MHK - Earnings call transcript Q4 2019 | Mohawk Industries, Inc.

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Operator

Good morning. My name is Lisa and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries Fourth Quarter 2019 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, February gentlemen, XX, a being conference As today, recorded XXXX. Instructions] ladies this and is [Operator Thank you.

I would now Huelskamp. like to introduce Mr. Ken

may conference. begin You your

Ken Huelskamp

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

to reconciliation the amounts, our any of Investors non-GAAP release Form GAAP the a For our section please refer in website. X-K and of to press

Executive speakers Officer. Glenn Jeff Chairman key Officer; Officer; Lorberbaum, The Operating Chris Landau, and are Chief Chief Wellborn, Financial today and Chief

over I Jeff will Jeff? for turn the to now call his opening remarks.

Jeff Lorberbaum

Thank Ken. you,

expected or flat to sales income million as last with $X.XX. $XXX sales X.X% of Our we fourth and were adjusted quarter operating of EPS results year, of

$XX and was $XXX or sales million sales EPS For was the X.X% year, billion, adjusted were income operating our $XX.XX. of

million. the million operating flow with strong $XXX cash generation $XXX about of for Our cash and quarter free remained and

and flow and billion $X.X the cash free $XXX operating were For about year, million.

approximately pursue authorized. lows, $XXX million us historical since $XX million of we approaching additional of back bought which to provides is In for stock total the leverage a period, opportunities. flexibility the Our

impact confidence categories. In demand, the production rates products. competition anticipated We remained and clickable pricing challenged as sales. soft remained interest business volume. we quarter the US the other continued strong influenced LVT China ascended to business our for has in be US and by US on and greater by -- of positively the Consumer our markets reduced new anticipated, lower existing declined product market influencing high home tariffs were on fourth LVT and and from are dollar these

we China tile fourth of Imports and soft dropped countries quarter substantially due demand to US other from inventories. reduction from the a which ceramic and ceramic believe in off have not shipments is offset, in

investments in we pricing has and operate impacting our their where marketing we stimulating greater countries and as global our growth spending leverage consumer Competition this and encourage increased to year. mix economic interest lower growth. rates are to with markets higher in drive economies sales Many

and anticipate we Europe categories. and costs. period in term our Throughout continued and the still realigned We've US In operations. our increase sales implemented US the we near product LVT reduce markets carpet in our pressure the manufacturing changes and enhanced to

United States production have and in plant a the and out flooring and We taking inventories wood ceramic in Europe. decreased are our

reducing of automation costs processes operations, are improve We to reduce improving the our to complexity and efficiencies. increasing

We new Russian European the our countertop, sheet to of productivity vinyl tile US volume continue LVT, carpet improve and investments. and

are Brazil equipment and expand Australian their will in acquisitions product Our portfolios. installing state-of-the-art that

broaden sales and existing of levels innovations we're making new promote and performance new We products are to marketing our investments. both our To customer design and base. enhance introducing market and position higher

over turn performance to the For during the Glenn. call a of I'll review period, our financial

Glenn Landau

everyone. and Jeff good you, Thank morning,

and Company define to net billion, sales on basis, days. constant off Moving in we reported for approximately down right quarter, performance as our into shared compared year $X.X X% year-over-year FX X% and which the fourth bridges, and financial a as prior Jeff were as total adjusted

businesses constant XXXX, on For basis on X% a to growth X% X% were prior year the and a the Company down the basis. quarter a constant XXXX, sales on legacy for compared full the versus full compared Organic down total XXXX, constant year in reported to year up and was flat net basis. in as fourth also

terms the Company's margins offset $XXX by XXX productivity on by including last to a quarter Company's improved income from that sequential In consecutive of points, fourth year-over-year With quarters improved the mix, the adjusted million start-up weaker of basis was largely which quarter, in only lower points the price off XXX fourth due and partially operating costs. improvement. represents four or said, basis decline X.X% volume now earnings, of in basis year,

Bridging prior-year Ceramics $XX of million, number associated segments by Flooring Global adjusted our volume one downtime lower North earnings operating quarter million, overall Global to costs fourth America from and $X and the in demand. were all in with market-related our Ceramic our of taken supply largely impacted match

offset input of partially benefits, segment lower materials. in million Rest million $XX higher and marketing three to talent our of inflation to largely erosion $X sales. following price-mix Number wages the sales a increase Number two, due in of higher costs, other spending investments in by of $XX Flooring due in and easing an World million, raw modest SG&A to and drive and

and costs, versus better utilization offset, positive Moving last start-up by items. productivity swung million including one-time lower year, non-repeating positive due to to $XX the

income was basis year XXX operating full from $XXX year. points the million For of or X.X% off prior adjusted sales,

new SG&A roll up to in level, items, was the and enterprise one-time and expenses quarter. excluding lower Inflation, year-over-year at also new products higher grow quarter, the markets. acquisition, net volume due Staying unusual sales charges and marketing basis the XX.X% points impacted to sales, in XXX to per out adjusted merchandising

as sales, XXXX full we in up tariffs up significantly and XXX ramped from reduced already be the China, clickable XX.X% to prior on the basis production. LVT SG&A of relative reduced tariffs had was to year year-over-year. just since of rollback adjusted And points raised For we to and inventory US clear, have product our purchases inventory

other from period. purchased this have in also countries We

amounted in rebate by and gross which million, quarters is total hand. value offset the guidance, $XX.X to over our on spread three So inventory largely

and also fourth Flooring associated million tax in in integration quarter US improve the of was operating consisted costs Rest restructuring charge increase and the of items to in the World tax and Special rate Flooring the which single business of benefit and as with somewhat carpet Company's the of completing activities a as wood well in $XXX manufacturing most and entity Company's among America North $XX footprints realignment one-time a evenly non-cash for management efficiencies, reducing million consolidation XXXX. rightsizing and relatively divided Europe within a unusual

for as America and total year, Flooring and the million, North have Rest World million of approximately charges $XXX taken actions full which in was integration year associated first restructuring inventory in said, And restructuring we of cash this approximately the cash. $XX half Flooring will of For $XX in million as the full quarter. cost with run the cost of were pass-through operational rate the be third recovered carpet as lower reaching savings

million Adjusted before XX% $XX EBITDA $XXX interest million. of expense or was

for rate full the was XX.X%. the EBITDA in or 'XX. For a and tax adjusted quarter of year, fourth XX.X% was full on year the XX.X% billion The basis non-GAAP $X.X effective

And quarter, earnings adjusted last adjusted earnings year, was down XXXX. versus share XX% net for was from $XX.XX, $XX.XX net $X.XX the or the Finally year. per from in full per down share versus $X.XX

only Global quarter the a let going to to $XXX as me basis. segments The of here. the reported, segment sales versus delivered constant I'm speak and Now million, of to prior fourth or on a Ceramic flat decrease year turn net X.X%

sales decreased legacy businesses, at only -- basis. constant approximately our at Looking on a X%

net of inflation. coupled an or demand income XX.X% higher down Operating due a adjusted year, competition US, the on primarily basis $XX X.X% last increased sales, and weaker was margin to with from million, in

of at were price by to $X $XX million. and higher off neutral. inclusive up inflation level slipped mix was in million and of of segment quarter million the and million, the last wages and FX $X driven year benefits, and productivity improved other costs start-up offset downtime, $X all sales, $X partially costs was $XX by lower was million this volume compared marketing So materials million was higher,

Let's X% X.X% Operating business soft a basis overall continued million, net of by growth $XXX offset as on North with of were X% surfaces in was year in weakness adjusted an versus or continued America. performance last fourth income showed the The on in LVT. move million, down partially constant as down sales and $XX to Flooring better sales reported basis quarter.

year from wages start-up and majority mix million offset for benefits, Bridging $XX by versus less $X cost deficit. lagged year, approximately productivity and volume million. Price keeping by down last last Raw costs $X accounted inflation was in bettered prior of flat reduced increases was and decreases year million. the the material

$XXX million, reported on X.X% basis. of had Rest Flooring a quarter last solid with of constant segment year World, and Moving the to sales versus the X.X% a as up

just sales the X.X% were business, basis. up at Looking legacy a on constant

at or a competitive million, in XX.X% year came the sales points income environment, $XX in operating of XXX an as increased of volume. last mainly quarter, result increase very versus basis of a Adjusted in

lower bridge, relief $XX offset input of $XX by by by was mix was volume $XX the million, to costs. driven but better price Going by million, million, lift in largely inflation overall

$X the for lower quarter. million. marketing including were million FX neutral in $X in and sales, was other the costs was And again start-up Productivity investments product quarter. higher

operating with cost loss of million. Finally, level, million at drove corporate full-year $XX eliminations the an expenses and of a $X

the six versus ended at $X.X relatively in at XXX due days Speaking with ended to our geographic now adjust mix. by to quarter our sheet, days, days, flat dollars the the but as $X.X receivables in sales Inventories continued billion up to quarter approximately match in outstanding channel and billion, we to sales. or balance year days higher prior changes production approximately

of million. $X.X and the Fixed was amortization, in capital which than billion depreciation ended $XXX and quarter for the $XXX expenditures assets million period, lower at

of for of million D&A project at million our QX CapEx So spend each as in full segments. efficiently year, our lower $XXX managed the our was than $XXX we

million and end to to overall Total of adjusted year free EBITDA. versus was the million sheet of the balance strong billion totaling $XXX X.X XXXX declining in with flow $XXX off debt very Wrapping getting the leverage quarter times is at capping with debt solid the $XXX million stronger generation. quarter in a cash up cash at quarter down third $X.X approximately the

that, to it with you. turn I'll So Chris, over

Chris Wellborn

demand soft excess a of most is margins. Glenn. of Thanks, compressing prices that our segment, In faced capacity Ceramic market industry and markets our combination and Global

taking our industry inventories ceramic of ahead under pressure high During the quarter, and purchases tariffs. ceramic remained from business US LVT from share

our align Additionally, production we in to meaningfully inventory own ceramic cost. American our reduced North which increased plants, levels, our

also should have total imports ceramic this Chinese US falling our the business new home to the improving some trends see benefit rates fourth Compared to year Lower XX% ceramic XX%. started prior and should and existing with XXXX. declined sales in We that market quarter, year. benefit imports interest

To and markets. improve new sales, products and we rolling sales are adding out in major multiple our consultants representatives design

reduce Our our collections gaining aimed increase and up and customers, ordering at streamlined new orders To have are replacing cost we our for processes momentum. at and imports faster made picking centers service easier. productivity

performance enhance to showrooms the and beauty our better communicate to galleries continue ceramic our We products. and of

quarter, the residential has and commercial of click proprietary same in fourth sizes be that new to for expensive less A the our reviews tested able product walked manufacturing has applications designs. is and on tile positive we both During and received been faster initiated day. and installation multiple in

trade click major customers. already commitments at our show are from and launching received tile this quarter have We

categories. wall our growing offerings these for expanding tile are mosaic We to and meet demand

ramp countertop our sales plant. quartz the at continued productivity as we Our Tennessee increase and to new up throughput

more enhance manufactured our are our quartz collections We margins. and sophisticated improve to visuals developing

large our US face headwinds in activity economy of with Dal-Tile due porcelain the sales the of the LVT the Sales growing construction Europe continued overall are around declining to quarter. we uncertainty are and the branded slabs products. to from fourth In Mexico, increasing trade

larger and with We share tile porcelain comprehensive and more sizes, wall products brands, expanding collection. are distribution by gaining our product offerings

of We our markets our are stores products. commercial exclusively enlarging increasing in that our and participation the base sell

a on due line we premium our product sales and period to other are To December, to strong porcelain during initiated that In increase had South a good growth updating economy our Despite brand the in expand in soft expanding showrooms distribution. and new we our sizes tile produces our American countries, larger sales offering. offering. production Brazil, we

and environment, increased lagging channel. European In confidence slow consumer ceramic pricing. volume The larger as our markets Southern in the retail primary demand impacting economies reduced this remained we even remodeling our industry

commercial realistic with create style channels more design outdoor the our We are leadership, expanding activities our in the are well products. as as visuals. we the structures new introducing to aligned premium extend surface with To printed products

new with and Our our enhanced visuals. sizes priced products have results medium

Sales of areas our porcelain well small gaining in a traditional for as during base as greater the dramatically from slabs countertops. grew utilization with XXXX products

warehouses Greece our our customer and our are Romania faster service. in local regional at inventories base expand increasing We to Poland, with

to plants to and competitive continue our cost specialize We position. our by improve optimize product type our

we Russia, in grew In market. sales soft a our ceramic

Our business a offering, organization growth includes the and model franchise retail was owned distribution the and project national that driven industry. network, specification industry's our comprehensive unique premium by strongest most the stores in

are plant in a that ware. strengthen exclusively expand sizes expect To produce new support more locations our the production stores premium additional up super XXXX, further we products than porcelain make starting our position sell to our country. XXX sanitary the and growth, we coordinated to across to To to large

the market market impact with segment, North Flooring challenging sales of executed have with product America to categories. continuing faced business our LVT other many In to the We conditions. a initiatives growth we present align

mix pressure costs Lower by down lower as offset raised period under the and the competitive traded material our customers raw production As and expected, were levels environment. pricing a during remained more cost.

We consolidating benefit will actions these in high the increase operations the through and streamlined infrastructure effects inventory reducing plants, full three wood The our third with manufacturing. and period. of cost cost closing flow by

process To implemented costs, improvements, production. machine reduce recycled numerous we polyester and modifications increased our have executed

with leveraging automation comparable the advances produce volumes and manufacturing are footprint. We to equipment smaller

our new sales and home best channels. In residential period, the in carpet multifamily construction the performed

in they Our marketplace were national XXXX. at the well will introductions new carpet be trade flooring show early received and the

fiber differentiated collections deliver new leveraging technology premium categories. and our design to in value in both and are strengths We

rapidly have In the looks. we proprietary categories, in the marketplace our multi-color with is luxury super stone growing ColorMax, capabilities in Silk collections. its and our and exclusive Mohawk's extended soft blending wood pallet and pattern with that SmartStrand color natural coordinates technology

capacity in to We fiber category. fastest our growing participation the recycled polyester have increased our carpet expand

coordinating design options. colors and are we carpet collections LVT stylings our the commercial In in of enhance the to

enhancing and workplaces based award-winning designs. increase commercial introduced and To expanding have schools skills. are our their collections our channel, We focus by for with organization nature we sales

to We value create manufacturing tile to invest and our for customers carpet and capabilities, cost. continue in proprietary a greater improve new backings material design

further our production have of will and and the We LVT speeds increased and operations ongoing formulations improve throughput. initiatives

are We at operations. similar European now to speeds LVT our operating

reflect the change. market the removed has During US tariffs period on adjusted pricing were to click LVT and this

commercial introducing and and new visuals our expand the both To points unique price markets. highlight our collections for features, we and residential are

expanded postponing have and Pergo and collections when it China received shows to on Our start-ups could LVT been and virus production well premium is shipments The trade styling. depending due potentially Karastan visuals some service at some their in resume. leading disrupt

and installation. are to we waterproof visuals their continued our of and appearance across of realistic The detailed channels laminate and due anticipate most Sales products market ease of growth performance durability and support features as increase our capacity cost. reduce premium higher increasingly LVT. to our To alternatives HDF and laminate board collections laminate used are both being we for are upgrading sales, production wood expanding

period. those economic of segment's less continued segment, this product investments strong are exposed our to which results. European cost and difficulties. is Rest strengthened innovation, segment new the business Flooring results in businesses having deliver to Across The improvements, in more World countries Our acquisitions our

to we an our We more the of laminate of enhanced up absorbed realistic European the focus marketing with this with products Sales are quickly are sophistication. features. premium cost to outperforming collection unique ramping In laminate market due are new that on introduction. level support period, our higher

manufacturing our flexibility will announced our service improve our customers. our We cost Malaysia, and of consolidation to facility in to the wood better which

our material further and initiatives cost are to plant new manufacturing sales waste. significantly implementing we performance, throughput, our improved. LVT Our improve To enhance specific productivity grew as

well DIY To new growing are capacity, rigid the in are we introducing commercial collections being that utilize received our retail, and channels.

specialty We offering store our European our our to are system distribution LVT expanding penetration. to broaden

sheet from Our in plant primarily sales is well our contributing strong The operating positively results. increased to Russian and vinyl Russia. growth

small a to and sales expanding higher business is products tile European carpet value the market. by Our increasing our from introducing base organization

panels our well, perform improve as value mix. introduced Our higher to continues to we business products

wood the operating positively cost our the is to We use our plant and The benefit environment. expansion to our contributing and of is are well recycled glue of increasing results.

a results We our plant cost declining as good business are recycling. second increase to energy material sales This to year installation even lowered installing reduce waste with also volume, costs considerably and had our prices. higher market

In Australia we had New Zealand, good and performance.

We many new are fiber launching multiple carpet residential our in offering. to enhance collections

with growth strong had products surface hard Our outperforming. LVT

support introduced our carpet are tile tile New collections line commercial being to that new being is carpet constructed.

I'll the Jeff. to return you, that, With call

Jeff Lorberbaum

response, across our premium businesses both restructuring In marketing, our remain adjusting participation Thank and are in are geographies. offering challenging increasing you, commercial our and investments our conditions Chris. operations business enhancing most and our we collections. and and value expanding of Market enhancing and our strategies, product sales

will bringing new new categories innovations in the products to We the are geographies. broaden and that market channels distribution and our

sheet and volume. we expand are base Our new plants LVT carpet improving productivity their and sales to customer countertop, invest tile our vinyl as

Our higher LVT with capacity and manufacturing grows speeds efficiency.

features designs rigid and enhancing and flexible of sales are offering. We our and increasing

the for one-time we We $X.XX typically all with excluding into account inventory market EPS first build the limiting our our this production in the that $X.XX quarter charges. we first do any quarter demand. is to traditional XXXX of manage are guidance as Taking

headwinds for rate LVT growth, our global continue and exchange excess business. capacity as

changing We are executing to adapt shifting markets specific and to initiatives consumer pressure. competitive preferences,

new XXXX, the results will second during actions costs and expect performance our sales of plants improved year accelerating of increase to our half reduce distribution, full that utilization enhance the For deliver year. of we the and with year-over-year

to value our Our focused continue cash shareholders. delivering and ongoing generation improve to sheet with should long-term on balance remain we

questions. now take We'll your be to glad

Operator

of comes question [Operator Ng Philip you. Instructions] first from our from today Jefferies. line And the Thank

open. is line Your

Philip Ng

morning. Good

Jeff Lorberbaum

Good morning.

Philip Ng

manufacturing promising comments sounded LBT the on Your front. pretty Europe on in

money breakeven the XXXX? that yet. curious, making America with seeing are early there, on the North on still are I'm you And line success So to just you front you're manufacturing in with track out

Jeff Lorberbaum

we we the operating well. In expect have ones three Europe, lines. as are and are two old doing

is like it we expect level well year as as we but line. it the to US the third through not and would The we at profitable to, the improving it's one as be go

Philip Ng

timing terms line US more in Any on the getting terms in color profitable? of of Okay. the

Chris Wellborn

the to happen year. during going It's

Philip Ng

it's free year. Okay. last cash should for one enough on me you we cash XXXX, your some moving good And the the is more then whether color give still one sheet about then And shape kind just working capital, pieces, on flow. stock? guys of guidance Glenn, quite big were flow how think CapEx? us last to in Any you strong, flow just buying really are back open to given and balance cash

Glenn Landau

our speak part cash we had I'll to cash and me say year great remain flow balance sheet flow Let year into and just the is to and that of improve to a first ability expect the apparent. that we strong next

Philip Ng

A word about buybacks. on

Glenn Landau

On buybacks, Jeff.

Jeff Lorberbaum

it The continue million use buybacks, it We'll buying it we $XXX and left. up. we have against when we'll evaluate

Operator

comes from And Rehaut line Michael the our question JPMorgan. of from next

line Your is open.

Michael Rehaut

everyone. morning Good Thanks.

question, of you're trying the half on an thinking kind outlook to as year But a acceleration also top what your the terms about in in segment from consolidated back would was there the curious half. there. acceleration by the year be either just for back if for and to assumes or the how a sales guidance growth get basis. directional sense perspective for First improved appreciate I that line of I of a in results with

Jeff Lorberbaum

we're the it Yes, I don't it going not now. quarter detailed detail direction, you give but we more we like guidance you information, give do and a but and of to rest appreciate we

Michael Rehaut

back guess guess, as about I you've an take the increased story the is some this to adjust of All We've continue the and right. carpet secondly of XXXX of ongoing of I to be restructuring had the you I the action to appreciate you kind around going or that. operations try, first half conditions. consolidation continue but heard to

of around shut back you the were the through of we is as those some expectations amount plants on there and coming in would presume obviously the some benefit initially down, benefits cost half think those 'XX that onset. of I

how understand through. So just least at those cost trying are flowing through flowing or savings the are costs to

half through. You that XXXX. highlighted even cost are the the might benefits to in same that But I some of fact worked thought time, that in to of at need have is things those come would there have that the be inventory continue back

Jeff Lorberbaum

of restructuring Mike, Like carpet the to finished we in of we're back and and in to said, a third the XXXX we the of the implementation due rate the a inventory will closer about the the start the really Yeah, half through timing quarter. costs meaningful that's but impact the largely is talking full be full of there slow third quarter. ramp-up, run flow impact

Michael Rehaut

Great. very Okay. Thanks much.

Operator

of RBC next Mike comes the Markets. line from question Capital Our Dahl from

Your line is open.

Mike Dahl

taking details for far. so for my Thanks the Hi. questions and all

First rebates. you thanks more outlining in the in is year, the asking first quarters. for guess said I Glenn, three terms quarter? $X.XX guess, question, for How specifically, roughly of much the so just I included LVT the benefits spread over

Glenn Landau

first… The It in first over the quarter three started lion's it's is the but share, quarters.

Jeff Lorberbaum

the offsetting It's inventories.

have you inventories supply We long have high chains. with that

majority the up. already the decreases price going of we've through to match flows so offset and the they implemented And that inventory as it's

Glenn Landau

It's offset value in quarters. it's on inventory hand. And saying Jeff I it's said and like by largely our three the over spread like guidance,

Mike Dahl

should just And saying offsetting helpful. following the that rebates up quarters. just basis two the about question it's think since quarter the the be net guess, the following from how rebates would the on beyond or exclusions, on in go-forward declines kind where second a necessarily, the have the I the of But that's first few Okay, we declines, price you're offset given the effect don't go rebates? price the away, initial you

Glenn Landau

offsetting. think we way they it the is roughly to think I need about are

Jeff Lorberbaum

and -- so what not -- the we been and there year raised pieces the as that. in came large it's the to the is we've through prior -- old the a we period -- the inventory inventories from most tariffs, of sold not large since it is -- of that purchasing inventory is there There offsetting still we inventory have

Mike Dahl

you with that lower -- I Right. going pricing impact lower a go-forward market I saying this the impacting is as sorry legacy that, if are reset pricing well? only where or has market inventory was it's just guess from

Jeff Lorberbaum

market pricing down on LVT any to see reason The and clickable going don't change. it's gone I has

Mike Dahl

Okay.

Jeff Lorberbaum

down buying And we're gone have the too. products

prices with the aligned. So new selling and the line -- prices are are new in costs

Glenn Landau

it's extent much buying offset. it, we're the to pretty So

Mike Dahl

it, Got Thank okay. right. you. Right,

Operator

comes question line next from Our the Stifel. Baugh John of from

Your line open. is

John Baugh

Thank rough you and good do or basis of have morning. revenue Two what you market a One, market quick on is? LVT the guess questions. US your sales share

Jeff Lorberbaum

Yes. we But we don't give -- haven't out categories. specific details on product

John Baugh

you of out have guess, idea, Jeff kind reaching to as Would Okay. future the into a you when or parity timeline? see rough any

Jeff Lorberbaum

the understand don't I question.

John Baugh

your presume flooring LVT I Well, of share market share, is US of, your than of sort in sales general. the lower

see when all is, So whether or shares made in the LVT, imported put together? it's match in of question carpet, of up the my sort US, laminate would ceramic, you Mohawk

Jeff Lorberbaum

continuing have It's I a increase, the but don't to date two up. when match

John Baugh

Okay.

normal around Secondly, just QX. how you us year, sort the the much XX% the into as you. percentage in Could on US really a a mentioned around US of consumption. Thank imports of you world from remind ceramic typical of quickly, import

Jeff Lorberbaum

part XX%, ceramic huge the maybe a it's market, is part. Imports huge a of XX%,

John Baugh

Great. Good you much. Thank luck. very

Glenn Landau

John. Thanks,

Operator

& next comes of Associates. Speer from Justin from Our line the question Zelman

is line open. Your

Justin Speer

Appreciate it.

what's recent. But tariff understand from removal the that near the and high Just the wanted the categories LVT in of aspect price quarter fairly the for just and start sense think of was and demand view because level? term, click expected what's to for quarter, fourth you, that in affect the a we first LVT -- I does kind your to deflationary demand for of get the in but non-LVT how

Jeff Lorberbaum

are There today. no of details that available

of rate is our we think bigger the growth you through. is industry. products growing. the approximately as slowing of We base the other -- expectation LVT it has growth part rate through. billion gets $X.X It's a go that guess as as within the about Our that It's the impacting go

details have for. that you're looking not I'm So sure we the

Justin Speer

Okay.

maybe conservatism eye your you So is But obviously there I around I slowing. keep And other element as that. SG&A is the unpack that variable would guess a some guidance, production just then rates our in on within investment.

up X.X% was fourth the quarter, X% year. full up about for SG&A the So in

what in get XXXX business. are to also have from restructuring tailwinds sense be that your for the will recognizing a trying you efforts. you investment just in I'm some investing SG&A But cost

to will trying just be for much get So up next or down sense a how SG&A year.

Glenn Landau

We half. be do higher in second due expect That's the higher Well, full-year of impact investments. the will investments. target the sales to our these XXXX of

as go evaluate on sales. depending year we adjust will the We we'll through and the necessary if

Justin Speer

An is last start-up just, mix I price for question ceramic was the the on productivity elements the was the it, what what catch and but cost Excellent. bridge, of tile the bridge? and me didn't

Jeff Lorberbaum

Yes, repeat the question.

Justin Speer

The bridge, tile. the gave, the mix price you of productivity EBIT I the didn't bridge or hear that elements ceramic

Jeff Lorberbaum

tile. the ceramic On

slipped So, by mix was million. on ceramic the $X price

Justin Speer

Down million. by $X

Jeff Lorberbaum

$X Price million mix slipped by was That that. and $X and overall productivity million. lower startups costs offset

Justin Speer

guys. Perfect. Thank you,

Jeff Lorberbaum

the US, and a for forces, and sell vinyl sales little countertops, SG&A. we're to LVT. Europe, In we're commercial carpet building organization on commercial comment markets LVT, expanding new the the sales quartz In more a developing roofing tile. So we're

SG&A regional margins. costs was distribution talked distributors, and all offset sales about And higher and increasing into which in We've purchased invested different going the we've pieces, stores. which by Russia, we our

which lot of those are only of. there's So some activities a of

Justin Speer

So just range. these the are ultimately and not growth -- investments pulling you're you're so in

growth You're that'll really grow to digging -- better growth, the itself Above in you manifest think? half. in ultimately second do and you growth into market invest think

Jeff Lorberbaum

go the we'll to categories we and we have and monitor I expand mean also all markets and the we the the we're new as businesses. through product -- which think new year we can areas the expand -- investing new

in get monies. before marketing you sales put sales the for and to the You the have people them

Justin Speer

Thank sense. makes you. That

Operator

allow question yourself one to and question. constraints time to due going And to allow further a please everyone ask

of Our next comes from Barclays. Bouley from question Matthew the line

is open. Your line

Matthew Bouley

more questions China start-up on capacity little Hey. you. of production my around the the because own you're Can is obviously virus LVT year taking color in and the you ramping Thank how this made question. -- China a is you question I you capacity? the XXXX just how in on to the Thank up your provide plants? comment for that's reliant flowing for impacting or you is how guess guys, Mohawk start

Jeff Lorberbaum

The for the come the than information perfect They year, people this point. go new then back. on is less at holiday

So the view Nobody There up has people are and partial started haven't is some some to some the at And normally be. in to that not things they to what are all. the have going they're -- coming start. clear back. back going going a are how at all question line would come started, when and operations it's is rate of

inventories we before can what's ourselves. going do in it we to have monitor has buy countries line, business In see we any impact from having and and manufacture happen. to we the last Given business it products we're our on while a other

has depending So the the us on industry the of whole but impact of a the has potential slower industry, happens. upon service than less it rest what

Matthew Bouley

Great. Thanks for the details, Jeff.

Operator

the question of Sachs. from Maklari from Goldman next our comes Susan line And

Your line is open.

Susan Maklari

said how Good as as the a thinking to XXXX? that wondered the to a materials and business you about it know morning. we $X of million you little talk we go as look you I bit in are related that it benefit through could consolidated thinking But raw fourth about quarter. I was if how year. you're inflation the

Jeff Lorberbaum

in aggressive We'll same The raw are reflect to have participate general, to how competition At mostly we're the products, to continue commodity the the we're to decreases, reacts. the in continue and see that come in in there manner. assuming categories is have pricing going more mostly down. marketplace and the prices oil-related to prices material going market aggressive time the

had but in had the prices In boards some products -- of each. the have come prices places for instance, Europe insulation other of our the dramatically, in we down so we on

So reflected changes in today, world prices. be assuming, will excess capacities the in that the we're given market the

Susan Maklari

you. Thank Okay.

Operator

question next of comes our line And Clarke Deutsche from from Bank. the Seldon

Your line is open.

Seldon Clarke

Hey. question. for the Thanks

Just on operating given some all how your investments to and see the these in and leverage when expect timing we of ramp, SG&A your SG&A moving just parts the up production product the various to should rollouts relate with side? investments show

Jeff Lorberbaum

will we upon half continue we're markets to the see to will and the actions benefits them In the keep we're second expecting and taking depending adjust. from re-evaluating change how some we

Seldon Clarke

operating purely targeting? kind those operating those you're of $XX are tied leverage are or cost, And -- leverage, million to savings

Glenn Landau

The cost. $XX is of about restructuring million more

Jeff Lorberbaum

You're are tying they marketing piece with the investments, restructuring the separate.

Seldon Clarke

Right.

see trying like you ask to leverage on some should So just side. operating the when start to SG&A I'm

Jeff Lorberbaum

benefits in -- the in keep second quarter saying. We're the the third see we most of expecting to half, more about

Seldon Clarke

Appreciate it, Got the question. Thanks. okay.

Operator

the next Baird. Wojs comes from Our from question line of Tim

Your line is open.

Tim Wojs

Hey guys. Good morning.

Jeff Lorberbaum

morning. Good

Tim Wojs

Just a clarification.

seven So over next up quarters. the investing the SG&A was think, grow few time gross the first in sales. for as But profit to six you're actually in up is and to is up be or in, I QX expected quarters

in the that expect to a that profit should and bit can Is the now and right margin EBIT that at driving So really you're actually reinvesting SG&A of way it? grow year-over-year we compression? that what's some little gross look that's

Jeff Lorberbaum

wants. You he what answer

Glenn Landau

year, XXXX expect broadly, we based improve the based. our I think broad stated costs. half the initiatives It's over back-end our that's and to pass-through on weighted to of we this results overall and the second

trend should the function that and a is of continue. So ultimately SG&A

Tim Wojs

Okay.

Jeff Lorberbaum

and the pieces On the at cost we've margins time, volume we're to should the also. the done in cost the plants benefit help the restructuring through increased those the side, new reduce same expecting

Tim Wojs

Okay.

Okay. in. That sneaking sounds another outlook just one good. inflation the then in ceramic? cost And What's

Glenn Landau

and driven material, times largely the really in talked ceramic fixed but Again, raw several about European and energy facilities That we've costs some that government pricing. that overseas. by is that's are Eastern

Jeff Lorberbaum

we in Yeah, increases this maybe on little Europe energy relief a expect of year. the I some think

Operator

the line SunTrust. Our of next Keith question Hughes comes from from

open. Your line is

Keith Hughes

fall of been it's North identified, over-inventory Questions do question stand that I balanced? had sometimes. think out know now? I of guess more America light does for you channel inventory imports When the as where in my will be you the is Thanks. on ceramic, is -- that in

Jeff Lorberbaum

exactly. know the have imports don't the quarter down XX% -- we market from the data and see inventory to we off don't we imports, is that What which the of piece altogether. is in a China huge Keith, dropped the know the came

it's channel that softness the market. combination coming of expect down we So in a inventories in this and

Keith Hughes

affect to the going half… that's first something still this Is

Jeff Lorberbaum

hard because to tell -- just It's

Keith Hughes

Hard to tell.

Jeff Lorberbaum

we All the we don't can to country. of the amount But is the inventory yet the in exactly sense channel. of have a coming see size the really in inventory

Keith Hughes

I understand. Thank you.

Jeff Lorberbaum

you. Thank

Operator

Nomura of Our Wood from line Michael comes question Instinet. the next from

is line Your open.

Michael Wood

morning. Hi, good

still 'XX. ceramics it's I historically If 'XX about talk wanted at higher quarter it it look Just that year-over-year the import considerably data. fourth and although down fourth is to than quarter in

looking of where I'm mean, of is a healthy at that how I a level currently how can curious imports and be. level amount thinking we you're it So just that you're should this import activity sustain?

Jeff Lorberbaum

was, product Well, to to going significant effect the into those as were that. there pre-buys we tariffs and the believe, increase to prior got you when a what we believe announced in that is related Chinese XXXX on

and were of much probably thoughts Chinese gave it a how system they we those guess. that to the as a don't we inventory countries, which -- combination with inventories addition, elevated would you We but was view it In of plus to inventories know they but last declined just growing. other year, Chinese industry exactly products new the sort of, replace in the be, had purchasing a X% believe, it's of a think sort X% replace

Michael Wood

you. thank Okay,

Operator

line next from comes Fargo. from Wells Our Patterson Truman the question of

open. is Your line

Truman Patterson

us and possibly benefit EPS. if capacity and The for question correctly for XXXX? billion is previously online said in products all give you had to be The probably just and hearing update XXXX me, I'm $X.XX how maybe in you the earlier $X.X us just item of much around it in you clarification. coming about quarter, you And Could rebate, online categories. will online year, Remind then you have last XXXX. one first coming LVT which somewhere the coming an XXXX that

Glenn Landau

what we and inventory again, rebate by largely the is pricing. Well, will lower said be that's total which offset

the immaterial, but it's in it's again, guidance. So,

Truman Patterson

the then capacity. And Okay.

Jeff Lorberbaum

the are they The -- plants pieces. different new

year. through We up will have ramping is LVT this which up that ramp all still

it's We which it it capacity Russian -- have it's now, marketplace. running XX% the helping business sheet -- only plant, push still into we the the has the positively is but of vinyl used about as

organization, and have business, Europe. LVT an tile which developing going commercial we're also carpet We sales is vinyl sell in entire which to the

a products. to new end capacity develop higher It while ramping and Brazil a in customers the put to up. it's takes So pieces. in We put in

have low-end We Eastern to make our Europe which ramping is there, market expands ceramic, capacity in up.

about plant it's pushing three but in. quartz running it inventory shifts in States building United today, the have We also that's and the

have that productivity to through. up. we get the because go inventories And four to products all shifts aligned and time -- go go and more would lower-quality to the the those to and going we develop to take volume plants you as of time will more it's mix them Over through the start get and productivity throughput out selling

at different through they're working So all system rates. they

Truman Patterson

Is $X.X you're online that still that thank couple you. bringing about billion years? of next the Okay, over

Jeff Lorberbaum

of mean I part it's already on.

is, So getting businesses. our of some offset in is the what's happening legacy upside by decreases

offsetting businesses legacy it's the in new have the and the some pieces. gains declines So of

Truman Patterson

Okay.

thank you. Okay,

Operator

from comes from the Kathryn line Thompson Group. question Research next Thompson Our of

is line Your open.

Brian Biros

This ask question. the is for TRG the been taking Kathryn. on follow-up a supply and impacted. that are I impact. supply coronavirus for not us contacts Biros you really chain on Brian wanted Thank actually guess my telling the I to industry chain meaningfully yet has

from then manufacturing about months if logic supply to you what if shipments three on to impact wanted hearing impact could and Vietnam think another from the South from to see manufacturers or color on three extended sense weeks, that their now. Korea either you're guys are that makes the But any stoppages chain. maybe to five four Actually

Jeff Lorberbaum

what I chain difficult that inventories to that come are the on huge say said piece. We up fast it's think that there it over each we now depends that's said. it's to times to right different how close going in

of that from So stuff that coming months parts parts across through, industry. high four and and through the some the in typically anywhere the that is low have channels and you have to have seven inventory there some

up, time. with piece be and impacted they the depending on could people comes fast what delays. could a is channel weeks' less it be So the that worth few of the it upon There part and than each with how and depends on

production countries, uses non-Chinese part or coming the also inputs and some of The a significant China. it surrounding out it of of

the also. could inputs come affect if don't it those up, So

it's impact. depends to point. So going this what's really know at of point, happen inventory at on the levels this It SKUs any difficult and individual to the

most people New the is buy they when there down. As Year there, from shut they where Chinese

still bought was in product have So water the the anticipation that flowing of that in. across you coming

how back and going timing new idea. up to to And nobody production has up going so and the pick it of production the -- fast coming is any it's still comes to what's

Brian Biros

for color. the Got it. Thanks

Operator

of from next comes Lovallo from America. Our the question line Bank John of

line open. is Your

John Lovallo

margin sure I seems me I operating imply that understand Hey you guys. Thank XQ, and expansion least your to that XQ make fitting for here. correct? is in at in just outlook to year-over-year want

Glenn Landau

Yes.

John Lovallo

Thanks.

Operator

Laura today comes line Loop question of final Capital. our the from And from Champine

open. is line Your

Laura Champine

close Thanks we think to does competitively taking be you'll ability US, at how year? influence in relative LVT the able do price full for the look by of and your end question. product your my the to If how you that Chinese to new capacity that get competition to production of

Jeff Lorberbaum

marketplaces. with to the same goal think to fully our that time At able We sell when isn't we'll product. be commodity it's the compete all optimized world

higher meet to us a is goal return have. goals that sell which the value-added average products we -- to have Our allow mix will will that which help

Laura Champine

Thank you. it. Got

Operator

like to the for remarks. Mr. Lorberbaum now closing over call to would turn I back

Jeff Lorberbaum

the to in to continue capacities indicators the competition we'll to around market have and the marketplaces market to the continuing are of a evolve. are world excess reacting that While economies expecting There react they in lot conditions, and to of the see better we many improve. the get as markets

of a also go and going down half allow the We lot mix up, of throughputs which the plants, to think increase as lot the over to will to cost come have a help utilization -- the our the we improve which new will time. on second

a and day. to invest to things these right appreciate times. the the doing to Have your market react we're you increase during in and categories taking us. think level to our nice business the We listening We time

Operator

conference today concludes that participating. gentlemen, and Ladies Thank you call. for

disconnect. now You may

Mohawk Industries (MHK) 14 Feb 202019 Q4 Earnings call transcript