MHK - Earnings call 3 2022 | Mohawk Industries, Inc.

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Operator

Good morning, everyone. My name is Jamie, and I'll be your conference operator today. At this time, I would like to welcome everyone to Mohawk Industries Third Quarter 2022 Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, October 28, 2022. Thank you. like Mr. I'd time, this to introduce At James Brunk, Mr. conference. you may your begin Brunk,

James Brunk

morning, Thank investor quarterly you, everyone, welcome Jamie. Good and to Mohawk Industries' call.

Chief provide Today, we'll today's Lorberbaum, you on Wellborn, on are third update the and Executive quarter fourth company's and and President Officer. me Chris for Officer; Operating Joining Chief the and guidance call Chairman Jeff quarter.

to limited This press the Commission. various during statements forth the risks to release release Act and those our which and Exchange numbers. we uncertainties, and call in make including, may with press as but Reform everyone in filings Securities to, forward-looking not statements include include and our discussion periodic this Securities that our remind may of non-GAAP set of I'd are like call Litigation subject Private defined that XXXX,

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

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

Jeff Lorberbaum

Mohawk's increased to basis, up X.X% increases or billion, third commercial quarter reported and on constant price from sector. primarily sales in X.X% approximately the a as strength $X.X

product channel sales anticipated as retail than in weaker all softened we across the regions the in Our sales quarter and categories. were

translated strengthening or quarter X.X%. The sales impacted also dollar by negatively our the for $XXX million,

impacted operating declined results. our inflation material volume as and resulted lower energy in Our transportation income and higher unabsorbed costs,

cost, productivity levels. organization global the inventory with additional to and responded Our optimize to economic actions challenges

There conditions markets are our substantial in categories. and differences the economic product global affecting various

region's have have though prices inflation that prices the not drastically, more economy. others the to high energy have future correspondingly unprecedented crisis impacted been businesses slowed gas fallen and declined. in Recently, spot Europe than in Our Europe has due

subsidies cost The are of European consumers energy rise individual from to energy and quarter, to the which Europe third our Italian energy and inflation, the necessities recent discussed. continued concentrate has and European forced and material has not have government both being purchases. in Union on our high countries additional provided compressed kept during actions The up with discretionary margins. costs pricing has defer Our and

will increase and overall market, sales our investments Remodeling until It overcomes impacted better as to higher and which estimated are will being half the choose their deficit has margins under remain product mortgage of remain economy to demand that term purchases risen these an budgets. as are the long down is housing Remodeling years consumers point. of families and grow slowed, in Our than most stock units, our The from to U.S. U.S. further has fit significant we region when see a old. X%. inflation been These U.S. more housing part homes. the XX more residential challenges. in mix decline low ages X mortgages to results. The million rates U.S. the X% business, our their that have and over postponed is rebounds options inflection that and and the of homes by expected with expected enhance impacted has trade approximately to before is market is below pressure

inflation other Up by been impacted have interest point, rates. and until higher geographies this less our

aligned Our slowing. economy with remain and their selling those are regions in better strong margins with prices even our their costs

We're satisfy investing projects demand we countertops our and and should capacity in laminate, long While for our including LVT, current in These growing through the also premium expanding insulation. our markets strengthening product term. as businesses manage the recover. quartz ceramic categories, conditions, we're

plant. accessories product flooring we ceramic Europe, flooring producer and and existing a government We're wood offering a We market a mezzanine will have recently acquisition, #X company acquisitions will smaller In our completed U.S., the positions. business, the awaiting a sheet of that which number include veneer us combined in company. our these producer and business our approval a nonwoven make with vinyl In leverage acquired legacy our Mexico. a Vitromex of flooring enhance

balance with social business. people strong to highlights sheet additional opportunities right XXth annual for doing report, published our recently our governance our enhance business. benefiting and provides is planet Our what's how us environmental, the and which the We also

commercial excite Our content, lowering sustainable water bottom waste products energy and reducing by and is line our increasing and both residential customers, recycled and consumption. our enhanced

quarter third our review will financial Jim Now performance.

James Brunk

due of Sales and a mix, increase quarter, impact offset margin unfavorable were quarter just for onetime reported, or XX.X% as and Gross product billion. a partially year. $X.X was versus as the X.X% items, XX.X%, was by XX.X% to basis over Thank Jeff. in FX. excluding price for the That's favorable and you, the volume on constant the reported prior X.X% declining

reported offset margin of price year-over-year dollar temporary sales FX our mix, SG&A demand, and mix. offset the adjusted after was items actions, the containment by The was inflation and of year-over-year slightly the volume sales expense offset the favorable impact due and as headwinds, which and And we XX.X% absolute inflation productivity of amounts actual The XX-Q, the shutdowns, excluding lower decrease of included cost partially to XX.X% call. successfully pricing and due and filed FX and to onetime lower is items. increased increasing these will detailed in be manufacturing impact. MD&A by which partially

higher million by and driven income, for $XX operating by income; which accounted of prior operating with quarter. decrease the margin market excluding a is resulted in decrease for in noncash basis and rates points temporary accounted as charge net and million year, lower which X.X% was XXX challenging excluding productivity inflation, Operating a of gains conditions price plant discount and operating FX. in primarily as volumes, with charges, negative partially goodwill decrease charges, economic was $XXX capitalization the impairment trade along in favorable million higher current reported the versus company's margin, The but name and offset mix the along X.X%, shutdowns, of XX.X%, $XX

$XX fourth XXXX. reflecting the prior the year, in late million, off with line was full of Interest expense quarter of quarter benefit the in paying XXXX Eurobond for the

versus rate XX.X% XX.X% was QX year. prior for tax the non-GAAP Our in

the We rate bringing leads $X.XX. share, That year tax to of XX%. the rate earnings full excluding XX%, us approximately charges, to QX per to approximately an be expect XXXX

the Now to volumes. Ceramic, strong price In Europe, actions, in was quarter. XX segments. versus $X.X increasing gains and offset sales initiatives and net compensated just led higher and constant which Brazil. reported turning Operating sales volume year-over-year than and or a The due the basis. on million, more were X.X% to declines $XXX as the for growth U.S. Global the a mix inflation, increase shy That's year, Favorable operating favorable basis by pricing and XX.X% of was offset to mix XX.X% points by excluding XX% income, adjusted approximately prior partially lower margin charges, productivity FX, improved billion.

North That's that rugs. under the residential retailers' as weakness versus excluding reported. well. billion just Similar to in the and X.X% X% growth year. resilient The Flooring sales net increased were demand, decline year-over-year carpet offset $X.X increase In prior demand, reduction of rug a in as major and QX, approximately in sales America, commercial, laminate the

World a the Oceania of of which on million. of and Rest Flooring but versus sales an volumes; was X%, and productivity equating as price basis mix X.X% by mix temporary prior offset decrease gains. And charges, was businesses. and initiatives, a basis, inflation, sales to excluding partially by nearly the reported, decline higher lower X.X% with of margin, year, the point growth with insulation That's actions driving and panels, offset XXX $XXX constant plant solid due to Operating a increase price finally, in shutdowns,

excluding and quarter, plant prior the for $XX productivity were and volumes. mix full and year to primary by elimination actions, temporary million X.X%, million the margin, shutdowns, costs year. related was higher charges, price between unfavorable significant decrease partially decline lower were and expect a inflation, Operating the offset versus and be $XX plus the drivers $XX sales million. The Corporate of

free billion, in the prior slightly ended with up days $XXX XX million, prior quarter, ended -- ended increase $XX billion. Inventories quarter. driven is to the to flow increase primarily compared for inflation inflation versus The increase QX prior second at a XXX me, year. stand the DSOs approximately prior year, Receivables X% at XX% quarter. inventory making days. of at drive the quarter versus $X.X just higher of acquisitions in year at but turning Now versus Cash sheet. increase. a the That's excuse cash $X the by over XX year-over-year balance with for XX% and and increase, the the at days million quarter

capital year at and have $XXX by slowing equipment finally, and D&A better align with million, plant $XXX aggressively million at capital $X.X $XXX million. And the B&A QX billion, over projected To $XXX we $X.X liquidity to demand, bond November end is XX% million. our with our at reduced spending full with just Property, us approximately balance through was $XXX and to in exceeding quarter, of with long-term and billion with million current sheet strong manage at results. the a the debt-to-EBITDA of environment XXXX net very optimize planned X.Xx, in enabling our payout the at the position plan

I that, Chris. to with will it And over turn

William Christopher Wellborn

Thank you, Jim.

substantial performance channel inflation new projects strongest in and in most remodeling even were showed with Europe. channel and with the quarter, new the home the resilience construction delivered commercial during headwinds Segment Ceramic geographies, in Global Our solid construction Sales continuing.

rates. to due discretionary spending residential markets, higher remodeling most tightening In and interest slowed consumer has

managing mix material to headwind, cost. pricing significantly in and of prices major and in pricing a through reduce Europe our are results. remain Natural inflation impact We volatile gas energy our on the impacting with

lag the to for SG&A the market retail the conditions. align continue the declined have to projects though in Sales not greatest and remodeling prices we gas operational align demand construction and costs the quarter, spending, growth the with as commercial decline. better U.S. nears spot business European the sectors. ceramic reducing pricing continued inventories. home are available our orders reduce in and to winter future expanded to with segment, capital capacity, storage Recently, their has the significantly in customers Across Residential channel, during followed

quarter, by driven our actions, our and pricing strong During our were the improved margins sales commercial mix.

purchases. an our demand reducing introductions offset are inventory, that with imports. inflation, utilizing manage process sourced material support and gaining materials are production and alternative reformulating improvements we fourth our are To scaling with We European the we higher-margin To align back further to are seasonal in glazes. alternative quarter identifying and new

quartz grew sales during led quarter, by the high-end our countertop collections. Our

Our quartz satisfy world and operating demand. capacity, around from plant we manufacturing full products are is sourcing the to at

XXXX We production to mix. further early us up and sales our will will allow start our our quartz line improve that expect in new and expand

results and Subsidies in further. extend are exceeded our approved mix positive may sales quarter to energy November actions, the Italian Our and expectations pricing European our ceramic and subsidy. due through

postponing are residential sales impacted remained investments budgets. energy our premium quarter, their of and the as products. European our high collections flooring prices squeeze During gas increased outdoor consumers costs while lower-end strong,

production gas first service. Given lower we government raise to prices and inventory fourth In with to energy quarter we increasing subsidies, quarter, and expected anticipate the lower spot rates the are peak. production improve in winter prices levels

mix, are evolves. teams demand as plants adjusting European operations Our production to cost and flexibility across our our optimize

the clay central addressed mix shortage material and the increases, other rate formulations alternative ceramic sales pricing, markets, through from additional which economy is have channel. Ukrainian Mexico's third implemented primarily and We strengthening slowing of sales. our sources. In reengineering bank by has grew interest with quarter commercial the

rates In high are Brazil, sales slowing. retail remain interest and

our commercial expanding A&D our increasing offering. community are activities and We in the product

increase actions our are reducing in the and gains productivity costs. results. enhanced All businesses will quarter, Our fourth mix production pricing which improved

transaction detailed a finalized Vitromex market. ceramic Our a in a to results. to organization short-term and has $X.X optimize quarter. will billion team have competitive Mexican product in combined integrate may to approval the offering address Government stronger Mexico strategy The acquisition the be our first the of position

consumers sector typical consumer all see we down Rest residential reducing spending. is the mostly are reducing and seasonal from in holidays. sales by so sales insulation and in and The after not more inflation segment Europe, rose inventories Oceania did our of quarter, growth For businesses. increases Flooring impacted were the primarily is year-over-year, summer retail trading categories. constrained improvement World discretionary The In purchases, and panels, price the are the

Natural were governments sales the reviewing spike Our in reduced lower compressed reached historical gas are gas inflation, and with The prices consumers prices. levels weakening increases to industry temporarily the ways by assist making and additional XXx implement. quarter and in period and production. markets margins in are electricity the to price more volume difficult

it wood is is Our an and pricing as and supply both alternative for impacted, as heat being also electricity. consumed being source

As flooring up. increased sales activity to consumers encourage we softened, promotional to trade

partially the value-oriented While our LVT increases grew. premium pressures, offset costs. vinyl implemented greater that In price sales laminate our material rising and quarter, energy faced more we sheet and

completed materials, the postponing reducing our Polish production, of remain alternative noncritical anticipate and Europe. implementing and improvements in expand sheet We are Central that acquisition in will we projects. substituting volumes We producer vinyl sales fourth process quarter will small and weak a Eastern the business

provide as insulation urethane consumers costs. thermal ways the seek Our to energy products highest resistance reduce

are Western New Europe enhancing our expanding are base in and beginning to building our and projects distribution slow, customer exports. by we

were prices alternatives to costs. are reviewing behind our and selling we Our slightly inflation optimize

plant our ramp sales as Our continues the increase to in U.K. new insulation and up distribution. we

Our weakened and panels softened results demand intensified. competition as

margins impact Our business. In the our that market. sales, we mezzanine on declined The country expanded The its market Australian decorative relaxes improved improved of will plant to panels and operating acquired flooring New from we We is and distribution sales to weakening year Zealand have expenses. improving last production our mix. of existing panels due Oceania, is productivity COVID and and the more residential sales lower pricing higher-end our French small is the difficult volumes a increasing as sales with and acquired restrictions, the weakening. bolt from primarily company and

Our arrived than material is faster imported increased covering increased as and inventories pricing inflation, expected.

leading inventories. segment softened our in products LVT. and commercial The primarily laminate as hospitality benefiting the discretionary capital pricing. sales from investments the North premium spending technology their sector inflation was from residential, The reduced than surface quarter, Flooring and consumer market For Hard stronger residential outperformed, other impacted America and retailers channels. increased with

unfavorable offset manufacturing absorption. led managed offset spending material and The to align marketing lower energy volumes Our inflation. sales, our to inflation. pricing administration in We with volumes and period the and

production We are assets, lower both demand. higher-cost restructuring fixed with our implementing to our variable aligning by staffing costs plans shutting and and reducing

to many projects and We productivity, products reduce are costs. waste, lower executing improve reengineer energy

nonessential environment. also to capital are with projects align the We deferring present

and to channels. improve, in sales strongest new commercial home residential the multifamily continued our Our performance with construction,

and regional assortments have preferences service. introduced We tailored productivity optimized portfolio our and to to improve

accepted and WetProtect are by technologies consumers. well antimicrobial features being Our as desirable

vinyl has sales strengthened increased in as Sheet inflation flooring value-oriented options.

operating levels. West first phase at planned plant new our of is The Coast LVT output

are We the lines be and for next ramping installed workforce up that additional throughout year. production training will

improve premium East and other enhance customers, to lower our and Coast cost West transportation our service our high-performing Demand alternatives continued to flooring. will to Our grow laminate efficiencies. value operations as for

in some materials are beginning Sales reduced all of our Inflation waterproof in are though other collections our channels. visuals and margins, more expanding decline. we has see cost realistic to

targeted Our line levels to is increasing new manufacturing satisfy demand. our at operating

commitment further have have our current to We saturate and capacity initiated expansion investments.

prices third to we reduced unabsorbed Market third were we in were that to after conditions price more for we quarter quarter and continued as demand increase carpet increases recover than anticipated, softening, softened in implemented rise. resulting inflation costs. in second announced the production, the to not the In we the able inflation further announcement. the had quarter, With

eliminating cost, to as current streamlining costs, in reducing with when operations and well reductions seeing we and lowering lower To our is our are depleted. are reduce pricing align marketing that as higher We administration raw efficient production less inventories. should our cost inventory costs capacity, material

remains commercial projects as and The reflects good, construction continued and demand. business are the hospitality activity. increasing channel Index Billing Our strongest renovation grew postponed Architectural

margins strong covered our in the pricing as Our mix remain and inflation quarter.

hard outpacing commercial sales option. flexible carpet, LVT Our being surface the is with preferred growth

and acoustic its Ecoflex X, advantages. content carbon recycled footprint, new, carpet tile, more is with gaining low Our acceptance sustainable

sales trim the To inventories. laminate, a installations. we and major to continued used business, rug than acquisition year retailers were complement our adjust In acquired our last in our national commercial The quarter, produces that flooring which current small business wood vinyl primarily manufacturer accessories as produces rubber business, trim. accessories expands lower with

our reduce acquisition completed In lower we We are the restructuring return the Jeff. demand. a business, and costs with that, July, production our synergies. and to carpet call delivering With rug is of nonwoven to and taking integration I'll actions the

Jeff Lorberbaum

Thanks, the the Chris. economic of It's to our impact predict the duration industry. either on challenging or current conditions

interest of down. rates trading remain and business world to we deferring majority remodeling the discretionary are to customers and continue inflation our Residential banks the sales, drives under our pressure. reduces purchases around expect central raise As expenditures, and the

managing on investing long-term through resulting while we and on that take environment demand costs. are demand maximize Europe the In gas and governments unabsorbed in action our slow lower anticipate profitability. current will focused prices the Europe, further economy, businesses the will and manufacturing fourth our material production, in anticipate impact We're quarter, consumers. and and to We reduce We increasing in greater the will electricity to reducing overhead.

we're introducing activity, sales, promotional and competitive actions. enhance differentiated reacting To collections increasing to

period investment the softening We lowering costs begun categories. and in restructuring have marketing. in actions, spiked in manufacturing are executing and and prices Material reducing administrative many

are projects peak through are specific compress we flow this and raising of margins ahead incurred inventories flooring that Europe, announcement, U.S. our our compressing After costs pricing winter. second we In will costs volumes, until material industry products carpet energy deferred, quarter being of inventory. higher our they

that not of strategies critical postponing are those We near-term long-term projects impact to while business. completing are that capital the performance our do

the results. expect continue U.S. strengthening translated we will reduce dollar our Finally, to

Given these $X.XX, EPS adjusted $X.XX factors, fourth we any to quarter restructuring to charges. anticipate be excluding our

past decades, fundamentals essential has industry component business with the The positions has remodeling. built managed of remains and leading Mohawk strong, extensive well-known challenging the and offering. globe and of During all recessions. Mohawk periods successfully markets an and in construction many new key our remain floor through brands around product

we're after that period, for contracts. investing occurs our this rebound the industry market always During

profitability EBITDA bolt-on growth will laminate, also business ceramic our increase quartz which that significant countertops, strategic our revenue sheet We've your expanding take now and our premium will results. through of create made be We're the synergies and and exceeding balance low available strong for next a environment with liquidity X.Xx $X.X enhance our to of acquisitions glad net cycle. higher-growth current billion categories insulation, questions. the manage LVT, that We'll combined the optimize long-term results. with Mohawk and to has debt

Operator

comes Maklari Sachs. Instructions] from [Operator Goldman from today first Our question Susan

Susan Maklari

just consumers' question, the demand thinking elasticity macro? about do in move Can you through you talk And are do Jeff, about a the how things reenter flooring? about about you as high the how And their then is first global demand weaker thinking during how quarter? level. to What market? slowed My at a is willingness think we

Jeff Lorberbaum

weaker and our sales it finding mix The levels inventories, by had the majority almost know, the But can sales. went we in softened inflation pricing channel, our in and we was and commercial other higher unabsorbed product our sector. residential and in responded regions the period as does weaker increased more categories, optimizing our strength the them period. our production with remodeling, changing the with and global as you were the in productivity got and sales through And categories, the the as across all lower income of the residential product The reduced unlike sales remodeling managing costs. Residential And production, indefinitely. defer drive organization customers period.

how And going to consumers And we something have that both the it. there's come of spending when will on, than is Europe spending going Interest as So from on slowdowns, as all kinds well most. they're U.S. more have impacting a well Europe. through inflation and impacted the and to rates businesses. in as our as to of out in the back discussions both just people are is are believe you pulling and it. category crisis, help get

costs. with Some Italy gas already the has done started helping countries have already things, like

What else I have missed? see. Let's

William Christopher Wellborn

Covered it. Susan?

Susan Maklari

are And that then obviously, you you balance sheet, Okay. the mentioned, the liquidity generating.

about come business And as the what had will better this you you in be talk where downturn got what of about this going business the like? in long sheet Can about terms than ever in the eventually investing run? profile You've will look downturn. we and into through the a probably Mohawk a thinking in that mean have just could balance of

Jeff Lorberbaum

other Listen, cycles, there's strong is a lot ones. of employment like time other now. differences in versus this wasn't it In

increasing. wages have We

remaining have strong. housing We

will have help. homes, aging that We

where really been cycle So through majorly adjust. is couple was housing last whole to had and than this different the overbuilt we've

to in We markets, our the and all invest have continuing each strong of different positions we're categories. in of

includes share major is the which is As I take to LVT, in entire to growth is said we of category; the business expand industry are quartz able -- which the taking countertops market the categories laminate, and have grow; continuing before, a been in a Europe in to share and from the our good countertops, people business stone all which continues as alternatives, premium energy. in it's growth and to reduce laminate is grow; position so insulation their other invest mode; more laminate

really synergies acquisitions, good enhancing dramatic with made the shape We've which businesses our them in both to one business, of every business, all So on and of present also bolt single it. has those. we're for the existing in strategic

we we to we expect increase, right this, think all impact are grow. have term, would our and well short a think shape in actions with the dramatic the as the positioned in margins we're we and we're taking So to business. expand, good think And volume to always, to the on

James Brunk

noted, really being we're have homes. the market, as And especially driven in Jeff is the aging U.S. housing underbuilt by as this still and not

a have pent-up EBITDA a company you that released, mean get should you'll that and expansion. and demand, that's as the multiple rebound with higher So for strong

Operator

next comes from from Lovallo Our UBS. question John

John Lovallo

given cuts, margins continued through first think how should production into declines, The investment. is, XXXX, move just decremental here and volume the quarter as the we about one maybe we

James Brunk

overhead, would little $XX in production continuing anticipates that unabsorbed be would quarter, in about below to see increase million. on you're a I lower overhead about expect of We period, the due to during sales volumes pointed inflation. we the in unabsorbed fourth businesses, to areas. my With I as going fourth most a most declining to impact pricing into $XX the the expect negative volume In bit quarter. and million that see had prepared increasing and and And volumes remarks, also kind of the from

John Lovallo

on can initiatives will of little a the cost initiating cash Great. that And expand and then That's what maybe some you're restructuring helpful. bit be? you these just

James Brunk

of we're North reducing the in plans. with million between about restructuring about we're where So $XX as Europe, million, annually to savings really assets we're million the rug cost, $XX million $XX largest talked $XX million next we high-cost million also generate Flooring accordingly. announced earlier overhead We to being implementing In It year, out and manufacturing. cash starting year. somewhere $XX in taking costs should reducing $XX America, and in

Operator

next Michael JPMorgan. from And comes from our question Rehaut

Michael Rehaut

the earlier just capacity How next I But backdrop? face can obviously, you wanted circle in with some big revenue from for a might First, there's the additions impact what to around from rough where might demand a year. it today? about do back year any there's -- little if more of next of negative comments did revenue to remains on demand what is a basis, coming in us in And be start-up XXXX, online the standpoint mean XXXX. think of XXXX, back And softer that of capacity risk those difference that terms the terms P&L the perhaps a you the capacity, you costs? that's if just remind in

Jeff Lorberbaum

the So ones. through different all let's go

the start you up to to 'XX, truth. tell them going aren't until of Some

depends which it So on one.

U.S. Our the laminate is business growing in

on. capacities new have We put

have in It's the We of have it's including product, become all to unable and for a the doesn't in laminate. waterproof for LVT as been commitments full option benefits we really every other marketplace, have, and some it taking alternative -- have. satisfy has an demand it that we

invest it. we're and continuing in growing, to it's So

XX% to it. probably of expansion over grow has business the is Coast products is plant, up. been the in and LVT enabling the Quartz about us countertops, the up done business, now. that will to We're should West which time. support in it come using imported 'XX, And rest the of start sold

insulation we're The have offer use commitments then already is customer sourcing oversold, in of slabs it. We're Europe. we bought also We starting plant for it has -- around and the which up. to and business have we other support also the given products product the we ones of it locations up. we it can we people premium when grows. they where in regional to opportunities significant biggest that And advantages to investing as importing some expanding other been an and starting process in and also we're fill business, have and were in that It's the expanding think which it, ceramic. our from finishing from And world, piece are, the base acquisition,

biggest So ones. those are the

James Brunk

-- opportunities you really, of And Mike, should lead it about you when those the sales activities, $XXX of take million. us kind combination all to

Michael Rehaut

maybe the Great. my and quarter. near-term That's for the outlook sales switching back to helpful. follow-up, just I guess fourth just

what much how is if do so, I'm if basis just if it, And impact again, could remind was a Just And basis, of be results on a channel here. to continues I inventory volume you year-over-year missed driver sales on big plus of consolidated and On that reduction? the quarter? sales? you clear. estimate you in from to revenue that want to basis, sorry price, expecting price fourth impact continued us net be a a down be obviously, are obviously, revenue XQ But to

James Brunk

terms going given which is will as impact are on the production, residential be in down exposed to we to in of across a as overhead. year-over-year the talked basis, the the unabsorbed especially we've remodeling. to year-over-year business I flat reduce So in anticipate, well. as about, sales It's highly sales, well, decline, but margins resulting Europe, to would

the want make range. pointed peak impact to $XX should I sure the about in just we costs the $XX in segment somewhere North That we out, to the quarter. Flooring carpet million talked America flowing material through million

come smaller in So out most that QX, with piece of a QX. in will much

Jeff Lorberbaum

about good future. but the The that it is us but out, more will we term a from all inventories, improve it bottoms don't the The near that telling we they're is reducing it. feedback really they're you. and bottom future we quantify We're in pessimistic customers, feedback once give destocking, to hoping good information in that get have the way don't the have to

Operator

Truist. question next comes our Keith And Hughes from from

Keith Hughes

carpet the business. on Question's

sort some a quarter? in in initial could you the feel of material weak that I be release You some but much had are any costs big raw give statement number. refer input and not covered the inflation or about the Can given was that the us that what fourth impact third know how given the for that, of volume,

James Brunk

Yes.

just million saying, over Keith, $XX guidance that about to the Mike, $XX in So smaller to should us. carrying that I to was impact piece million, much is Included is you in quarter, QX. a have then our fourth and

Keith Hughes

you -- costs producing right you basically -- on or and some place? more are. are Europe And there spot? talked in now, still in Or had energy Europe Are about given hedges energy the spot Okay. where still in your you running are earlier

Jeff Lorberbaum

And the of ceramic still -- it, biggest we it, too. on spot of on it some our have hedged In large part but of business. in is we're a our part

-- to basically So the in trying minimize they're then spikes we short periods where are. term, the and

Operator

And question Ng from from our comes Phil next Jefferies.

Philip Ng

highlighted Jeff, cycles. you've you've few kind a of seen

once indirect family. markets in work how maybe volumes through of out whether XXXX? maybe R&R, about going America, have destock, Latin So curious, of just thinking it's Europe, peers out to exposure, the Or down North you in and end the kind declines are your single you in XX% Am, some thoughts geographic called mid-single-digit

you're once of some unpack Just us how thinking you in through channel. kind about inventory the of XXXX help work kind of the

Jeff Lorberbaum

different out my answer that scenarios really might that play can Seriously. next above dramatic pay be There's year. grade. Listen,

problems forward. the two, the which they through go with you starts through then adequate as limited assumption that Europe if optimistic one, an have with we they supplies out so And has the and gas go winter, going have

industry and and for, start themselves. The other start see third in preparing we version one, the rates that and economies is the declining, interest they you unabsorbed the quarter the as U.S. the a alternative a overhead be the escalated XXXX. by low also that being entire that and volume the remains European the -- preparing In U.S., which environment. get remaining we're significant that and pressured year second In scenario, we struggles throughout the competitive pressured would on rebound peak being with inflation high year throughout energy more through in and

a contraction So Keep enter can sales conclusions cycle either dramatically category. we you postponed the given in are, way, that two in where mind growth to our because of we it. the different always get all after

the as have as time, This expands. line initial investment. product we're top doing from expansions Our the we'll that well opportunities acquisition

Philip Ng

the remarks, of pricing? Is standpoint. I the demand prepared alluded held and release ceramics a just that like-for-like more think then more price press business backdrop. up to weaker your slippage you mix has competitive really Any well on your In from perspective. helpful some That's mix? And things, activity Okay. profitability side on given

have historically ceramic freight stronger think given of about side? for benefited particularly imports from competitive and how some the those ocean containers on dollar activity, changes, Just where do you pricing

William Christopher Wellborn

the ceramic until increased. on have Well, prices imported prices imported now, side, up

that. look a our stronger positioned U.S. could we expect with they to sourcing we're handle could decrease, capability we As with dollar and manufacturing forward, well but

Philip Ng

in Okay. seeing, the Any ceramics? of categories of some that you're like-for-like outside slippage

Jeff Lorberbaum

prices recovering Listen, of material the categories at last have increment then time, same have the as all the problems markets peaking. had pricing you the and soften because

same more under in the In pricing. improve the businesses all are the the volume. What people promotional business. up else. So pressure trade with where more At some sense time, we increment of try try we it makes cases, to last started to activities to to get

margins. our improve should it through, flow costs the As

James Brunk

know, raw That's the a the you seeing costs, improve key, it's inventory. that pricing. will as news we're the the the reduction margins our is that aligned therefore, it better is and with turns through as of And material good

Operator

Our next question comes from Baumgarten Zelman Associates. & from Adam

Adam Baumgarten

spot. as commercial, a bright Maybe stood that on out just

I think of Could contributing? other that maybe of office hospitality maybe that are also one walk you maybe through areas like was mentioned strong. the you the some being verticals,

Jeff Lorberbaum

channels in different The commercial?

Adam Baumgarten

Yes.

Jeff Lorberbaum

question? The

Adam Baumgarten

color. maybe just Yes, some

called within that out but any seeing other You areas market are hospitality, the broader strength? there you're commercial

Jeff Lorberbaum

projects with the at board a across the there's you the a part, still positive still in. that they're For most rate. show still running they The get of that coming from activity index, lot planned projects

COVID, that postponed they the projects have update to better the were those a of and money you there's lot hospitality as come quit and have is during You spending because hospitality doing through.

doing as offices environment The government have, that we're are postponing. to are still are people spending they money. coming okay. going some redo have of office, in in The you keep cases, some projects more back piece, through things coming a the cases, different and And In for care also to work health they them then where their through.

James Brunk

Yes. in led the with hospitality about was lagging. health government think commercial Really, what if beginning, and really you care, by was

now of up the having their as of into consumers because hospitality, of catch the and more spending now airports, and along route to hospitality is hotels, years. over low entertainment out, day-to-day of have casinos, pointed couple and those includes the travel, kind the Jeff travel anything As moved investments from last area, that

Adam Baumgarten

benefit energy you through Can to Got the partially there? point. just least this continue, expected Italian the maybe you the the quarter, out and size called -- it. And received in then subsidies at that you at they're sounds that fourth, like

William Christopher Wellborn

million It's I far. quarter about so they've through been November. $XX And approved think a

Jeff Lorberbaum

these in keep month. a comment, Italy over, approving is almost Just so as turning things government the month by they

James Brunk

Yes.

a So and you'll QX through turns inventory. benefit in as see over bit it will the QX, little and QX that carry of a into

Operator

from Our comes Markets. Dahl next question Mike RBC Capital from

Michael Dahl

follow-up, if a as hold, that that gas can much the of headwind out current quarters? look you as XQ? was spot quantify next would in prices expectation XQ? for how And what And couple European year-on-year nat you what's change over Just the for

William Christopher Wellborn

Well, specifically the dramatically When quarter, fourth XX% you hedged at for fourth just to XX% -- hedged the I XX% about as look think quarter. you just know, the the year-over-year. now, costs we're up are roughly

James Brunk

Yes.

In terms pushing of our price, of very the products. done headwind, a premium of good job end running the they've

mix point not significant difference and Europe. between at ceramic there's price So in this energy a really

Jeff Lorberbaum

just at us the We costs of don't have the in point. energy energy, this front

Michael Dahl

-- Right. And just okay.

subsidies? production takes is managing my as and a the neutral So just in some kind if inclusive at ceramic. puts it's question European of quick And point, how around there's when -- of is that clarification, second you're this

look you prices. production as ramping the be you Jeff, said, into gone. I think XQ, will to Chris or maybe that production of advantage You're said, the quarter to take spot fourth

Jeff Lorberbaum

It's give a to the almost we you over want I We're weekly, impression don't there. the not. neutral it's think prices monthly raising impact.

we're We're energy the I and We're based regions. surcharges costs products what are mean, We're product any moving it. on different changing. plants, have the We cost walking of that sense. based regions between the and on stopping don't starting week-to-week away the economics from categories make in different countries

mean environments. effort I through changing a to So full it's manage

William Christopher Wellborn

the comment expect the and anticipate reducing to where do about quarter, when prices prices, fourth then Yes. energy the significant. lower having deciding to quarter we're produce the we be more it in is And what producing, first we in

Jeff Lorberbaum

range the Just are be I lower is the Europe that prices in XXX, as now. than today any right XXX last prices were And under futures time given XX, go it. mean the in it through. to in comment, may then spot are week much I they so somewhere looked, -- you the move around

it's where up. to end I mean, knows so And nobody going

Operator

next Champine from comes from Our Capital. question Loop Laura

Laura Champine

up If the how I how up quarter, look much is that number? at are units of of much at the the that inventory inventory balance in year-on-year, inflation end XX% versus cost the

James Brunk

So inflation. the so in the XX%, make XX%, up costs about of terms

piece. So the far largest it's by

Jeff Lorberbaum

And remember, low poor when the service we was year, of in most. of in and were last came the most the inventories out businesses

James Brunk

so And the think acquisitions. what sequentially then see, important definitely see we've really I pace increases, to as also you look well. And you added quarter-over-quarter all Laura, in the increase that it's the quarter-over-quarter, that and at slowed inflation of

that's some production inventory talked most we most continue levels to of end our of in is areas lower already year. as across areas at to to Again, with exceptions about. the look fourth we've plan quarter in the So the our

Laura Champine

Okay.

excess most are drive clear to goods. So not taking mix the is the sales for a trying where it's of you better you're promotion into because part,

Jeff Lorberbaum

And equipment. trying utilize to we're the the capacities of

Operator

Stephen from Evercore Our Kim next from ISI. comes question

Stephen Kim

you've given information interesting of lot A here.

you press because certain was there wanted be the think about be I clarify particularly most construction is of a like retail. the it there'd much on sector, SKUs little -- know would American destocking I that to kind outside bit susceptible. guess, sort in North would couple of here. that how in I hard to new residential the destocking, a that wanted channels, you your Just of When to talk things said of

You volume supply to volume susceptible in that the to do builders. would most chain be runs destocking

third And assuming so talk in when that you talk company, the will worsens anticipate when see And it whatever whole the they in headwind then quarter? also you as XQ the you being for worsen in that the from question regarding do my is, see it you it we Are did in guide, guide? quarter? price-cost about your --

James Brunk

with let the price-cost. demand start I'll and question then I'll Jeff address your

Jeff Lorberbaum

What buying customers' know our is. know what We we don't are. what the is inventories

reducing So that have to know we bottom they're they them at they're the further. their But between, somewhere are there's don't change going or I inventories. if indications

and the business, our to know their shipments So difference we we their we customers. is don't can't the and know that. All them between to tell shipments

James Brunk

America, because fourth the especially quarter. And the mix I in Yes, quarter. compared widen then quarter on the fourth in called gap third what price we've impact out, in the the as North the expect Flooring equation cost to to

Stephen Kim

in clarify of sense. terms Yes. makes decremental And to I margins, things. just That want the a couple of

with You energy also diminish keep XQ you you happens, causing quarter. into get said production taking think like sort fourth you the talked likely your about your Italian that you energy the that of those would business, extended November. merely beyond XQ? curious, you your can longer decremental in Italian regarding out you range, it maintain historical production? But energy that's the benefit, higher production Or your I'm you And sounds benefit. Italian then to margin benefit? even ceramic If subsidies do margins incremental line would that into shift in that that see might for

William Christopher Wellborn

the about quarter. of will I is Well, cost the even that much subsidies, should way it lower think in the gas than you're first fourth be to if be in think getting the quarter

more versus So that's why we're doing in the the fourth production first.

James Brunk

terms that overhead decremental production equate to uncovered business take much lines one depending to Stephen, to your out, by we of which the going going in our vary exactly on how you each And cost. margins, really to They're is have watch. of

each across the So it the segments. really varies businesses of within

can just point. go sure on So you not that I'm historical percentages one of if kind -- at

Jeff Lorberbaum

it want easier we decrease term, volume the in to make much though your it decreases. the or -- where last maintain it how and to And than incremental, term, we hold have as have variable fixed is long even longer to much make how to you volume costs the and going to even as then short decisions comment, is the the costs down. rises it's to goes in is the thing the as a Just costs or

James Brunk

Yes.

So shutdown that the of percentage the will definitely impact length is. periods what

Operator

Wolfe from comes Our next question from Patterson Research. Truman

Truman Patterson

that you But well. much Russia mentioned the I'm understand consumer Jeff, the the quarter. I'll declined guess in how in in to a of to that's month of how is bit First, which Rest segment, the is that pulling I might as crisis, fourth back. European trying XQ, a third volumes extend trying World how looking a to quarter. consumer really to understand And in much the into just since I'm understand have we're trending

William Christopher Wellborn

Well, increase on inflation a The demand from increases segment if When normal we X% driven the normally panels you look reducing World, overall purchases. by in the sales up at and Flooring Rest are in is primarily sales and insulation. residential price we get. which local basis, retail was the mainly of were didn't that see back holidays, came we

inventories are and down Our market. consumers reducing are that customers in trading

Truman Patterson

initiatives. cost previously Okay, you some okay. mentioned Rest And mentioned you. Got I World. of temporary the shutdowns all plant in you've And some rationalization know manufacturing and

Just any incremental business? initiatives this to rightsize

William Christopher Wellborn

margins. happened what about talking just Well, in

material alternative market, compressed to assessing the are the governments similar markets And to reviewing margins by in reduced to implement. prices Our are lower assist consumers lower inflation, cost. were industry Those to with gas and sales Italy, and We're electricity our ways and difficult sources weakening our making production. prices.

Operator

question Group. Our Research comes from next Kathryn from Thompson Thompson

Kathryn Thompson

with setup thinking are a post world, economic product opportunities and growth production you in standpoint, geographic from changing light often and reductions a on these that arise. deglobalization in in times an focus that a X-part how In a of of from stress of lot preferences question, light consumer and about standpoint? the But changing a also it's opportunities both COVID, M&A understandably of line. along Granted, M&A

Jeff Lorberbaum

are the earnings environment. compression where sell the most transactions margins In this don't the to in as of multiples, side to usually, suspect this companies -- coming are so the of unless they the and are come of going the downturns, most would And also. the that's done out have I opportunities past on try time of it the expanding. other you're and to compression

Kathryn Thompson

standpoint? think focus you in part on geographic from et an have M&A where focus that you from North other following and -- changed standpoint question, would greater the Europe, on a But So about less of thinking America, growth cetera. words,

Jeff Lorberbaum

specific a made we've that decision. say can't I

to each tell, comes, the and point, have I can geography year. you alone this a next perceive view mean and let future. evaluate Europe, don't next At for take that We it X the have given we X, we how we as the opportunity each months,

us trying in the something to the the more really that So under in to have take minimize would we're much capital get if it. do point, we this structure same we circumstance, of with the have, Europe, this immediately, At right the for are. as ready But something slowdown a opportunity is to try I we got to have things. and would world assume place arises, rest we

Operator

And Matt our next Barclays. question comes from Bouley from

Matthew Bouley

combination a of mentioned the a at volumes? is we Or oversimplify, of as about And that to million to Just of will $XX headwind what back a won't decremental, rightsize costs was impact. to out we forward how the sort same. we of million How I be that look but if between unabsorbed to on and of kind kind X? the together even the will you should as you from split close topic it of going know, X assume point kind volume-based we think some that, maybe and model should not even fixed split of look were Jim, as that volumes overhead kind model, those the impact continue X the able think we of the decrementals. of or $XX

James Brunk

at the softening included shutdowns to again, the we fourth shutdowns just we Well, -- the what expect related guidance, look, in looking and occur. our continue to quarter volume also and term, short in the the

comes into similar as X term, and really then longer demand we it I'll So the you'll a in XXXX, for what positioned down back answer said, to have very on comes you to want Jeff saw to be Jeff wind us. QX. looking pent-up well the scenarios, pattern let And but to as

Jeff Lorberbaum

reduce than the to you'd demand. really into inventories and it the most the based demand as quarter, high next we think in we'd do we're a Usually, of the because selling part first we and year, be is in next go big it's be less A in for coming marketplace piece, produce fourth to going it. expect quarter actually we're on going going year, And the of don't that season historically, be building This we're require not and to to out we year. inventories.

So pressure term. the short another that's on just

James Brunk

not is housing that we're key well. the the situation remember, on different fact aging and inventory point you is have and as But an overbuilt how the

the the to still not is future. So the to have get caught new housing a both strong certainly rebound want in remodeling produce we to poised And do without required ability and products.

Matthew Bouley

like guys. on kind you're second sort color, end had the new channel Given strong weakened. you the helpful construction saying that's the of markets, That's just Understood. then on performance slowdown U.S.? one, in remodeling sounded still Or has But of on construction U.S. it slowdown the And going construction of there the backlog kind construction the on incorporated of new end, still is prior side? that in you there on the quarter front new fourth benefiting from sort of in your guidance? are

Jeff Lorberbaum

know it is is may that of may meaning at yes, flooring or typically is the the the construction. answer that That not end -- built The in.

of So longer ours front ones at than little the are the some a bit holds end. up that

future. number is the impact started So flooring, it until complete to right going our the of around before business in housings the they it, but turns use they being

Operator

question David next Research. from Longbow our comes from And MacGregor

David S. MacGregor

all, mix question. a of first guess I just

your regional thinking versus you characterize products? Just as would lines in more across globally, of various respective offering within their value-positioned markets collections what categories your premium various percentage

Jeff Lorberbaum

it like sure up added that we've categories. not ever across I'm all the

some to of region. category most it's much would I have to to medium premium believe bottom don't businesses have number product position as high, by we by the I and across participate the in a you in and larger only the businesses. top, of and to the from We some a participate but have different that give

David S. MacGregor

by evidence just the the here on And of comments CapEx guess call been And you're down right. questions follow-up, of the And limits think this the beyond investment question CapEx the the the a on long prepared as run. at how All of to focus of about you kind around maintenance if XX%, few Okay. is taking thinking and a growth I investing about to CapEx at beginning convincing see the I about until guide there's guess think recovery? back pending and you for you what kind just point. spend discipline acquisitions, do Jim's

Jeff Lorberbaum

the much investments, to them a Well, X the years of as anywhere most part capital from year take as is, first minimum to of a new implement.

them, So the the the ability you agreed are of projects none, coming is it. to that it. through were is year is stop now to And from almost ago, once end a start

write all the already that's there. investment have You off to

So those forward. in place are and moving

all turns need. of as around need categories may we're them costs they're the in thought, all business in flow -- we'll to We soon it much the need some of will the in will And in we as it next Some but short those of of not growth as through. those as as that we year. go of going term the

those, beyond today. cutting managing anything as So doesn't we're the business that the business we short-term through impact and back on see

James Brunk

process. we Yes, hit look word, go to as we through have the budgeting key, and I our very into 'XX stay and that disciplined think you

the we've to 'XX. certainly on carryover said, number scrutinize Jeff will that, into the As initiated we beyond a of projects have based But levels. demand effect

Jeff Lorberbaum

the business but it. existing All things the not and between recently all together, X the have that the only business, acquired done comment connecting also improves huge about margins that the the synergies acquisitions. Just we've the business the of another new old business, is

us help get those as cost out together there's that synergies. synergies and sales and them. should So all of the we also product And get

James Brunk

additional this $XXX the add in Vitromex being which collection quarter, generating acquisitions, that close accumulation about are when first Really, basis. an hopefully will small, about think you million in, if of on of are you sales though annual those

those look to you So business well. important as ongoing the ones, as are at they bolt-on

Operator

closing to over time today's And back allotted the ladies question-and-answer we gentlemen, the call turn conference I'd have for end Lorberbaum session. like reached remarks. Mr. the to and for of

Jeff Lorberbaum

it's the of company really right existing a We're as environment. out, we adjusting you and putting when appreciate taking steps us. joining volatile conditions, and all and change good and improves they much. very over comes for we're and time, We're in ourselves the economy the the you manage Thank position to a

Operator

thank presentation. you call. Ladies and We conference gentlemen, that concludes today's do attending for today's

may disconnect your now You lines.

Mohawk Industries (MHK) 28 Oct 222022 Q3 Earnings call transcript