X, Instructions] ladies this and is [Operator XXXX. Thank you. I introduce would Mr. to now like Frank Boykin. Mr. begin may conference. you Boykin, your

Frank Boykin

that include forward-looking welcome investor Thank may the Litigation our XXXX. and in to Mohawk may Company's I'd make and Securities discussion quarter everyone provide results to we quarter remind which update everyone statements guidance call Good fourth limited the you, as This the forth that and with numbers. non-GAAP of like the risks release Private Reform are press XXXX Exchange Natalia. you on Commission. to Industries defined release call. Securities uncertainties various and conference this our of of include quarterly for Today XXXX, not set in including for we'll and but morning first Act call our of statements to those during press and filings subject the periodic

to Jeff? non-GAAP Information any section to Mohawk's Chief You can website call Investor in I'll turn of our reconciliation Officer. the Chairman our release press refer Lorberbaum, now a Executive over for GAAP of the amounts. to Jeff and X-K and Form

Jeff Lorberbaum

billion long-term buying to slowing. and acquisitions, In primarily our saving and $X.X with and Thank of proved increasing new we we shares. enhance products and cost approximately record environment, back anticipated geographies other our After dramatically, impacting consecutive with product projects markets luxury earnings, you, greenfield most Frank. this invested selectively in more years flooring of U.S. inflation five XXXX difficult performance, categories than vinyl tile initiatives

training primarily impacted supply. employee in constrained efficiencies to costs by and through have we always and labor in and U.S. preferences costs inflation tight escalating a the position. transportation industry The consumer them both increased turnover, faced and shifts costs, increasing Our chemical and stronger competitive which XXXX costs. energy material periods more volatile And navigated has with driven emerge U.S. was and market before

continuous due dollar was alternatives. pressures a larger LVT share portfolio. Our ability LVT imports for by part offset and a will these stronger hindered flooring U.S., the become other it more taking inflation, significantly competitive is In to from and of substitution other our of to

manufacturing production, Europe in progressing strategies we LVT future. Our and are operations our talent and LVT efficiency will import in more differentiation to adding U.S. and the XXXX. increase margins our our and are to improve In the

our Russia in higher vinyl acquired slab managing these capital Europe, New are mezzanine will Brazil. in markets. beyond, tile we and specialized initiated in Eastern and these of leading achieve in are XXXX, higher-quality entered our the volume, XXXX and the In expanded we We sheet a Much value Europe productivity. carpet European companies through investments States. the porcelain be mix as quartz of production countertop United manufacturing we and ceramic and benefit While from in realized flooring we and flooring the distributors And business. conditions, We Australia, two long-term in enhancing company. and Zealand

billion, as to results. quarter currency. X% X% of reported Turning sales the fourth $X.X generated We or a constant on up

income sales EPS For with an of million $X.XX. of XX% period, $XXX adjusted was our the or operating adjusted

impacting – significant inflation performance our with performance, markets products. of by As the slowing year year our sales period affected first LVT was as with other full and

our to a to to manufacturing fourth the many competition our categories executed has pressures increases in business price period, inflation costs. market as experienced higher headwind mix. production flowed and in We continued pricing our be and we products, adapt materials quarter most across In the greater through as on Even demand. increased decreased

than period in Our anticipated. production slower with projected improving than we the LVT higher were costs start-up

our by expansion million Polish million and share Our about count was In initiated our Mohawk period starting X% of new up. still $XXX shares. our reducing countertop and ceramic X.X the purchased stock, sheet the tile or manufacturing plants outstanding we of of vinyl equivalent

on to segments, call Chris I'll details the now over For turn Wellborn. our more

Chris Wellborn

Thank Jeff. you,

challenged global the Adjusted sales or segment due about with transportation For or approximately basis million to recover To margins, freight North on have reported higher America, headwinds inflation, we was pressures as business for and some inflation X% but constant sequentially our $XXX ceramic income sales. the in of quarter, of to In $XX expenses. to improve prices our XX% lower and pressures and from million our our pricing ceramic our increased costs. increased products import a segment currency X% increased markets. on growth remain operating

products in made collections with are for with high-end commercial porcelain and new resistance sales and of slip for Tennessee technical durability greater plant our We increasing residential. color-bodied

effects. we introducing looks edges For handmade countertops Sales large and slabs tile our collections as with as gain as floor the wall they premium are tile consumer, polished market with rectified are also of expanding luxury porcelain acceptance. porcelain and well

new Our formulations. countertop our up manufacturing and and we as optimize production products ramp is plant quartz processes basic

and multiple of North costs inventory and locally we lowering stocks. regional We're Across truckloads by improving our are This service make with our consolidating tile transportation introduce vinyl cost initiated centers distributors installation faster we service ceramic new is our the largest will to have our including easier. slate-type This taking redistributing many our in shipping costs of year the actions making Daltile, levels luxury of patented We higher country. will by sales that them accessible increasing new and premium tile reducing instead product roof lower a regional some perennial ceramic headcount. also roofing by the America, broader and technology mix the market. to

manufacturing are new of production are cost. efficiencies on and in We focused system mix improving are energy our lower generation we to our in and well, installing improving operations In and Salamanca operating margins. lines our Mexico an Tennessee

Dalgress price large which sizes porcelain with our at lower offering our are expanding customer product We base replicate and points.

In premium position ceramic cover costs. the in of margins to and both shipping best strengthening increases market an our in finalized purchase Brazilian one a We and and of industry the in November, Eliane sales with announced world's have markets. is the largest Eliane leader brand Brazil. we is price are inflation The and expanding. Mexico

new conditions our and to as improve uncertainty. Central We phase the margins period most operations due We're we the enhance Eliane's America. dramatically formulating the went the ordered through economy we following first profitability. political to equipment with sales of In the optimize Marazzi's to Mexico deteriorating and have the and strategies strategy Europe, softened to in combined South Brazil used Italian

also on focused slowed. Our exports outside Europe projects which are commercial

we margins are competition fourth first as reduced continuing We on production greater so rates in these experienced do increased. pressure period. the the to conditions, in Given quarter and

force sales of In we sales technical We are to are tile boost retail, our products. expanding our high-end increasing wall ceramic. thin our premium unique collections commercial in

traction for porcelain be can used slabs walls We our are large countertops. which and gaining floors, with

With to our we in our the plants are improve and competitive Italy, of Poland footprint, advantages. expansion European of specialization Bulgaria ceramic Spain, increasing the our

For production category. example, Poland moving our lines where to are new we of we dedicated outdoor to added this products

we price enhance for collections. our Europe and We size Europe. increased tile in Western specifically our force anticipate are lower-priced introducing the Europe creating across in plant to patented later Bulgarian points this separate at a easy production these year. have a sales lower In sales capabilities insulation We

move the grown the of The market ceramic the we utilization expect European through our as to actions, assets increase year. these economy Russian as With improved. we has

expanded mix During although pressures, and overcome To our we and substantially significantly period, our inflationary ruble sales increased our enhanced the profitability our reduced weaker the translated results. volume.

our We have production this new will tile floor grow wall installed both which year us two business. porcelain to lines and enable

are of million, expanding an make – reductions start-up we countertops X% some flagship by commercial slowed the we about X% our of million. stores more production fourth sales, areas. To quarter, to were our margin due sanitary weaker inventory used home channels. offering through Flooring ware to as brand, customers will new the number $X slabs The metropolitan in $XXX North remodeling in We segment went and sales us existing large adjusted America complete the floors, exteriors. provider for decreasing In production porcelain and of XXXX, bathroom major enhance which our In and we commence launching with premium of shipped of are sales products. softer company-owned approximately of cost including are and period segment highlight walls,

period we initiated freight and to further the price recover During higher material increases costs.

in structure purchase our Additionally, changed market, as increase, to President our material the and to North we the launched reduce cost flooring. operations de results. impacting continued other enhance In has innovation appointment in to efficiency, flooring the two high of and numerous Cock's Eliane the to enhance announced America marketing, segment Rest November, of industry He in joined U.S. Paul In career, initiatives the LVT segment. each improve processes. business. and he management XXXX of Flooring improve sales product. the his flooring surface flooring Early we has of in our the acquisition. was of impacted alternatives. previously Paul our and period, led by Surface In the Mohawk hard Paul experience with cost World business carpet decades Hard materials led the for Mohawk U.S.

trade with and carpet show. product better as was which by our blends most new retailers introduced We deeper to we with ColorMax innovative our greater costs. ColorMax align the saturation. increased SmartStrand new recent clarity our collections, prices colorations In technology flooring at have selected premium the

at updated entry-level strengthen collections We've We offering flooring our SmartStrand our our distribution. increasing Continuum proprietary patented soft offering higher-style polyester expanded products also We unified points. to our sales. their Air.O enhance to with price all increased

our regional optimistic for about We residential markets customers remain have our and of most XXXX. completed prospects cautiously

segmentation are We cost, greater efficiency, commercial specification executed to Across and sales and products, of service. quality continue on to all with many projects. large material increased our enhance initiatives channel organization focus enhance being by

reinvigorated wood and other remain previously strategy. that through and substantially visuals propositions. we produce resistance the the manufacturing exceed during durability. sales category our Wood new pressure grew residential commercial premium our as sales We alternatives water provide real with we made LVT Both implemented period we have unachievable the under investments to value laminate and superior as with sourcing

improvement, We LVT Long-term, in XX% LVT at resources we in formulations our introducing, before levels. when are Pergo production confident consumer yields. over LVT expected productivity, the it technology even increased our are product premium of advantages the about more that operating has brand prior to Though with us investment which, great any speed the collection than competitive increase other engineering offering this had will we is recognition anticipated We're market. and provide period. further more adding a

Our quarter Adjusted including for margin $XXX delivered the basis sales million, million. reported of increase of with sales of constant segment or our was a XX% segment XX% fourth of results. cost as currency Flooring on World enhancing Rest an of acquisitions start-up $XX XX%

market softening and Australia. and in strong experienced we we period, growth premium our the through conditions both outperformed progressed continued their with we the As significantly collections. LVT sales Europe market laminate

We costs have initiated changes. rising and laminate to price increases currency recover

to investments increased greater and our supported efficiencies. features. laminate expanded production Russia visuals sales The market and have has which to margin increase improved waterproof expansion our expand share by enabling been with and Europe in is Russia mix delivering constrained lines also by us The limitations. production Our new in differentiated capacity

grow as to increase. continue production sales dramatically LVT rates our Our

of our quarter. technical the as later this overcame LVT Some increased postponed were our that costs problems introductions until during we period fourth

the share features new allow XX% sheet plant our in been of market. in we quarter improvements by last expand as the unique local and performance speed visuals over in year to are its launching We about improvement improved will have continent on add products refined collections. the new Russia LVT ahead. satisfy the gaining In to in continued have performance us and has our The anticipate line as Europe, processes we new vinyl to to our begun sales seen

customers. sheet commitments is Our goods planned facility producing as satisfy major and to Russian is vinyl operating to

As the with expand processes we our plant's and customer costs innovative will we products. base refine

broaden commercial plant Our specification as to sales product force We're our our European the carpet and our tile increasing base. products. offering progress expanding continues we of customer and

is market integrated into the Presently, adapting housing We structure. Mohawk are have and conditions. the to we slowing the changing Godfrey Hirst Australian

value in Godfrey carpet and surface profitability significantly. products to expand to investing to enhance more our product volume insulation offering are assets The is with commercial improving new distributed our material products leveraging under of market greater a and strategies. the comprehensive of brand. innovative Mohawk's We and hard business and bringing We resources Hirst's anticipate

other competitive has become from material more pricing share did Our polyurethane alternatives. it constraints. from is to insulation improved, the prior taking rising products other with Since recovered, service of supply has levels raw as our have prices and materials

the for were and margins productivity. the our The year sales improved board we've made decade. highest investments Our and in offering the have

experienced economy period, in fourth the pressures. margin we softening the sales and With

as on We're increase our expanding and leverage business implemented acquired initiatives flooring existing we and the value-added focus to mezzanine organization. We sales sales have we year last products. manufacturing

pass who our review Frank, I'll to financial call fourth performance. Now will the quarter

Frank Boykin

grew Thank of well business Net million sales with and and laminate basis. American the reported constant on growth X% in almost Rest and World Flooring World exchange up LVT you, products had Chris. North X% legacy Rest were as $X,XXX with rate strongest performing for segment. the the a of our both in quarter

million, XX.X% and a XX.X% fourth foreign and Inflation quarter North primarily of productivity day start-up have mix that one offset XXXX. $X Eliane was higher We in plant quarter price was year. shutdowns as of of XX.X% or volume last and related exchange to lower of in of or XX.X% unusual X% Godfrey million, had were will reported have as $XX the million, margin $XX in less plant $XX million $XX million, to of additional Just heads XX.X% acquisitions then first charges excluding charges million down $XX Hirst $XX one of unfavorable year. million XX. the compared million. from the up, XXXX charges and $XX reported as and last was and SG&A of of America. Gross day increased excluding will consolidation

$XX $X mix. excluding million, of along from $XX price increased down improvement operating million of offset of margin million, of productivity the of $XX year. in Inflation charges of million start-up million Our impact lower X.X% shutdown XX.X% headwinds last $XX and with was

$X.X We $XXX also and FX. full the had EBITDA from fourth for million a $X million headwind billion was quarter year. in the

Our early last for to to million year. expense related interest million The Eliane was high-cost quarter compares of debt. increase the was $X $XX extinguishment which

approximately from Our and XX.X% which due of per Earnings a XX.X% year last rate income rate year first full a to to XX.X% XXXX the last charges XX.X% tax year. excluding a tax XX% quarter rate XXXX. was $X.XX act. compared of share estimate XX% improved reform to to were We XX% decrease of to for

Turning segments. the to

quarter our $XXX Fourth sales constant segment with global sales Our had on X% of up business rate ceramic basis. a exchange million. increased legacy as X% reported

million In quarter. year. of volume on million with million of income costs Inflation productivity segment, $X weakness and million a increased of reported business year-over-year excluding improved $XXX North highest surface Flooring America was last growth X% XX% Russian in basis Our in the shutdown the $XX stronger offset of soft of from charges and down North $XX price by mix declining sequentially overall $XX by margin of of decreased lines. which XX.X% improvement Operating year-over-year volume. with the million, mix $XX and a price million offset $X product America incremental in sales was million

XX.X% by price start-up of $X X.X% mix million, of $XX well production as of last a Our million to million. compared offset in operating $XX inflation Improvement of million of productivity unfavorable year. of was and segment income $XX with $XX shutdowns million excluding was charges $X this million margin as in

balance the million on Inventories a inventory of strongest another quarter excluding corporate million. also volume. rate year with segment we as $X XX.X% We segments, this lower XX of in sheet. operating were the X% an In to well XX% price Jumping XX million an year. eliminations days in $XX growth and And $XX sales million the $XX and of sales estimating the the million of as lower had compared had to at constant of outstanding $XX $XX of ago. and quarter $X by category. loss last offset had ended million our material was we $X,XXX In Rest at with foreign our million were $XXX Productivity days are with days charges Operating higher the and exchange income sales $XX Receivables LVT the at XX.X% XXXX, increase between of compared with the exchange million costs million. XXX. reported in a margin growing at ranging mix million. Flooring World basis. of quarter start-up days a as ended lower legacy $X,XXX loss million to

with of in million up Our legacy from of lowered ran as quarter. businesses XX% we most inventory year the new of the inflation. inventory during categories and was $XXX fourth the XX% We last pre-buy the from our increase production quarter increase from sales below acquisitions and and Chinese manufactured

$X.X for million at the amortization up $XXX million. of fixed with capital ended and of assets depreciation Our expenditures billion included and quarter $XXX

capital year, amortization and depreciation of $XXX full the $XXX For with million were expenditures million.

estimating million to $XXX XXXX depreciation to CapEx at amortization million are be for We estimated million. $XXX with approximately and $XXX

our and Total quarter at debt, Jeff, X.X with flow remain over balance turn $X.X debt to sheet the Looking was debt end it EBITDA. you. strong. cash long-term times the at back billion I'll to leverage at of

Jeff Lorberbaum

Thank you, Frank.

macroeconomic have As Oil could conditions of the are under making enter Economies markets. slowing regions costs XXXX is and our around the pressure. volatility our our most unpredictable world housing many in many markets results. we impact in been

significant Higher period. will relative changes. our recent due the our of strengthened outlook we're negative to production will the results year. reducing before on first improve quarter, cautious first price impact we these to our markets. In and rates dollar materials year last a through we environment The So most softer of issues, flow to the the because from realize through benefits is expect in have

for guidance charges. of excluding innovative and processes. is first the collections, of $X.XX introduce to all any Taking improve EPS manufacturing our price into $X.XX increases to continue XXXX account, one-time implement We this new quarter

expansions and various up. geographic stages of product at major ramping are Our

margins, benefit start-up investments will increases our sales these results, year, levels increase and production the through decline and our increase. progress will price will costs we As our will

of realize increase. business the projects broader geographic product volume will strong We efficiencies potential in is with as Today the portfolio beyond and diverse a and more resources, footprint. a and these XXXX substantial

the we be through are will strong take historically and have extensive long-term questions. are steps your balance debt now our business. we acquisitions In liquidity short-term sheet, market our confident enhance investments the and We We'll leverage. to manage and a uncertainties these glad low significantly taking appropriate to

Operator

[Operator Instructions] from of Michael And Nomura your Instinet. with first comes line question the Wood

Michael Wood

hoping taking the was industry for Thanks on you ceramics market. U.S. dynamics shed light question. I morning. good general Hi, my some in could

competitors EBIT reported, even temporarily, where you going above that think I you do tracking the of guess of the lower margins are results that the are hurting XX% start cost are where which price that from With because we cost see in part and what understand first you're destocking that advantages, XXXX. headwinds and investment alleviate is? say seeing to a to if trying the do profitability the point your production standpoint at given side? I'm you some the scale marginal pressures competitors on you're that

Jeff Lorberbaum

their The competitors we believe in market. the are already rate production significantly U.S. reducing

XX% satisfied XX% to the the is imports the is the same U.S. you which is supplier or of the worldwide in have of base country. time more by increase capacity supply However, and At imported. biggest from about tariffs China,

a have on. of dynamics going lot you So

and recover are so margin speak prices We as our the raising we've some loss to far. incurred we freight of

Michael Wood

And you us then And since about at to many market what are a what slow continuing an sales down? on you start year? Okay. you markets. of just seemed stabilized this deteriorating give markets Can follow-up, the slowing as talked update in

Jeff Lorberbaum

and of we negative. but on as it So was Mexican good between the across, market We think in category in And recession. our was have it to we going we U.S. It was The decreased is see going Russian In as the a markets have and the lot it mine into XXXX. in is caused double we XXXX, improving. part in interactions the housing in XXXX market is guess a with a happen running by the your which at digits sales this Italy Europe, in our of large year. Russia. the see improving slowing running U.S., economy what's in them,

Michael Wood

Okay. Thank Good luck. you.

Operator

Stephen of next question Your Evercore ISI. from Kim is with the line

Stephen Kim

very Thanks guys. much

about produce evolved planning instance, plans your Or the for years that new the LVT to and building or is maybe and LVT rigid intended LVT ago, your it is to you're two on high-end production line your just intention is lines. started question high-end new your on whether unchanged delayed. rigid? Like low-end essentially basically a First whereas lines I'm Or couple for how to since merely of like to wondering rest that you just you major the is Dalton focus previously have line being? source both plan do maybe flexible time the two

making, how great. is sold share can about it product will where today? be for evolved thinking your you this may are and the whatever as have So rigid And you product being currently

Jeff Lorberbaum

answer See, those. all can if I of

in we larger our going into than then So us announced going the rigid that we in growing hasn't was it will United we changed. strategy longer we And the of new the products States, that we've and our raised hoped year And which is and utilize to that was brand the of market middle products full year, the parts today to products consumer importing new think into thing support began last taking inventory a also higher-end a we marketplace. said capacity making focused we that more category. The in any the has it this changed year. rigid strategy can line We and could the on LVT faster, we mid make we're it. so other the because Pergo the introducing we've satisfy of thing And than doing brand change in that. given that higher primarily substantially

of the this going we're to the sold in offering product And yet. put first also Dal-Tile haven't LVT it We piece year.

Stephen Kim

helpful. it. Okay. That's Got

Okay.

relates to inventory. my So then question second

launch home now. places in new of guessing. you to mentioned maybe centers stuff sort the means I the Pergo this guessing I probably to you're LVT you're be I'm that you're in too, going other inventory and LVT, line right I'm in the XQ is into that looking assume guess, think product, building, making I that going that

see could XQ we this later mean soon on year-over-year as have year? are Or actually inventory to down? going down a And until dollars basis as we So I should to dollars – wait inventory this year?

Jeff Lorberbaum

of that that, year the Chinese have is prebuy a First of so period to the ahead first it. have I you down assume the in

The second is enough And we product to build building up, expecting we have can so are go customers. sales those before for categories have sales. our that satisfy inventories the we're you we any to so

Third is the and inventory you in all put is building also going before into those keep raw all the sales these up, new about. talking new you the in them materials, businesses you're two. we When go start inventories the products

bit Frank, distribution? inventories you all were touch is this minute, distribution on inventory where the So growth, little a at want to the inventory the there.

Frank Boykin

of take production comments, is to down manufactured down make is inventory think in point hard $XXX the think done – down in the XX% new we've to I Like pretty another or I said about And sales real reducing in I And of manufactured the acquisitions job and inflation. worked growth there prebuy good below my levels we the levels that most by businesses of inventories Yes. our in and here keeping million inventory categories. a balance Chinese levels.

Jeff Lorberbaum

inventories all have different these to businesses growth The the ahead. in put you

businesses even higher up is we what turns to to the it's inventory while inventory the though much all like into going these sales. quarter second going expect be to to them the support don't I take get because there So a

Stephen Kim

Okay.

of maybe be the back that half until of probably down Is is fair? won't I'm year-over-year hearing. the what inventory So kind year

Jeff Lorberbaum

– turns inventory. be turns in right the the Yes, would the

Stephen Kim

Okay.

All the will up, So very in Thanks back much – be it turns got right. half. guys. the

Operator

Matt the Your from with line of question is Bouley next Barclays.

Matt Bouley

my you. elaborate year growth questions. or you guess, comment made Are the margin through a Just you improving comment? there thank should improving that we on anticipating, the could results quarter? Thank declines model for Is how the around revenue a exactly lessen? you margin first I after you XXXX? results the to taking Hi, Jeff, during

Jeff Lorberbaum

this we we outlook said we're the and To as start go expansion improvements is with of out through the do to through which going cautious the the the year. projecting year, we because housing margins with business as of economies having the expect what's the but happen the we in difficulty which and sales go

Matt Bouley

first see secondly, Understood. beyond these you're Okay. should And I'm assuming we think Thank And obviously an what or quarter as first then the how you. anticipate that? guess I sourcing necessarily quarter, would tariffs? you're around impact immediate from the effect guidance impact. you does what look the like any China, from about wouldn't But planning margin

Jeff Lorberbaum

don't what We don't in additional in. will not and go go I idea any have tariffs know.

anything but into impacts they We it haven't plan how how built to our have we we'll the adjust if and operate, in, go marketplaces.

Matt Bouley

detail. Okay. Thanks the for

Operator

America. Your line Bank of of next question with John is from the Lovallo

John Lovallo

Hey, guys. my for Thank you taking question.

in that But the margin? of realizing we about better just the getting should to mean, should part. about quarter sequentially? is could kind be margin we be Or conservatism things The comments your first basis terms X.X% question improvement on I question be year-over-year implied just in thinking Matt's range be improving, operating X% following a about or up like first the that just of on on maybe. could It operating looks thinking

Frank Boykin

talking fourth were quarter. quarter, sequentially the margin year-over-year about – improving third We percentage

John Lovallo

was if got Okay, All service the headcount And think right, I centers guys the that should headcount it. that's of helpful. – we about really consolidation and you say impact just that makes about, and kind any negative Or of lot operations? a your I perspective. this of though mean, cost clearly capacity? Is there of consolidation risk that then of guys sense reduction talked you redundant a to some from it

Jeff Lorberbaum

of and markets have center the customers some in areas the footprints corner to those in less of stores did we've service of the major metropolitan in we multiple foot – the we What area. store getting is product developed with every ways

Chris Wellborn

market. that we risk by market And really we reductions, to And be analyze Yes. should we where we took the a see because don't each fine.

John Lovallo

guys. Thanks, Okay.

Operator

Your question with next Capital Mike is from line Markets. Dahl of RBC the

Mike Dahl

Good questions. my taking morning. Thanks for

tariffs focus not couple And discussion into first out XX% months. to in back to just go go uncertainty March The the the wanted played around I the at what's or of inventory. whether over specifically last notwithstanding at question effect about

Chinese maybe prebuy. competitors you the part both and what competitor mentioned of the customers tariffs. just seeing LVT? inventory in on the out you're around also guys your inventory presumably channel You for New the levels you your is Part that levels in from Lunar is that of terms Can discuss they're of Year in and also getting really

Jeff Lorberbaum

pricing. In buying all the it cases ahead And we're footprint I no cases of raising and cases. because competitors In for increases. it selling of are under expand I have ahead some ahead business our in speak through. each cases because buying we we're But buying can't brands the inventories it my the some to we're we're for reasons idea. some and went just in the you because

all of I the of it's the world imagine the So would thing. rest doing same above. is the

Mike Dahl

potential see channel the you in do so much you the head in And as issues channel of terms retail any inventory too into spring?

Chris Wellborn

shutdown. build the down preparation because as I on you ceramic you're Chinese your for not quarter go in shutdown. we when then inventory from mean the see buying Chinese to more tend that obviously side – But I can the they what through goes up

Jeff Lorberbaum

new building dramatically we up go products, the the which and out old the The see imports of ceramics as in in inventories. putting year people can are first changing ones always up

out and second through in happens the of the decline is coming what so as half adjustments year it. make you imports they And the go

adjust a you the of the go half import you could So year. see And in view you the typically second it in data. optimistic and more in with

Mike Dahl

Got it.

around a he's there? Okay. then if far out? appointment already nature radical if as America was us there's question, North hoping Jeff, I you changed he's could what that just little more considering color my And in specifically as anything and And second Paul's more in give strategy

Jeff Lorberbaum

I done, number announced guess in has that And to and ran since. structure we've in management went got expect a segment's United greater on Rest same Eliane with background United he in that, changes business he's Flooring focused to the sales a majority business announced those product of surface World Since the segment in things go At Paul. on we and our to he's to he of through. years. a he a and had be category. here, States enhance where running our the for the back have execution then synergies going been total States already needed hard we we're have executed. when he each approach whole category. each across these little we acquired joined of Paul business and He been efficiencies the XXXX. At industry as life. came he's been his – point, the time more And And

Mike Dahl

Okay, great. Thank you.

Operator

of Kathryn line Group. question is next Thompson with from Thompson Your Research the

Kathryn Thompson

Hi. Thank questions taking my you today.

in first really production, the for more is secondarily LVT U.S., specifically The more in Europe.

product about would think LVT product either you to Thank LVT just out domestically? that the coming back a And stone new or you. import? attempt trees you this stepping prefer the you As broadly product, would type do import? growing of it still manufacturing of a for of more that to of type types the type tackling is products really how ceramic Is looking intend you forest to speaking different and or tackle fast the at manufacture

Jeff Lorberbaum

we is then products. being yet. product that's types that which a the product two entered core made types here, different changing with is are stone of we there's are that stone changing type the it stone on looks, the other. doing just And has have And various China. in not visuals One that ceramic have just a been There one new the

Kathryn Thompson

or your into Okay. this – is year is get something... Do this to you product intention it that

Jeff Lorberbaum

have Our something business And better won't need it. a to they're do strategy. source off both believes we to if strategy they hesitate to is a the manufactured or strategy and sourced

Kathryn Thompson

is Flooring second North on great. America. just My question Okay,

others ones addressable So takes in that prepared you that more some You had kind Thank we've on up help puts and longer but like trickier commentary easily as things understand the what year-over-year, margins. But a take little a detail on things more great will with the And inflation manufacturing. consecutive declines can and fixable? you. pretty bit are gave two are to can really steep some catch rectify? what really us quarters of

Jeff Lorberbaum

– are mean, I I'd different issues. forward, there's some going say, there

pieces going we're to issues how not overall the which to. and react exactly control, have So evolve, going with sure can't have economies they're which the you to how we're to we

to like category have our marketplace. absorbed there's prices raising and margins get freight in product the pricing try time of last stronger each at different quarter year. to in dynamics The of them We each back. of which where has are coming to announced the the as recover issues In China. And as in You the the categories freight both the costs well tariffs different ceramic here the dollar have the the each. costs the an of end reduced same out stuff at the of increase markets, up going been we've some fourth

that of because there, of in the large we new part profitability it said we customers these new if takes a be time get costs start under-utilizing get the beyond. we up why and into to enough when to businesses, the on XXXX new fixed we Because have get have is ramp investments to You them even them the of we and that top go these that them are up all profitability will we buy have expect. to which

be So it these hit need year. one, the to through can each in rates they until of you you we utilization will what the that But have. improve won't potential of

Kathryn Thompson

much. very you Thank right. All

Operator

Your with Maklari next the line from question Susan Suisse. of Credit is

Susan Maklari

trending thinking bit color price as year? question Thank Can it of despite terms of the some you. talk macro is, in My that did how around this like is? morning. really saw. a we significant weakness how about should you the Good it mix more we to quarter it we move through just first you seems And be make some that in just little sustainable progress

Jeff Lorberbaum

our expect things. the with materials, the I should flow guess it about we a quarter would is inventories margins few carpet seeing be the that we second that. as start One business raw should which help in through, will that

more $XX. that about However, do, predictions a barrel $XX range the from oil prices, to the I who than I by know say people can

mix. products is thing going And And how going so a not I the the go the we react to have the think help is to negative driving no things economies volumes as we're premium any if anticipating show thing the same And through way The improve hear the the up. we about try don't to of about sure lot year. it question through. introducing predicting talked products. The question be about each and progress we what in in they're have going introductory to things go through as be category be we'll higher-value you of to to and us is they be we we're we'll going we'll as we have

Susan Maklari

as the your my strategy, products And Okay. how those manufacturing with about the then should a you margin the is well just question think on source second talk bit to business? as and do as implications we be thinking little we about differentials of can that

Jeff Lorberbaum

in differential our similar. the the the term manufacturer higher. margin will margins in The be In expect be short term we longer would to probably

Susan Maklari

Okay.

to should XXXX through we come then? So be expecting that in more

Jeff Lorberbaum

Yes.

Susan Maklari

Okay. All Thank you. right.

Operator

And from line John of question Stifel. is the the next Baugh with

John Baugh

two have morning. quickly. you. Thank I things Good

in the between a around Europe production growth some rigid and rates distinction that both of And us LVT is any U.S. LVT? Was color the of two? that gave all only? there You is Or comment the

Jeff Lorberbaum

I asked and I think growth question a a question you production think.

amounts production, piece. were rigid in the The volume it we're not make States – because as as second the In the fast United we're it. of part? start the there's lines which enough here. to focused rigid production flexible primarily, new marketplace well Let's Europe as the isn't fast either What was moved on with is moving producing primarily use will hasn't because on actually actually as focused significant

John Baugh

your the XX% U.S. So, from focus in was – quarter, production about Jeff, your rigid? sequential comment third

Jeff Lorberbaum

rigid. on That's the

John Baugh

was rigid. That

floors out they're it year? changing timing last that impacted on on discuss how you then you bit you, this little the secondly, say, And you. impacting Thank what And focus Could you with Okay. a offering. year how home centers their anticipate year? any are this

Jeff Lorberbaum

be timings a you're particular subject category? home on the about Actually talking a John, the centers.

John Baugh

to Well, that's deemphasizing and seeing you're to emphasis how your we what they're I'm and carpet impacting know hard business. just curious as surface

Jeff Lorberbaum

same like increasing. products the like else. flooring Listen, they're see everybody the in participate time, categories LVT trying trend in to all the they At

still more of them giving some the in say while for to probably other reducing similar categories. try optimize and product I entire would So the the they're marketplace. And space other ones that's space the they

Chris Wellborn

I the the work and of know expertise we're our ceramic centers. domestic with side doing also home they're on quite on relying bit a

John Baugh

Thank Great. luck. you. Good

Operator

Jefferies. line is question of next Your from the Ng Phil with

Philip Ng

we Flooring for in a what slow market down you're guys in bit market step about World spot And growth conditions bright 'XX? and that? think margin wood, drove year Europe. seeing should of that to Rest was you How Australia last in but guys. a Hi, back

Chris Wellborn

commercial we the The into best Well, on on inefficient tile that we've United that integrated responding. our the organization. Godfrey expanding practices Godfrey closing offering bringing expected assets. We're carpet to hard We're in the products surface We're market. Australian innovative with the and – we're we're weakened housing expanding Hirst, particularly market Hirst our has our and market. market in sharing also States and as

Jeff Lorberbaum

as increasing LVT other we offset growth the prices The highest our increasing moderating And expanding economies with still inflation in Europe there. LVT the have We're and sales to in laminate. our the are are. production. sales laminate over sales We're in

Europe is the us be A this lot there depend expand allow over it it in capacity a the in sheet capacity we little laminate slower because the marketplace forward countries year. supply we through. we're through. need to we as those vinyl as get to both have increased expecting And and go We economies how more to won't high-end Russian in evolve going to them we've on of going to

Philip Ng

that this point. expecting Got it. growth Slower you're Is but fair? at still growth

Chris Wellborn

go products, pieces markets to be which I through. on all depends going It mean, they're as you and different.

Philip Ng

up be mentioned probably been And Or obviously you about flat just given the moving Is I mats organic raw last risk takes. target XXXX. there ramping There's that called capacity point? a the that and bad think to call Jeff, EBITDA still goal? downside all then realistic at it. growth you've to this that some in Got not some way could new puts was out pieces was think a

Jeff Lorberbaum

there's some we say I would housing risk is to in that downside the given what's the general see the happening. economy economies. and where depends markets It what going,

Philip Ng

color. right. a the Thanks All Okay. lot. Appreciate

Operator

question JPMorgan. from with the next of is Your Rehaut Michael line

Maggie Wellborn

little in the sales actually talk And if during the wondering you is it just Mike. the Maggie mix from could quarter. specifically of bit how And I first shifts product on Wellborn fourth – you expect This about your by see Hi. out a play quarter? and within XXXX? segments any was do channel did for quarter you like to third

Jeff Lorberbaum

housing the slowing the U.S. I existing the we biggest and home from down marketplace. saw in was and sales guess sales shift new

As We things into sales. Italy. would They down, competition. Other saw we compression more thing. the same see price things you in then to the recession, we felt And slow saw it. a the went so slowed be of of it impact as down, tend

retail. hand, we On States to in retailers as of raised offset some of prices, in the the down the other try categories we higher some trading prices our United the saw to in market, consumers

the itself. all also markets unique mix in I that change, a created So but mean are

Maggie Wellborn

And Okay. then question. another just Thank you.

first those about XXXX? talked realize and ability confidence what into pricing You wondering your to in of is quarter your I increase prices. level the in better was in just

Frank Boykin

product was The they seem along increases ceramic be with helped by the large which sales, the in amounts holding in by an increased as country. by led prices it's tariffs and our marketplace through and carpet in the there. we to the speak. coming Again announced industry We've increase

where those to we're in expecting we're In through Mexico and as markets. we different we've go get to able hold. those be go the through to you So raised through prices expecting ceramic

where year industry other because put very extreme, have in where down are the new last going And and the whole Italy the was volumes new aggressive the lower capacity on you price points last in it pushing we've year We put in marketplace. the marketplace Mexico capacity the there the projecting in know. and are this The of And being over we the has for continuing the growth expanding year we're for Russian the margins been Russia, and the market it. to be see prices markets margins compressed and area it – don't us. Russian And and or next lower increasing year. I also. in In I mean a so we're through

Maggie Wellborn

Okay. Thank you.

Operator

is from next of Stephen question the with Wells Your East line Fargo.

Stephen East

morning. good and you, Thank

curtailing quarter. the about and first quarter talked production in you've fourth First, the

it your curtailing you what quarter? you you're first As if so, last all long now? do the look at think expect at right And beyond production seeing be you least now, you'll do business how

Jeff Lorberbaum

We believe production going many rate sales the we'll the categories. match to rates in the year. We've been be product of increasing the under sales through producing

rate production the So help and should go up us.

Stephen East

Got you.

And two Okay. guess I then things.

guidance the that capacity long first just can mind LVT, also are what And think quickly your at that you utilization gave? if wouldn't that you this Is stretch think just then out quarter on get for 'XX you you how you into a issues do the rank normal XXXX? your ordering biggest in you rates event all guidance the On are great product? to? for a Or type does

Frank Boykin

operating should older we think we challenges new year that and by having our similar of be the worked of technical as through the end it. LVT productivities lines speeds the lines the at The

expect. So I lines operating we'll part the we question. levels we the going levels into productivity we think of – the have the second at at forgot And the XXXX,

Jeff Lorberbaum

the first risk about in think asking? quarter guidance? Is I what you you the that Stephen, asking were were

Stephen East

that biggest quarter mind, was? would more order you your rank drivers rank the year-over-year No, ordering just than if down that's you guidance fourth in wouldn't trying just a decline to Frank, just bit the issues what understand of if

Frank Boykin

be In levels in quarter, some most were housing pressure the be would flow for the regions. would slowing as through. softer be under the lower it the it the of the would some rates It fourth markets. due first in the slowing little production longer a softer takes It be to it the higher-price economy and sales quarter through to inventories in materials environment would

Stephen East

All Okay. Got Thank you. you. right.

Operator

Justin Speer is question next Associates. with Your of from the line & Zelman

Justin Speer

Thank you.

plant. for capacity on question me just utilization new in First the these

is definition? fully production what Where XX% optimized And today? the mentioned is your in You it speed.

Jeff Lorberbaum

other. each anticipate much getting from solved There technical that on plants being interruptions a are by the one things them training The year. running They're end going we than There are the speeds to after of running at more one. with days the are week. five lower hardware, software, is

to with go we'll good the on on other expect downtime think how like end as in then All into reduce be the the dramatically we the And and would we year. production decrease have year things rates the working So you happen and of material increase, the position. start offering get improve to those. would that start working more technical raw when inputs of a you – things how product XXXX would the we innovations. to you through We the go

Justin Speer

If you you. coming it and you lot kind of like back like have were look to at pull a

at got raw coming materials You've you.

You've got macro issues.

issues. You've got LVT outgrowth

much those from much unpack improvement get raw in material, Help – out? the could the if revenue was If optimized unpack say that help and you think margin XXXX. being you those how terms potentially of where could are I'd drag kind that you of guy get of expressed when how potentially in that, you you us at enjoy And XXXX. as inefficiencies margin could bad you us and profit because I XXXX when in look help

being pieces, The suboptimized? much other from is just moving how

Jeff Lorberbaum

There's multiple parts.

start-up the is part costs. one So

be about So costs XXXX And $XX million in million that the were start-up XXXX. million we've will costs. $XX in start-up costs in $XX to said the start-up

and the as more them volume the what marketplace lower-value And profits is, dramatically upon up products when these a be the volume dramatically. the the the you XX%, big up improvement Now things get through higher-value can second you products you besides start to get and up, once mix you part you filling go then the start it And selling And and XX%, that, dropping you depending have productivity up. have. start as costs the and to go is stabilize.

So, shift plant go it it's and the that's mean countertops as very one basic I now to mean train at through. it's places. totally one next shift This operating get making be than Tennessee in year we're people I new it's different we as – with different forward, And all operating going as products. we

we're as sheet go to sheet And it. new on vinyl shifts, operating who Russia, it's extreme So customers us on having find vinyl in and from two that's never side. we're bought the one doing plant that. In

So, you these question is one day go going everybody you're into new things, the the is new fast geographies instance. products And But one is which each news move we on you big getting more buy the markets say to get is a balancing upside. of new first of – next and for and they'll when cuts the versus But technical can a haven't up make up wake started at it when in that about before. different. been doesn't and the everything problems ramp-up and good how unique you it's can and it

potential. get So of out why they'll for the they of margins all really be there's have pieces it to up ramp a you as at full the long-term to all is things in they lot laid our have When get up. That's of which running that ramped running and our businesses. average of think

happen it is two is, in or one? I can't tell question to months going six years the each you. Now in

Justin Speer

mentioned good is still least produced internally LVT a as that margins In view maybe You six change do to Chinese as fully of would starting, economics ago? sourced? any kind economics in be of or are and stopping relative the of landed the there But months superior the tariff think imports? better in you versus at no or XX scenario, business

Jeff Lorberbaum

our plan. That's

Justin Speer

another across And think the the business about contributions initiatives mix how you the incremental in XXXX? productivity those up productivity initiatives, should lastly and your we from mentioned,

Jeff Lorberbaum

projects assets sell You have competition go the are the If the good, are. mix more are to the economies as better. takes commodity will the will about going bad, the mix what marketplace. be ones. markets And will we have to be If And to it separate to down. new out existing from and the the existing determined the in the one we'll adjust markets and more run is and they stuff

in product depends time whole it and the on country. markets each So over how each evolve

Justin Speer

that is World I in America? terms North of Flooring as one revenues, Rest and of in? Flooring LVT where the of a sneak more Can percentage

Frank Boykin

all And in LVT sales we strategy we'll up have excess running, then we sourcing Jeff the optimized, plants addition $X and in fully and to have earlier. of manufactured will billion. like Well once continue mentioned our that

Justin Speer

guys. you Thank

Operator

is Keith with question the SunTrust. line from next of Your Hughes

Keith Hughes

you was Frank, in – prepared million. you that Is say you. correct? the productivity in did did Flooring Thank comments, $XX negative North America,

Frank Boykin

I did.

Keith Hughes

Can that? it's is and been In number. said quarter caused what pretty notable describe you just this where what negative on going

Frank Boykin

continue the through we've Yes, new costs got the by will with new to high it are higher ramping then again on. productivity impacted quarter the – first going was we this levels, costs. lag projects up going to products capital that of to expecting manufacturing employee and Keith, It's lower quarter But move inefficiencies improvements lag in as and in continue, there. to year we see –

Keith Hughes

in but in Flooring some the as of into lower other Okay. the Is item that volume America? lower North correct this production segments a lumped number And production out you definitionally, the here. it's called separate

Frank Boykin

margin overhead the unabsorbed volume with But in or going you've margins Lower associated to volumes higher standard included volume show extent the associated the in lower for with productivity. No. number. got to that's up example, margins are the –

Keith Hughes

Okay.

Is numbers, that – different. shut the you about correct? shutdown So talked something that's some

Frank Boykin

Correct.

Keith Hughes

that Okay. plant closures just what that or is out? it Is find number to

Jeff Lorberbaum

in example you ceramic plant there's may down. like but no for lines have closures Well

Keith Hughes

Okay. Thank very you All much. right.

Operator

question Longbow David Research. with Your the of next MacGregor line from is

David MacGregor

seeing markets? commercial you in good talk patterns Yes, just maybe non-res you everyone. about morning, Can order

Chris Wellborn

Well seen side at least the business ceramic on improve. the where we've commercial – slowly

Jeff Lorberbaum

so like little a it the far for quarter first bit different that seeing Is seems in in it's markets. strengthening the all us we're

it have we'll see to works. how So

David MacGregor

it... Is North or is to America respect that with really

Jeff Lorberbaum

North a comment. That's American

David MacGregor

non-res Right. And the European there about commercial? is anything to say

Chris Wellborn

in at little it bit commercial slowed seen Italy had. we've least in than it think a ceramic I

David MacGregor

then were from Surface for trade the show? And what Okay. takeaways the you important Event International most

Frank Boykin

One Which trade show? time? more

David MacGregor

show. trade Event Surface International the Vegas,

Jeff Lorberbaum

hear customers depending what market. is optimistic they we we are what from see from really let's cautiously From housing the that say on

David MacGregor

right. much. Thanks very All

Operator

Nalley SunTrust. question with of comes the line final Your from Lee

Lee Nalley

for in. thanks [ph] squeezing Yes, me

expect is? we the big possible $XXX quickly guys that cash million really share where remaining, your the price regarding as just Just considering for be to your but considering not you it's should flows as roughly repurchases, deployed stock

Jeff Lorberbaum

continue we'll and what's the upon We'll differently. on, going And act it depending purchasing market over time.

Lee Nalley

target And you follow-up, take high thinking your for leverage, Okay. I balancing so your leverage? max a would and repurchases leverage? how one how you – about be to do willing the Or then guess, just have your

Jeff Lorberbaum

$XXX approval the to this to have Related Board the we from purchase, stock approval buy is million point. at the

get to the to piece. leverage with So our to mean history our agencies I continue but book Board in go want back we a in to comfortable we to so the – our can we've ratings different The money. different, total we leverage rating going have three maintain past, of the it do times, been would and to not-too-distant over borrow

under to some able right and more. circumstances would leverage pull company the So up the down, we the being leverage

Lee Nalley

guys. Okay. Thanks,

Operator

Square. have And your additional line we Christophe, from question open. the Christophe of line do an Value der is Van with

Christophe Van der

big [indiscernible] carpet, carpet Hi, U.S? morning. question you could hear Hi, great. My would in like taking good out for Thank very you are is and Okay, Because regarding also then the that there going question. U.S? hear market would my declining be much where carpet to could How can much me? in out? I you whether and you you break somewhat that And how of market. long a break carpet is the do rugs the see term? in

So, wondering itself you market evolving and how that on you. I was in how the positioning see longer Thank market term? that the in term long

Jeff Lorberbaum

approximately our The of business. total is category carpet one-third

Frank Boykin

business. Global

Jeff Lorberbaum

been over it's And time. business. Global declining

would it total. Are continue while, would now a of expect of other expand questions? back other time. other to We would decrease there go faster one-third we any our you categories a the proportion categories. the If It's over business. into that It grow as XXX% was

Christophe Van der

Or do will really Okay. And further investments expect just go decline? or any you expect it you along? do to

Jeff Lorberbaum

think with other in new will efficiencies. competitive, the line to what investments categories. But to products bring investments the marketplace The we be lower than be expect it increase need and would our be to I in the

Christophe Van der

that was Thank LVT. you. ceramics from quite would market little thought that that the you because I resilient And suffering that on of in bit one a closures bit ceramics LVT. Could are on I be heard I there through the is surprised the rumors the heard the ceramics I Dal-Tile stores. rumors elaborate entrance

Jeff Lorberbaum

industry. at in it's flooring of that's increased high, every has LVT a product sales that the rate so category impacted the

markets reduced lowered. stores said of And entire was we've all we where with and number – all we to enabled is they've flooring had we category. cost LVT business redistributing they're fewer SG&A a So number stores what our in our increase lower us been entities. the of And by stores costs. reduce could taking to XXX% of same On maintain it's the business the the of the

Chris Wellborn

countries Brazil, like Mexico, is LVT as the a it ceramic a I U.S. would And to add been far haven't that. on expensive, less that Russia where so primarily we seen phenomenon. relates labor it's lot

Operator

Lorberbaum further any the call will back I Mr. And remarks. turn there over are for questions. closing no to

Jeff Lorberbaum

for we're position good you We a good for think us. future. in Thank And have the joining day. a

Operator

earnings This concludes conference today's call.

may disconnect. now You

Mohawk Industries (MHK) 8 Feb 192018 Q4 Earnings call transcript