Q4 2021 Mohawk Industries Inc Earnings Call

February 11, 2022

Okay.

Good morning. My name is Laurie and I will be a conference operator today. At this time I would like to welcome everyone to the Mohawk Industries fourth quarter 2021 conference call.

At this time all lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time simply press star then the number one on your telephone keypad. To withdraw your question, please press the pound key.

Should anyone need assistance at any time during this conference, please press star then zero and an operator will assist you.

As a reminder, ladies and gentlemen, this conference is being recorded today Friday, February 11, 2022. Thank you. I would now like to introduce Mr. James Brunk. Mr. Brunk, you may begin your conference.

Thank you Lori. Good morning, everyone and welcome to Mohawk Industries quarterly Investor Conference call. Joining me on today's call are Jeff Lorberbaum, Chairman, and Chief Executive Officer, and Chris Wellborn, President and Chief Operating Officer. Today, we will update you on the Company's fourth quarter and full-year results. I would like to remind everyone that our

Press release and statements that we make during this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with the Securities and Exchange Commission.

This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts. Please refer to our Form 8-K and press release in the investors section of our website With that, I'll turn the call over to Jeff for his opening remarks, Jeff.

Thank you, Jim.

For the full year Mohawk business improved significantly.

In 2021, net sales grew more than 17% as reported versus the prior year to 11 2 billion and our operating margins rose dramatically to approximately 12%.

Our 2021 adjusted operating income approached $1.4 billion with adjusted EBITDA exceeding $1.9 billion.

In addition versus our 2019 pre pandemic results. We also achieved 12% organic sales growth and improved our adjusted margins by 270 basis points.

We ended the year with a historically strong balance sheet and during the fourth quarter. We purchased approximately 2.4 million additional shares of stock for a total of approximately 4.9 million

shares purchased during the full year.

In February, the board of directors approved an additional authorization for share repurchases of $500 million based on our confidence in the company's strength and to enhance shareholder return.

All of our segments performed well and responded effectively to the complexities that occurred during the year.

Throughout '21, our region benefited from strong housing market supported by rising home prices favorable interest rates and accelerated home purchases by millennials.

Changing lifestyles encourage shift from rental to own property.

Movement to larger homes, and remodeling up rates to adapt to work and school at home.

Among home improvement projects, new flooring is one of the most frequent upgrades.

All of our product categories have benefited from this trend, which is projected to continue throughout 2022.

The commercial sector continued its improvement over the prior year, but it has not yet reached pre-pandemic levels.

While we thought COVID-19 would be behind us in 2021.

The pandemic continued to impact our markets to varying degrees throughout the year.

Surges in some countries kept people voluntarily at home and government restrictions in other regions temporarily hindered our operations and customers.

We continue to maintain precautions in our facilities to mitigate risks to our employees.

Moving forward, we will benefit from bolt on acquisitions we completed in '21. These include an Mds manufacturer in France, and an Irish installation company, which will be accretive to earnings in 2022.

When integrated, they will enhance our present operations expand our markets and reduce our costs.

Our performance in 2021 illustrated the fundamental strength of our business as we maximize our results and strong market conditions as well as those where the pandemic impacted our industry.

We delivered product innovation around the world, leveraged our logistics strength as a competitive advantage and executed multiple price increases to pass through material energy and transportation inflation across all products and geographies.

We managed labor shortages with enhanced training process improvement and strategic automation where possible.

We creatively address materials supply shortages through product reengineering, SKU rationalization and improved production planning.

The negative impact from inflation supply chain disruptions and labor shortages, along with a stronger US dollar increased as the year progressed.

Sales in the fourth quarter remained strong rising 4.5% as reported or approximately 12% on a constant currency and days basis to approximately $2.8 billion.

With a return to more normal seasonality for the industry and 6% fewer days in the period compared to the prior year.

Our adjusted EPS for the quarter was $2.95 per share with benefits from price mix and productivity offset by increased inflation and lower volume from fewer days in the period.

As raw material energy and other costs continue to rise, we implemented price increases in most products during the quarter.

European natural gas prices have been the most volatile substantially increasing our energy costs as well as material costs and we have raised our selling prices significantly.

We ran our operations at high levels through the end of the year in an effort to improve inventory, so staffing and material supply and transportation challenges impacted our costs.

Outside the US, government restrictions on business operations in some regions lowered retail sales during the quarter.

Commercial sales improved in the quarter, even with some deferral of projects due to COVID and government actions.

During the fourth quarter, we released our annual environmental sustainability and governance report.

The reports showcase how Mohawk is fostering innovative products that lay the foundation for healthier more inspiring spaces, where people live and work. We also highlight how we're maintaining a safe respectful workplace.

Reducing and repurposing waste and conserving natural resources.

The entire document's available on our website.

Jim will now review our fourth quarter and full year financials.

Thank you, Jeff.

Sales for the quarter were just shy of $2.8 billion. That's a 4.5% increase as reported or 11.8% on constant days and FX basis, setting a new fourth-quarter record year over year growth was driven by price mix initiatives across the business to attack rising costs partially.

Offset by the fewer shipping days in a more normal seasonality.

For the full year, Mohawk also set a sales record on a consolidated basis and in each segment with total sales of $11.2 billion, a 17% increase versus prior year as reported.

Gross margin for the quarter was 26.7% as reported or 26.8% excluding charges decreasing from 28.8% in the prior year. The year over year decrease was primarily driven by inflation of $257 million lower volume of $49 million with fewer shipping days.

In a more normal seasonality, partially offset by improved price mix of $242 million and productivity gains of $40 million SG&A as reported was 17.5% on an absolute dollar basis, the increase versus prior year as a result of a return to a more normal.

Selling and marketing activity compared to the prior year of $19 million inflation of $7 million unfavorable impact of price mix and volume of $5 million, partially offset by a net FX gain of $5 million operating income as reported was a margin of 9.2%.

Excluding charges 9.4% compared to 11.6% in the prior year.

The year over year decrease was driven by inflation of $264 million, especially in raw material and energy.

Unfavorable volume up $51 million, primarily due to fewer shipping days, partially offset by strong price mix actions of $240 million productivity gains of $21 million and a net FX gain of $8 million.

On a full-year basis, adjusted operating margin of 12.1% significantly increased exceeding prior year by 370 basis points and 2019 by 270 basis points, driven by strong volume productivity and price mix actions offsetting.

Increase in inflation.

Interest expense for the quarter was $12 million down slightly from prior year.

Our non-GAAP tax rate for the quarter was 18.9% versus 14.8% in the prior year, which was favorably impacted by the cares Act.

We expect 2022's tax rate to be between 22 and 23% with quarterly variations.

Our EPS as reported was $2.80.

And an adjusted basis was $2.95.

A decrease of 17% primarily due to the volume effect of fewer shipping days and the pace of inflation, especially in Europe.

On a full-year basis, EPS of $14.86 was an all-time record increasing 68% versus prior year and 48% versus 2019 pre-pandemic level.

Now turning to the segments. Global ceramic had sales of $950 million for the quarter of 3.2% increase as reported or 9.8% on a constant FX and days basis.

The year over year sales growth is driven by pricing actions with Brazil, Europe, Mexico, and our US countertop business showing the strongest growth.

Operating margins, excluding charges was 6.4% compared to 9.5% in the prior year. The segment has been impacted by the ongoing energy crisis in Europe, with total inflation, increasing by $87 million versus prior year as well as the fewer shipping days driving lower volume of 13 million.

Partially offset by strong price mix actions of $65 million favorable productivity of $7 million and net FX gain of $2 million.

Flooring North America sales at just over $1 billion, that's a 5.4% increase as reported or 12.2% on a constant basis with the resilient and laminate product categories, having the strongest results along with our commercial business, which continues to show improvement.

Operating margin, excluding charges, was 9.1% as compared to 9.5% in the prior year.

The year over year margin decrease was driven by inflation of $88 million, primarily due to raw materials offset by continued price mix actions of $85 million a decrease in volume primarily due to fewer shipping days of $20 million offset by increased productivity initiatives of $22 million.

And less temporary shutdowns of $4 million.

And finally, flooring rest of the world net sales of 796 million. That's a four 9% increase as reported or 13.9% on a constant days and FX basis with the strongest growth in our panels and installation business as Lv and Lam that were negatively impacted by supply.

And labor constraints.

Operating margins excluding charges came in at 14.8% as compared to 18.2% in the prior year.

The year over year margin decrease is due to unfavorable volume the $18 million driven by fewer shipping days and labor and material constraints, which also negatively impacted productivity by $8 million.

In addition, we have seen escalating inflation at $89 million in the fourth quarter, but we were able to offset with price mix actions of $90 million. Lastly, there is a slight increase in startup costs of $2 million offset by net FX gains of $6 million.

In the fourth quarter, our corporate and eliminations were $12 million in line with the prior year.

Turning to the balance sheet cash and short term investments were $592 million.

Due to the increase in inventory and the timing of Capex, we recorded a use of cash in the quarter of $89 million, but had a strong full-year free cash flow of $633 million. Receivables ended the year at just over $1.8 billion and Dsos were very strong at 56 days as compared to

59 in the prior year.

Inventories for just shy of $2.4 billion, that's an increase of approximately $479 million or 25% from the prior year due primarily to increasing inflation inventory days finished at 112 days versus 103 in the prior year.

Property plant and equipment was just over $4.6 billion.

Now based on the timing of new projects, Capex for the quarter was $301 million with DNA of $143 million.

For the full year, Capex came in at $676 million and DNA at $592 million.

For 2022, we are forecasting CAPEX to be approximately $800 million and D&A to be approximately $600 million.

Overall, the balance sheet and ongoing cash flow remained very strong with gross debt of just over $2.3 billion and our leverage at 0.9 times to adjusted EBITDA.

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

Thank you, Jim.

For the quarter, our flooring rest of world segment sales increased 5% as reported or approximately 14% on a constant day and currency basis.

Adjusted operating margin was 14.8% as a result of pricing and mix gains offset by inflation and lower volume due to fewer shipping days and supply chain interruptions during the quarter.

Sales were strong in the quarter as demand for our residential products maintained its momentum even with delays in shipments due to transportation constraints.

Beginning in the third quarter, our material costs began escalating at an unpredictable pace as many suppliers utilized natural gas in their manufacturing process.

Based on our cost estimates, we raised prices on our product lines in the fourth quarter and again in the beginning of this year despite.

Despite multiple pricing actions, we're still lagging inflation because of these increases.

We have announced further price increases based on current cost and it will take time for our actions to offset these extraordinary circumstances, we will continue to monitor closely and we will take further actions as required.

During the quarter, our premium laminate collections continued to perform well in Europe, and Russia due to our unique visuals and water-resistant technologies.

Though we expected improved material availability for our LBT business, we continue to experience shortages, which impacted our production and sales in the quarter.

We are continuing to enhance our LVT processes, particularly in our higher-value rigid collections.aA we expand our customer base and product offering we are growing our sheet vinyl sales in Russia, and Europe.

We installed a new production line for high-pressure laminate, which is sold as complementary product to our panels and is used on surfaces that require higher performance levels, such as furniture cabinetry and wall treatments.

We are enhancing our panel visuals with new technologies from our laminate flooring.

Our mezzanine flooring business also grew significantly in the period as demand for e-commerce warehouses space expanded.

Throughout 2022, we will integrate the bolt on acquisitions we completed last year to expand our position and further differentiate Mohawk from our competition.

Our new French MDF facility will complement our existing operations enhance our product offering and strengthen our regional position.

The purchase of an insulation manufacturer with plants in Ireland, and the UK complements our existing operations in those countries and we will increase our share in the polyurethane installation category.

The purchase of a wood veneer producer to be finalized in the first quarter, we will improve the cost and quality of our engineered wood floors and make our operations more sustainable to enhance these operations, we will upgrade their assets and refine their processes.

Our rest of world segment has a proven foundation for growth based on delivering product innovation through value-added features that consumers prefer the unique style and performance of our premium laminate has made us the market leader our waterproof laminate collections are popular across all sales channels and we have seen.

Growing demand as home renovation has increased during the pandemic.

To maximize our premium laminate sales, we expanded our press capacity last year, we are executing our next laminate expansion in Belgium, which will support additional sales were approximately $150 million. When the production is fully operational at the end of 2023.

In the fourth quarter, our global ceramic segment sales increased 3% as reported and 10% on a constant day and currency basis.

Adjusted operating margin was 6% as a result of productivity and price pricing and mix improvements offset by European energy crisis inflation, and a return to more normal seasonality.

Mexico, Brazil, and Russia outperformed in the period, even though sales in those regions were constrained by capacity limitations.

Our US ceramic products are gaining momentum as imported ceramic service levels have become less reliable and landed cost have increased.

Residential remodeling and new construction drove sales growth in the quarter with commercial improving though still below pre-pandemic levels.

We grew sales and improved mix with our innovative floor wall and mosaic offerings as well as expanding our position in exterior products such as our outdoor porcelain papers.

We have introduced a variety of new sizes and unique shapes and expanded our polished and rectify collections with enhanced performance features.

Our courts and porcelain slab sales continued to grow improving our mix and margins inflation in material labor and energy continued to impact all of our markets and we are taking additional pricing actions to recover.

Last year in Europe, natural gas prices accelerated at an unprecedented pace due to supply shortages and are presently about five to six times higher than last year.

Most European ceramic industry participants are implementing price increases to offset these extraordinarily high energy costs, we anticipate our prices aligning in the second half of the year.

Due to uncertain availability this winter, we are forecasting continued energy volatility, which will impact our first-quarter results.

Future prices will depend on stability in the region, and whether Russia increases supply's beyond its contractual obligations.

Yes.

Mohawk is the world's largest producer of ceramic tile and we have many opportunities to leverage that position and grow our long term sales and profit. We are well-positioned for significant growth in markets, such as Russia, Brazil, and Mexico, where ceramic tile as the dominant residential and commercial flooring.

In Russia, we are expanding our porcelain tile capacity with a new production line that should be operational later this year added an additional line that will be completed in 2023.

In Brazil, we are constructing a new porcelain tile facility that should be operating fully by the end of next year.

In Mexico, we are expanding our production of mosaic and specialty products, while allocating more of our ceramic production to the local market.

In Europe, we're adding capacity to expand our portion of the slab business and enhance our successful outdoor and specialty tile business.

In the US, we are investing in our quartz countertop production to keep pace with rapidly increasing demand.

Collectively, these expansions will support additional sales were approximately $300 million when all of the lines are fully operational.

This year is the 20th anniversary of Mohawk's entry into ceramic tile manufacturing through the acquisition of Dal tile. In the past two decades, we have grown our legacy sales and expanded into new markets through major acquisitions. Ceramic tile is the primary flooring in many large markets where industry consolidation has not yet taken place providing significant opportunities for expansion.

Taken place providing significant opportunities for expansion.

In the quarter, our flooring North America segment sales increased 5% as reported or 12% on a constant basis and operating margin was 9% as a result of productivity pricing and mix improvement, partially offset by inflation and a return to normal seasonality.

The robust US housing market supported sales growth with both remodeling and new construction remaining strong, particularly in the sunbelt. The success of our differentiated products benefited our mix. So some consumers traded down to maintain their budgets.

The commercial sector continued to slowly improve with COVID-19 concerns still deferring some projects. In the period, we increased prices due to higher energy and material inflation. We improved our service levels, though our production cost increase with greater energy expenses absenteeism and training of new hires.

Some product manufacturing was constrained by raw material shortages limiting operations and increasing costs.

We are expanding our manufacturing capacity and LVT, laminate, commercial carpet tile and floor mats to increase our sales. We expect continued improvement in the residential markets for the foreseeable future commercial will continue to recover as business confidence grows and new projects are initiated.

Mohawk is the leader in US laminate market and we have reinvigorated the product category with improved visuals and waterproof performance. All sales channels are expanding the use of our premium laminate and we are increasing our capacity to support $300 million of additional sales.

The first expansion phase is starting up this quarter with the second phase following in 2023.

The new production lines will have capabilities to produce the next generation of proprietary laminate to extend our leadership in the category. LVT remains the fastest growing.

<unk> remains the fastest growing.

floor product in the market and our LVT business delivered strong growth in the fourth quarter as we continued to improve production at our existing facility.

We're starting up a new LVT operation to support sales of over $160 million.

The plant's first equipment is being installed now and the project will be completed in phases through the second half of 2023.

Once all planned lines are fully operational, the site can be expanded further as needed.

To provide more value to our customers. We are incorporating unique technical features utilizing proprietary technology developed for our laminate business.

In addition to these capacity increases we also have many cost-saving investments, including fiber manufacturing and transportation projects that will improve productivity and profitability within this segment. With that, I'll return the call to Jeff.

Thanks, Chris.

After a record-setting 2021, we're enthusiastic about Mohawk's future growth and profitability.

This year GDP is expected to grow 3% to 5% in most of our markets with residential sales remaining strong and commercial improvement.

Interest rates will likely rise, but you remain historically favorable and support continued home sales and remodel.

During the year, we anticipate inflation moderating and constraints and labor material and energy decline.

We're selling all of our capacity in many product categories and are optimizing our mix and margins this year.

We've initiated multiple expansion projects to increase our sales and a growing areas this year and beyond.

Significant short term material energy and transportation inflation is affecting all of our businesses and we are re-engineering formulations, reducing spending and improving efficiencies to offset.

We are presently implementing price increases are announced additional ones across products and geography.

We will continue to adjust our pricing as necessary to recover our margins over time.

In Europe, energy costs have dramatically accelerated and have also affected the cost of our materials. Our European ceramic business has been the most impacted which we anticipate will create a 40% to $45 million headwind net of price increases in the first quarter.

Given these factors, we anticipate our first-quarter adjusted EPS to be $2.90 to $3.

$3.

Excluding any restructuring charges.

In the second half, we expect our margins to improve as capacity expands inflation moderates and pricing alone.

Based on the strength of our company, our product and geographic diversity investments in growing categories and potential acquisitions.

Our long range outlook is for higher sales growth and margin expansion.

Flooring is an essential part of new construction remodeling and as the world's largest flooring manufacturer, Mohawk has built leading positions in major flooring markets around the globe.

We expect our business to benefit from strong demand through this economic cycle.

Given today's low inventory of existing homes, new residential construction and remodeling should remain strong for many years.

Mohawk's sustainable products appeal to today's environmentally conscious end-users, which gives us an added advantage in our markets and enhances our bottom line.

In time, we expect the commercial sector returned to its historical growth with pent up demand representing a significant opportunity.

In addition to expanding capacity, we continue to invest in our organization talent and state of the art technology to deliver exceptional design value and service to our customers.

Over the next three years, we anticipate higher sales and margins as we implement our product manufacturing and marketing initiatives.

We will continue to leverage our strong balance sheet to pursue acquisitions that further our geographic reach and product offering while growing our sales and profitability.

We'll now be glad to take your questions.

And ladies and gentlemen at this time, if you would like to ask a question. Please press star then the number one on your telephone keypad. Management requests that you limit your questions to one and one follow up.

Your first question comes from the line of Truman Patterson of Wolfe Research. Your line is open.

Hey, good morning, everyone. Thanks for taking my questions.

Sure.

Good morning.

First just wanted to look at this first quarter EPS guidance.

Just trying to understand if a higher tax rate is embedded in it compared to the fourth quarter and then also when I look at the 1Q guide historically op margins consolidated normally fall about 200 basis points quarter over quarter is it safe to assume that you're expecting kind of first quarter op margins to outperform.

Outperform.

That historical decline and are there any segments maybe to call out when we look at it sequentially?

Okay.

I will take the first part of that on the tax rate trim and as I said for the full year looking at 22% to 23%.

I would expect it to be maybe a little bit lower than the bottom of that.

In the first quarter and then as I said, it's going to vary as we go through the year.

I think also the difference in days in the fourth quarter is also impacting the comparison between the two abnormally.

The difference in days in the fourth quarter is also impacting the comparison between the two abnormally.

And then we also have last year you have as we're going out of last year. It was seasonally stronger than it is this year, it's more normal and same thing in the first part of the year the customers who are behind in their purchases and inventory levels.

The channels were behind so the demand was different so there's a lot of differences in the.

Seasonality between the two.

Okay. Okay.

In the press release and the prepared comments, you all have discussed some cost-saving initiatives in North America.

Especially the fiber manufacturing and transportation projects.

I'm hoping can you give a little more detail on each of those initiatives and is there any way you can.

Help us quantify those over the long term.

Some of it is in the asset purchases we've done with the investments. We upgraded various assets in the

Asset purchases, we've done with the investments we upgraded various assets in the <unk>.

Fiber and yarn manufacturing.

To put in lower-cost assets based on how the business has changed over the years.

Some of it is in the transportation, we have put in new processes and systems.

To try to optimize the transportation systems, which we're getting higher weights on the trucks.

<unk>, the transportation systems, which we're getting higher weights on the trucks.

And we are improving the.

Way we charge for the business or charge for the transportation relative to the market rates as we go through.

So they are all benefiting the business.

Or is it also true is the completion of the actions that we started back in 2020, where we.

Got out of older assets and optimize the plant flow, which eliminate.

And it's going to help on the material side and the labor side.

On a productivity basis.

Alright. Thank you, guys.

Okay.

Thank you and your next question comes from the line of Eric [inaudible] of Cleveland Research. Your line is open.

Thanks.

Jeff, curious if you could talk about where you think we are in.

The lifecycle of LVT.

And thinking over the last five years.

But LVT was all of the industry growth for a period of time and it felt like it was taking share from ceramic tile it actually was.

In laminate, I was doing okay. I'm just curious as you think about over the next three or four years, how those three categories are behaving relative to each other I guess largely in the US. But also globally.

In the US, LVT has now grown to approximately 20% of the flooring category.

With that, the size has gotten where it is.

The rate of growth is going to slow down.

We think that the other categories are those still show.

Volume growth. So we don't believe it's going to take all of the growth going forward as you go through there's been a change in the laminate business.

It was perceived as a cheap alternative and with all the.

Advances we've made in it it's now being seen as a equal opportunity to versus

Both LVP and wood.

It caused on one side, we've added the waterproof technology. On the other side, we've made it visually as pretty as real wood.

You can't tell the difference on the floor. So it's in the midst of.

a change in piece, and we're investing to support it.

When you go to Europe.

Laminate is a much larger part of the industry than it is in the US.

It stopped growing at the same level, on the other hand, our premium is LVT

As a category is probably less than half the size. It is in the United States as the market hasn't accepted and at the same rate as the US has.

Okay. That's helpful. And then one follow up if I could.

The competitive position of your US business you referenced in the prepared remarks, but as you look at your cost position.

I guess this is a hard surface focused question, but your cost position relative to imports.

And the incremental transportation cost and they are dealing with I am just curious how you think that influences the performance of the business over the next.

couple of years.

And what that means for you.

If I can comment on the ceramic side.

The ceramic industry strengthen. The import prices have increased.

The ocean freight constraints are causing delays in increasing cost. So I think we're well positioned on the ceramic side in the United States to take additional share.

Any other pieces I think we're in good position, the LVT.

We're still in the original plant, we're still improving the cost in the fourth quarter of last year.

The costs were actually impacted by a lack of supply we had to slow down the machines in order just to keep the plant running we expect the productivity and the cost to continue to improve we're investing in a new plant.

Which we think of the cost-advantaged versus imports and we think we're in a good position to grow with the market. We're also importing a lot of products. So it's not in lieu of the app.

Great. Thank you.

And your next question comes from the line of Adam Baumgarten of Zelman. Your line is open.

Hey, good morning, everyone.

Maybe sticking with flooring North America, when you talk about trade down in the segment is that primarily related to carpet or are you seeing it also in some of the other areas like LVT.

Every time you go through significant inflation in the industry some of the consumers start looking at the.

To hold the value of what they're going to spend or the prices and so as a normal course of events. It is you'll see significant inflation. There is some trading down in all the categories.

Got it.

And then maybe switching gears to ceramic you talked about the net headwind from the European natural gas cost increases. Is that net of all pricing in the segment or is that just net of European?

Ceramic pricing.

It's net of European ceramic pricing.

Okay, got it, thank you.

And your next question comes from the line of Susan Macquarie of Goldman Sachs. Your line is open.

Macquarie of Goldman Sachs. Your line is open.

Thank you, good morning, everyone.

Speaking I guess again with flooring North America. I wanted to focus a little bit more on the margin side. You, obviously are coming off a year, where you've gotten that margin back to the low double-digit range. As you think about the initiatives that are going on in that segment can you talk about where you think that that can go over time with the trajectory of it is and how does that maybe compare.

To where we've been in the past in that segment from a profitability perspective.

Okay.

<unk>.

The margins in the business have come back.

There is still below where they were at the peak a few years ago. There has been, in the carpet industry, there's been a trading down to polyester at lower prices and different pieces.

Those margins will probably not get back to the peaks they were at. On the other hand, we have

investments in LVT and laminate that those margins, we think have room to grow as we improve the mix and put more investments in as we go through impacting the whole thing in all the categories. You have also the commercial sales are still behind the pre pandemic levels.

Our estimates depends on which product category on which channel. They could be 10% to 20% below the.

Pre pandemic levels and those are higher-margin products in sales. So as those come back those are going to improve the margins also.

Okay. That's helpful color. And then when you think about all the initiatives that you have going on globally across the business. Can you talk about how we should think of growth going forward over time? The ability to sort of capture what is going on out there and where do you think growth will really be.

led from within this business in terms of products or even geographies and what are some of the areas that you are really thinking about and looking to incrementally further capture.

What's happened to us is that as the business.

Went through COVID.

We pulled back on all of the investments in the various categories and then when we came out of it we found that many of the categories have grown.

In one year, what we had expected and multiple years, so you'll see us trying to catch up with the investments that we're putting in.

We're investing about $800 million this year.

$800 million this year.

Will add roughly about $800 million worth of sales.

Which is all going in this year and next year in the high growth categories. The other categories of the business still have additional capacity to support increased sales going into the next year or two.

We think we're taking the right steps to optimize the business.

One is we don't, we probably don't get enough credit for is the portfolio of the products that we have we manufacturing five different continents and the different markets, we have the leading brands and market positions, we sell them into over 170 different countries.

And so with this with a strong balance sheet you have you see us investing heavily to reduce our costs and broaden our product offering.

We believe they're going to be more acquisition opportunities we're talking to.

Several at the moment, we'll have to see how they evolve. We think there is more going to come into the marketplace over the next year or two. We're well-positioned with our balance sheet to take advantage of those.

You hear us continuing to invest in leading technologies to give us differentiation to improve the margins.

And with all that we see.

We think we're probably in the mid cycle part of it.

Usually the economy and the industry keep growing as we start raising rates at this point.

The residential markets are running at high rates.

What normally you have when you get towards the cycle we've overbuilt.

The residential housing. This time, we're still chasing it. So it seems like Theres plenty of room to grow we've talked about the commercial improving so we think we're in a right position for higher growth and margin expansion over the next few years.

That's great color. Thank you, Jeff and good luck with everything.

Thank you and our next question comes from the line of Mike Dahl of RBC capital markets. Your line is open.

Good morning. Thanks for taking my questions. Good morning.

I wanted to follow up on a couple of areas. The first is on.

On kind of the European ceramic in the Nat gas.

Environment in the opening remarks. In addition to the headwinds that you outlined in terms of the 40% to $45 million, I think you did say that at this point most.

Competitors are raising prices to adjust. Can you elaborate a little more because last quarter? It was with some of your competitors, where we're hedged so they weren't acting as quickly. Can you talk more about what you're seeing in terms of the competitive dynamics and the pricing environment on whether competition is raising price enough at this point.

<unk> prices to adjust can you elaborate a little more because last quarter. It was with some of your competitors, where we're hedged so they werent acting as quickly can you talk more about what youre seeing in terms of the competitive dynamics and the pricing environment on whether competition is raising price.

At this point.

Well.

Everybody in the market is raising prices, including us. You're right. Some are hedged and that's probably causing them to raise prices a little less fast and then they need to be but everybody is raising prices.

We expect the energy volatility through the winter due to lower European reserves and uncertain availability, but the short term the.

Headwind should peak in Q1.

And then progressively get better after that for a couple of reasons. One is got, you're getting into the summer months, where gas is naturally cheaper and you're also as we look at the forward contracts they are lower than what we're experiencing now.

Got it, okay.

And my second question.

It's around market share and going back to North America, you've made some comments around how you positioned your product.

And I think you're in a position to take share.

In a variety of categories, if I look at the fourth quarter data.

And I adjust for your days headwind.

It still seems like from a total value and a volume standpoint, and correct me if I'm wrong.

But it seems like volume was kind of flattish.

Days adjusted basis, maybe up slightly to down slightly but the market industry data would still seem to suggest that.

Industry growth in volumes has been call it high single digits and in value maybe closer to 20%. So that data would seem to suggest maybe it's still some shares slippage. So can you just speak to that and talk about how you think your share performance.

Volumes has been call it high single digits and in value maybe closer to 20%. So that data would seem to suggest maybe it's still some shares slippage. So can you just speak to that and talk about how you think your share performance.

Evolves kind of through the quarter and what your expectations are for this year.

Sure.

Let me unbundle a little bit what you said there, Mike.

So first of all in the fourth quarter, You're right as we look across the segments I would say the volume piece adjusting for days and everything else. The business volume was relatively flat to slightly down and if you think about that makes sense compared to fourth quarter of 2020, when you had unusual.

Demand levels and so.

Really abnormal seasonality, so that's kind of straighten itself out in the fourth quarter also in the fourth quarter of this year.

We had been material and labor constraints, which impacted not only our production, but our sales.

In various product categories.

So that definitely impacted that volume.

Yes, the other thing I would add.

When you look at the data on the ceramic market, it's really hard to read because you've got the.

The imports coming in and the volume the way they're measuring that is the imports coming into the country, which we think most of the competitors were building inventory during that time.

But when we go out and look at the customers we're getting and the progress we're making in the marketplace. We think we're doing really well.

The industry data on the carpet shows the carpet industry was down in units and again, we think it's because of the seasonality differences between the two on the other side, we are probably index higher on our commercial business, which is still 10% to 20% below.

Where it was before the pre pandemic pieces.

We also have a lower percentage of the LVT, but we're growing our business there.

Okay. All of that makes sense. Thank you. Thank you for that color.

Your next question comes from the line of Michael [Rehaut] of JPMorgan, your line is open.

J P. Morgan your line is open.

Thanks.

Good morning, everyone.

A few clarification questions.

Before I get into I guess, a bigger picture question. If you could just kind of be more explicit just to make sure we understand.

Be more explicit just to make sure we understand.

Number one, second-half margin improvement that you are playing out in '22.

We're talking about year over year expansion, when you say improvement.

And also the net of price impact in the European ceramic of 40 to 45.

That 40% to 45 is kind of the same number that you were referring to last quarter when you were saying.

After the $25 million headwind in 4Q.

That could approach doubling but we're not changing the definition of the.

40% to 45 relative to last quarter.

Just wanted to make sure that that's clear.

Let me start with the ceramic piece. The ceramic piece, the number is still the same, however.

We are getting there a little different.

We are actually going to get more price than we thought. On the other hand, the gas prices were actually higher so a net back down to about the same thing.

Both are different.

The definition is the same, Mike.

So we didn't.

The 25 compared to the 40 and 45, the definition is the same.

Mike what happened in the

As we produced in the fourth quarter.

You may have seen the gas prices, but in some cases, they spiked to 170, 200, which is very high and of course that as that inventory rolls off in the first quarter you see that impact.

Yes.

As we think about the year.

<unk>.

We're starting from the premise that the present trends the economy housing and business investments or could continue as we all expect and all the projections from everybody. And what we see as our margins after the first quarter should improve as the price and costs get aligned better and continue throughout the rest of the year.

Year.

And don't forget when you get into the fourth quarter. We shouldn't have the same energy headwinds that we had last year.

So just to be clear again, when you talked about second-half margins improving.

Again, we're talking about on a maybe on a consolidated basis second half margins higher than second-half '21, is that fair to say?

Yes, when we're looking at that sense.

We are saying is that year over year.

I would say it really depends upon how inflation plays out in the first half as well and then the economic trends continuing as most expect in the second half, but that is what we're addressing.

Right. Good.

Secondly, you talked about also in the press release this outlook for 3% to 5% GDP growth across most of your markets.

You talked about also in the press release this outlook for 3% to 5% GDP growth across most of your markets.

Usually, companies have a goal of at least meeting that GDP growth. So when you think about your full-year sales growth.

For 2022.

Particularly given the price increases that you've put into place in the back half of '21 and early '22.

The pricing the price increases that you've put into place in the back half of 'twenty one in early 'twenty two.

Should we be expecting your revenue growth kind of in the mid single-digit range?

Mostly driven by price. Is that the right way to think about it? And also sorry, one more granular question. If there is any variation in shipping days by quarter for '22 versus '21 that would also be helpful for modeling.

Let's see.

Well, let's start out with the.

You are correct that you have the increase in the inflation is going to increase the piece in the

Inflation is going to increase the piece in the vault.

Volume assumptions you have seem reasonable.

<unk>.

Just to put in at the comparisons will be more difficult in the first half as the customers last year were replenishing inventories. And we don't see the same thing, we will be back at a more normal seasonality this year.

And then also on the first half Youll see a bigger impact from price increases in the first half and you're willingness.

As we go into the second half, we think we'll see some stronger volume growth due to better inventories on our part.

So we can service the business better as well as a lower impact from pricing one more thing just to not forget at least the estimates by everybody show that this year. The dollar is expected to be stronger than last year and a stronger dollar.

It would have.

Production in our translated results.

In terms of days, Mike Theres, one one less day in the first quarter and the other three are the same.

Alright, Thanks, a lot.

Yes.

And our next question comes from the line of Phil.

From Jefferies. Your line is open.

Hey, guys.

Mentioned that supply chain labor impacted your results in the fourth quarter and certainly that was very pronounced in your rest of the world business. So curious how is that kind of shaping up in <unk>.

Do you expect that to kind of improve or it's going to take a little bit more time call. It two keven.

We're still having.

Problems with supply were still having problems with labor.

And its still impacting our business.

Probably the bigger part of it and our LDP business, both in the U S and Europe .

For instance, we're running lines at lower speeds to keep them running instead of stopping and starting them.

Have other suppliers and pieces that have.

We've had to stop the plants and then with Covid, we've had people not showing up for work and just having to shut the places down and or having to run places different.

In most areas were seeing some.

Some improvements, but we'll have to see how it works.

Got it okay. That's helpful. So marginally better it's going to take a long time.

And then from a capital project standpoint, you've got a lot of exciting new stuff coming on whether it's lvg ceramics.

Laminate product as well can you remind us how that kind of ramped up through the year and in an appreciating their startup cost and theres, a learning curve component to that.

Is there a good way to think about the EBITDA contribution this year I know a few years back when you had a big ramp up.

Had some headwinds to kind of come out of the gate.

I think if you go back to the introductory remarks, we tried to put what points in time, they would come in because some of them are in the middle of next year and some of them are this year.

All through it if you'll go through that I think you'll get a sense of the timing of it.

Our current expansion projects different than the earlier time, we did it.

In markets and products that we already have in the marketplace with increasing sales.

Last time, we went into new products and new markets that we had to start at zero and there were significant marketing costs upfront.

This time the investments are focused on our existing laminate business in the U S and Europe .

Ceramic outside the U S for the market's R. R.

Hold up.

We're sold up we're expanding our countertop business in the U S and Europe , and our <unk> business. So the markets are there for where they are which should reduce the.

The impact of selling up the assets as we start them up and then the same thing we're using technologies that are proven which.

We have operating in all the places which is also limit the startup costs as we get through in addition, there are other other projects on both productivity and efficiencies, which should immediately enhance our business.

Got it.

Jeff I was just going to say timing wise. If you look so we've launched the first laminate new laminate line in the fourth quarter. So youll see some benefit in 'twenty two of that.

Limited benefit Lv.

<unk> launched but most of the others echoing what Jeff said, we will we will impact into 'twenty three.

So then in 'twenty two.

But you expect it to be.

Additive rather than any big headwinds right. So it's more of a good guy that anything.

Yes, okay.

Thank you.

And our next question comes from the line of Keith Hughes I'm curious your line is open.

Thank you wished in flooring North America, we look at the revenue growth excluding the days.

<unk> was up was up a good bit.

Compare that to some of the numbers coming out of the carpet industry, even adjusting for days.

You seem well ahead, and I know thats about laminates.

<unk>. My question is could you put a little bit more of a magnitude on how much those products grew in the fourth quarter versus the average of the segment also for the year as well.

Okay.

So we don't really don't get to that level of granularity and Keith Youre right that the certainly in the segment laminate.

In the resilient business grew more than carpet and so they really drove the growth.

Long with I would say the pricing actions that we put in place really dwarfed anything around volume.

Okay, and then second question on global within global ceramic the North American business. If you could talk about what its growth look like versus the segment average.

And what the puts and takes on that.

Well first on U S ceramic products are gaining momentum as imported products are less reliable in landed costs have increased.

Pricing actions have offset inflation keeping margins in line with prior year.

We introduced several products floor wall and exact offerings that were <unk>.

Offered this year and then to improve mix, we've introduced new sizes and shapes as you look into 'twenty. Two we believe the U S will grow in both volume and price as residential remained strong and commercial strengthens.

Brazil, Russia, and Mexico will have to optimize mix given the capacity limitations and we think that you EU volume will be under pressure just given natural price increases from natural gas.

Okay. Thank you.

Okay.

And your next question comes from the line of Stephen Kim of Evercore ISI. Your line is open.

Yes, thanks, very much guys just wanted to clarify to start off some of the capacity that you talked about bringing on in flooring North America, the $300 million in laminate capacity you.

You talked about two phases I just want to make sure that the $300 million encompasses both phases and then the LPT plan of $160 million.

I think it can be done over the next 18 to 24 months I guess my question is it seems like that line is quite a bit smaller maybe as much as half the size, maybe happened small or half as large as your first line.

So when you talk about the site being expanded or able to be expanded as needed I was curious how quickly could you bring on additional capacity within that site and where is that site located.

Okay, well first of all just in terms of the production the original lines.

Designed for high volume long runs and our new production lines are designed for more differentiated products and smaller runs.

And you talked about the location to optimize our U S. <unk> manufacturing will now have both in east coast and West Coast Operation. This should provide a service logistics and cost advantage and this plant will be in Mexico, and its adjacent to one of our other factories.

And then I think the other questions were around laminate the laminate each line does about $150 million each.

First one is in.

In a start up right now and should be operating.

In the middle of the second quarter close towards potential and then the next line will come in in the Middle of next year some time.

And just to clarify Steve.

What we've said is up to this point, we have globally, we have about $1 billion.

Sales capacity and Lv team that's across five line, so the $160 million on the new line.

It is not really.

Totally different versus the.

The other lines.

Yeah, Yeah, I know you had a couple of small lines in.

Europe and so forth.

Okay. That's helpful.

Second question relates specifically to productivity I mean, as we look at your EBIT walk on a year over year growth in product.

And EBIT from productivity, specifically you had a couple of really good years now I mean, it was strong in 2020 was strong in 2021.

I'm curious with with all the moving pieces, and particularly like labor inefficiency and absenteeism and whatnot I would think the productivity could start to become a benefit to your EBIT.

Right.

From other pieces like maybe labor and so I'm curious could you would you expect another strong year of productivity in 2022, and how might that flow in from a timing or a segment perspective.

This one is that we will have to find out what happens to supply.

Labor.

The world in different places.

We're still struggling with the pieces our assumptions are that it gets better through the year, but to tell you the truth, we haven't seen it yet.

Is it.

At the same time all of these new facilities and things were going to start bringing up show up has some negative productivity offsetting some of the other positive productivity we have during the year.

Okay. That's helpful Alright, great. Thanks, very much guys.

And your next question comes from the line of Laura Ashley Pine of loop capital. Your line is open.

Thanks for taking my question.

Follow on to your comments about inflation being lower in the back half I heard.

The answer about gas prices in Europe , but are there any other elements in your thoughts where you can see or basis provides a basis for inflation to be lower back half versus first half of this year.

There is.

Significant.

Shortages.

Have been causing the raw materials.

To be at historically high prices, we're assuming that some of that lines up this year and some of the pressure from capacity versus demand offsets and then it depends on what happens with the oil and gas prices around the world.

Does that imply that your expectations are that units for the industry will be down year on year, thus freeing up more capacity or do you think there is more capacity coming to market.

Late this year.

We think that.

There is more capacity to support some of the product categories that we're in.

For instance, in Europe with a high gas prices are.

Our wood prices are up because theyre, starting to burn wood as an energy source.

It's an unusually high levels, we're assuming that some of that starts to balance out next year.

As the energy prices come down for instance, there are other places where we were seeing more supply come in to the marketplace and we're assuming there's going to be a better balance to it and that was the last six months.

Got it thank you.

And your next question comes from the line of Matthew Bouley Barclays. Your line is open.

Hey, good afternoon, everyone and thanks for taking the questions here.

So just on natural gas in the European ceramic market.

I heard Chris you mentioned earlier that you expect some volume pressure in.

And European ceramic as a result of these level of price increases that you and competitors are implementing so any more color on the elasticity that you expect there as you lift prices materially is there is there an impact to the mix side of it as well.

I mean, so far we haven't seen our volumes in Europe has still been strong. So we haven't seen it but we just anticipate with the pricing that's being taken there that it would make sense that it could put pressure on the market, but so far we haven't seen it.

Right. Okay. That's helpful. And then I guess same topic just on the overall European ceramic market.

Have you seen any changes competitively within the market or that was a great comment you just gave Jeff on people burning wood ceramic.

Ceramic manufacturers limiting production at all or is this impacting exports from Italy, or Spain to the U S are there.

Any other.

Any other way the market is adapting to the severity.

Beyond just the pricing side, well, we know some of the on one end you have some of the smaller producers that have cut way back.

Were shut down and then on the other end of the market you have some of the bigger players that were hedged, but I would say in general the competitors are in the market are trying to cover the cost as much as they can not to let it impact the market too much and so it's a balance.

As you could expect to covering inflation and not killing your demand. It's got two though put pressure between the increased gas prices.

The increased freight cost it's got to put pressure on those exports and Thats why we think in the United States, we're going to be in a good position.

Got it well thanks for the color and good luck.

Thank you.

Thank you. Our next question comes from the line of Deepa Raghavan of Wells Fargo Securities. Your line is open.

Hi, good afternoon, Thanks for taking my question.

Switch gears and ask you about commercial business trends.

Are you able to share how much this business grew in 2021.

Looks like Youre expecting that you're expecting an acceleration in 2022.

It also appears the hospitality industry recovery has been further pushed out.

So essentially the drivers to your commercial business growth is opposite and maybe some institutions like schools et cetera.

Are these the primary drivers that would actually accelerate.

<unk> growth in 2022 am I thinking about the moving pieces within the component commercial verticals correctly.

Well I think it also depends on the category.

I can ceramic hospitality is doing well hospitals schools.

Still not back to pre pandemic levels, but it's certainly been strengthening.

It's been really led by health care government area and then the other some of the other channels have been slower to respond but again, we had good strong growth in.

In 'twenty, one versus 'twenty buzz.

As Chris said, its not back to the 19 levels.

Okay.

Just curious on.

Just the interest rate concerns out there, but the backdrop, you're still calling for R&R.

How are you thinking about the R&R spend in the U S. We were outbid the IP.

And obviously, we're looking at.

Some of the sentiment manufacturers.

Larger format stones.

So obviously the industry is continuing to invest in product innovation, bringing out new products.

It doesn't seem like the interest rate concerns are impacting the industry as such but.

Any comparison what are your thoughts first of all on that should we be concerned in any comparisons to 2018.

Could help us draw and stay at this time, it's different because of certain items.

Our with it presently.

We're assuming we're in the mid point of this cycle that youre going to still see unemployment decreasing youre going to still see incomes rising.

We expect the economy to keep growing like it does in the mid part of the cycle.

The mortgage rates are still historically relatively low.

And.

They and the cycles. There is still demand for housing is exceeding the supply and supporting new construction you have increased home values that should support continued remodeling as you go through typically exist.

Existing home sales when someone buys a home it takes some multiple they don't do all of the remodeling in the first year. It takes multiple years to do it. So you have all of these homes that were sold over the last two years that should continue to get remodel and then you still have commercial that's still below the pre pandemic levels.

There should be pent up demand to help increase so.

Unless they they move the rates up.

Higher than we expect we are expecting to continue improving the category.

Thanks for the color and good luck.

Okay.

Thank you and there are no further questions on queue I will turn the call back over to MS. Laura Brown.

Hosing comment.

We appreciate you joining us today.

We are really optimistic about our long term performance.

Testing to support growth and margin expansion.

We believe that we are in the right spot to optimize our business over the long term. Thank you for joining us.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Yes.

[music].

Good morning, My name is Laurie and I will be a conference operator today at this time I would like to welcome everyone to the Mohawk Industries fourth quarter 2021 conference call at this time.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

We're drawing a question please press the pound key.

Should anyone need assistance at any time during this conference. Please press Star then zero and an operator will assist you.

As a reminder, ladies and gentlemen, this conference is being recorded today Friday February 11, 2022. Thank you I would now like to introduce Mr. James Brock Mr. Brown, you may begin your conference.

Thank you Lori good morning, everyone and welcome to Mohawk Industries quarterly Investor Conference call. Joining me on today's call are Jeff, Laura Bob Chairman, and Chief Executive Officer, and Chris Wellborn, President and Chief operating Officer today, We will update you on the Companys fourth quarter and full year results I would like to remind everyone that our.

Press release and statements that we make during this call may include forward looking statements as defined in the private Securities Litigation Reform Act of $19, 95, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with the Securities and Exchange Commission.

This call May include discussion of non-GAAP numbers for a reconciliation of any non-GAAP to GAAP amounts. Please refer to our form 8-K and press release in the investors section of our website with that I'll turn the call over to Jeff for his opening remarks, Jeff. Thank.

Thank you Jim.

For the full year mass business improved significantly in 2021 net sales grew more than 17% as reported versus the prior year to $11 2 billion and our operating margins rose dramatically to approximately 12%.

Our 2021, adjusted operating income approached $1 4 billion with adjusted EBITDA exceeding $1 9 billion.

In addition versus our 2019 pre pandemic results. We also achieved 12% organic sales growth and improved our adjusted margins by 270 basis points.

We ended the year with a historically strong balance sheet and during the fourth quarter, we purchased approximately $2 4 million additional shares of stock for a total of approximately $4 nine.

<unk> 9 million shares purchased during the full year.

In February the board of directors approved an additional authorization for share repurchases of $500 million based on our confidence in the company's strength and to enhance shareholder return.

All of our segments performed well and responded effectively to the complexities that occurred during the year throughout.

Throughout 'twenty, one our regions benefited from strong housing market supported by rising home prices favorable interest rates and accelerated home purchases by millennials.

Changing lifestyles encourage shift from rental to own property moves.

Movement to larger homes, and remodeling uprights to adapt to work and school at home.

Among home improvement projects, New flooring is one of the most frequent upgrades all of our product categories have benefited from this trend which is projected to continue throughout 2022.

The commercial sector continued its improvement over the prior year, but it has not yet reached pre pandemic levels.

While we thought COVID-19 would be behind us in 2021.

<unk> continued to impact our markets with varying degrees throughout the year.

Surges in some countries kept people voluntarily at home and government restrictions in other regions temporarily hindered our operations and customers.

We continue to maintain precautions in our facilities to mitigate risks to our employees.

Moving forward, we will benefit from bolt on acquisitions. We completed in 21. These include an MTF manufacturer in France, and an Irish installation company, which will be accretive to earnings in 2022.

When integrated they will enhance our present operation expand our markets and reduce our costs.

Our performance in 2021 illustrated the fundamental strength of our business as we maximize our results and strong market conditions as well as those where the pandemic impacted our industry.

We delivered product innovation around the world leverage our logistics strength is a competitive advantage and executed multiple price increases to pass through material energy and transportation inflation across all products and geographies.

We managed labor shortages with enhanced training process improvement and strategic automation where possible.

We creatively address materials supply shortages through product reengineering, SKU rationalization and improved production planning.

The negative impact from inflation or supply chain disruptions and labor shortages, along with a stronger U S dollar increased as the year progressed.

Sales in the fourth quarter remained strong rising four 5% as reported or approximately 12% on a constant currency and days basis to approximately $2 8 billion.

With a return to more normal seasonality for the industry and 6% fewer days in the period compared to the prior year or.

Our adjusted EPS for the quarter was $2 95 per share with benefits from price mix and productivity offset by increased inflation and lower volume from fewer days in the period.

As raw material energy and other cost continue to rise we implemented price increases in most products during the quarter.

European natural gas prices have been the most volatile substantially increasing our energy costs as well as material costs and we have raised our selling prices significantly.

We ran our operations at high levels through the end of the year in an effort to improve inventory, so staffing and material supply and transportation challenges impacted our costs.

Outside the U S government restrictions on business operations in some regions lowered retail sales during the quarter.

Commercial sales improved in the quarter, even with some deferral of projects due to Covid and government actions.

During the fourth quarter, we released our annual environmental sustainability and governance report.

The report showcases our Mohawk is fostering innovative products that lay the foundation for a healthier more inspiring spaces, where people live and work. We also highlight how we're maintaining a safe respectful workplace.

Dosing and Repurposing waste and conserving natural resources.

The entire documents available on our website.

Jim will now review, our fourth quarter and full year financials.

Thank you Jeff sales for the quarter were just shy of $2 8 billion. That's a four 5% increase as reported or 11, 8% on a constant days and FX basis, setting a new fourth quarter record year over year growth was driven by price mix initiatives across the business to attack.

Rising costs, partially offset by the fewer shipping days in a more normal seasonality for the full year. Mohawk also set a sales record on a consolidated basis and in each segment with total sales of $11 2 billion, 17% increase versus prior year as reported.

Most margin for the quarter was 26, 7% as reported or 26, 8% excluding charges decreasing from 28, 8% in the prior year the year over year decrease was primarily driven by inflation of $257 million lower volume of $49 million with fewer shipping days.

In a more normal seasonality, partially offset by improved price mix of $242 million and productivity gains of $40 million SG&A as reported was 17, 5% on an absolute dollar basis, the increase versus prior year as a result of a return to a more normal.

And excluding charges nine 4% compared to 11, 6% in the prior year.

The year over year decrease was driven by inflation of $264 million, especially in raw material and energy.

Unfavorable volume of $51 million, primarily due to the fewer shipping days, partially offset by strong price mix actions of $240 million productivity gains of $21 million and a net FX gain of $8 million on a full year basis adjusted operating margin of 12.

1% significantly increased exceeding prior year by 370 basis points in 2019 by 270 basis points, driven by strong volume productivity and price mix actions offsetting increase in inflation.

Interest expense for the quarter was $12 million down slightly from prior year.

Our non-GAAP tax rate for the quarter was 18, 9% versus 14, 8% in the prior year, which was favorably impacted by the cares Act, we expect 2020 two's tax rate to be between 22% and 23% with quarterly variations.

Our EPS as reported was $2 80.

And on an adjusted basis was $2 95 $2 95.

A decrease of 17% primarily due to the volume effect of fewer shipping days and the pace of inflation, especially in Europe on a full year basis EPS of $14 86 was an all time record increasing 68% versus prior year and 40.

8% versus 2019 pre pandemic level.

Now turning to the segments global ceramic had sales of $950 million for the quarter of three 2% increase as reported or nine 8% on a constant FX and days basis. The year over year sales growth is driven by pricing actions with Brazil, Europe , Mexico, and our <unk>.

<unk> countertop business showing the strongest growth.

Operating margins, excluding charges was six 4% compared to nine 5% in the prior year. The segment has been impacted by the ongoing energy crisis in Europe , with total inflation, increasing by $87 million versus prior year as well as the fewer shipping days driving lower volume of 13.

Partially offset by strong price mix actions of $65 million favorable productivity of $7 million and net FX gain of $2 million.

Flooring North America sales of just over $1 billion Thats, a five 4% increase as reported or 12, 2% on a constant basis with the resilient and laminate product categories, having the strongest results along with our commercial business, which continues to show improvement.

Operating margin, excluding charges was nine 1% as compared to nine 5% in the prior year.

Year over year margin decrease was driven by inflation of $88 million, primarily due to raw materials offset by continued price mix actions of $85 million a decrease in volume primarily due to fewer shipping days of $20 million offset by increased productivity initiatives of $22 million.

And less temporary shutdowns of $4 million.

And finally flooring rest of the World had sales of 796 million Thats, a four 9% increase as reported or 13, 9% on a constant days and FX basis with the strongest growth in our panels and installation business as Lv and Lam that were negatively impacted by supply.

And labor constraints.

Margins, excluding charges came in at 14, 8% as compared to 18, 2% in the prior year the year over year margin decrease is due to unfavorable volume the $18 million driven by fewer shipping days and labor and material constraints, which also natively.

Impacted productivity by $8 million.

In addition, we have seen escalating inflation of $89 million in the fourth quarter, but we were able to offset with price mix actions of $90 million. Lastly, there is a slight increase in startup costs of $2 million offset by net FX gains of $6 million.

In the fourth quarter, our corporate and eliminations were $12 million in line with the prior year.

Turning to the balance sheet cash and short term investments were $592 million due to the increase in inventory and the timing of Capex. We recorded a use of cash in the quarter of $89 million, but had a strong full year free cash flow of $633 million.

Receivables ended the year at just over $1 $8 billion and Dsos were very strong at 56 days as compared to <unk> 59 in the prior year inventories for just shy of $2 4 billion, that's an increase of approximately $479 million or 25% from the prior year due primarily to increase.

<unk> inflation inventory days finished at 112 days versus 103 in the prior year.

Property plant and equipment was just over $4 6 billion.

Now based on the timing of new projects Capex for the quarter was $301 million with DNA of $143 million for the.

Full year Capex came in at $676 million and DNA at $592 million for 2022, we are forecasting capex to be approximately $800 million and D&A to be approximately $600 million.

Now overall, the balance sheet and ongoing cash flow remained very strong with gross debt of just over $2 3 billion and our leverage at 0.9 times to adjusted EBITDA.

And with that I will turn it over to Chris to review our operations.

Jim.

For the quarter, our flooring rest of World segment sales increased 5% as reported or approximately 14% on a constant days and currency basis.

Adjusted operating margin was 14, 8% as a result of pricing and mix gains offset by inflation and lower volume due to fewer shipping days and supply chain interruptions during the quarter.

Sales were strong in the quarter as demand for our residential products maintained its momentum even with delays in shipments due to transportation constraints.

Beginning in the third quarter, our material costs began escalating at an unpredictable pace as many suppliers utilized natural gas in their manufacturing process.

Based on our cost estimates, we raised prices on our product lines in the fourth quarter and again in the beginning of this year.

Despite multiple pricing actions, we're still lagging inflation because of these increases.

During the quarter, our premium laminate collections continued to perform well in Europe , and Russia due to our unique visuals and water resistant technologies.

So we expected improved material availability for our <unk> business, we continue to experience shortages, which impacted our production and sales in the quarter.

We are continuing to enhance our LDP processes, particularly in our higher value rigid collections as we expand our customer base and product offering we are growing our sheet vinyl sales in Russia, and Europe , we installed a new production line for high pressure laminate, which is sold as complementary product to our panels and as you.

Used on surfaces that require higher performance levels, such as furniture cabinetry and wall treatments.

We are enhancing our panel visuals with new technologies from our laminate flooring.

Our mezzanine flooring business also grew significantly in the period as demand for e-commerce warehouses space expanded.

Throughout 2022, we will integrate the bolt on acquisitions, we completed last year to expand our position and further differentiate Mohawk from our competition.

Our new French MDF facility will complement our existing operations enhance our product offering and strengthen our regional position.

The purchase of an insulation manufacturer with plants in Ireland, and the UK complements our existing operations in those countries and will increase our share in the polyurethane installation category the.

Our rest of World segment has a proven foundation for growth based on delivering product innovation through value added features that consumers prefer.

The unique style and performance of our premium laminate has made us the market leader.

Our waterproof laminate collections are popular across all sales channels and we are seeing growing demand as home renovation has increased during the pandemic.

In the fourth quarter, our global ceramic segment sales increased 3% as reported and 10% on a constant days and currency basis.

Adjusted operating margin was 6% as a result of productivity and pricing pricing and mix improvements offset by European energy crisis inflation, and a return to more normal seasonality.

Mexico, Brazil, and Russia outperformed in the period, even though sales in those regions were constrained by capacity limitations.

Our U S ceramic products are gaining momentum as imported ceramic service levels have become less reliable and landed cost have increased.

Residential remodeling and new construction drove sales growth in the quarter with commercial improving though still below pre pandemic levels.

We grew sales and improved mix with our innovative floor wall and mosaic offerings as well as expanding our position in exterior products such as our outdoor porcelain papers.

We have introduced a variety of new sizes and unique shapes and expanded our polished and rectify collections with enhanced performance features.

Last year in Europe natural gas prices accelerated at an unprecedented pace due to supply shortages and are presently about five to six times higher than last year.

Most of European ceramic industry participants are implementing price increases to offset these extraordinarily high energy costs, we anticipate our prices aligning in the second half of the year.

Due to uncertain availability. This winter we are forecasting continued energy volatility, which will impact our first quarter results fuse.

<unk> future prices will depend on stability in the region, and whether Russia increases supply's beyond its contractual obligations.

Yes.

Mohawk is the world's largest producer of ceramic tile and we have many opportunities to leverage that position and grow our long term sales and profit we are well positioned for significant growth in markets, such as Russia, Brazil, and Mexico, where ceramic tile as the dominant residential and commercial flooring.

In Russia, we are expanding our porcelain tile capacity with a new production line that should be operational later this year added an additional line that will be completed in 2023.

In Brazil, we are constructing a new porcelain tile facility that should be operating fully by the end of next year.

In Mexico, we are expanding our production of mosaic and specialty products, while allocating more of our ceramic production to the local market and.

In Europe , we're adding capacity to expand our portion of the slab business and enhance our successful outdoor and specialty tile business.

In the U S. We are investing in our quartz countertop production to keep pace with rapidly increasing demand.

Collectively these expansions will support additional sales were approximately $300 million when all of the lines are fully operational.

This year is the 20th anniversary of <unk> entry into ceramic tile manufacturing through the acquisition of Dal tile in the past two decades, we have grown our legacy sales and expanded into new markets through major acquisitions ceramic tile as the primary flooring in many large markets where industry consolidation has not yet.

Taken place providing significant opportunities for expansion.

The robust U S housing market supported sales growth with both remodeling and new construction remaining strong, particularly in the sunbelt the.

The success of our differentiated products benefited our mix so some consumers traded down to maintain their budgets the.

The commercial sector continued to slowly improve with COVID-19 concerns still deferring some projects in the period, we increased prices due to higher energy and material inflation, we improved our service levels, though our production cost increase with greater energy expenses absenteeism and training of new hires.

Some product manufacturing was constrained by raw material shortages limiting operations and increasing costs.

We are expanding our manufacturing capacity and LDP laminate commercial carpet tile and floor mats to increase our sales. We expect continued improvement in the residential markets for the foreseeable future commercial will continue to recover as business confidence grows and new projects are initiated.

Mohawk is the leader in U S laminate market and we have reinvigorated the product category with improved visuals and waterproof performance. All sales channels are expanding the use of our premium laminate and we are increasing our capacity to support $300 million of additional sales.

The first expansion phase is starting up this quarter with the second phase following in 2023 the.

The new production lines will have capabilities to produce the next generation of proprietary laminate to extend our leadership in the category.

<unk> remains the fastest growing.

<unk> in the market and our <unk> business delivered strong growth in the fourth quarter as we continued to improve production at our existing facility where.

We're starting up a new <unk> operation to support sales of over $160 million.

Lance first equipment is being installed now and the project will be completed in phases through the second half of 2023.

Once all planned lines are fully operational the site can be expanded further as needed.

To provide more value to our customers. We are incorporating unique technical features utilizing proprietary technology developed for our laminate business.

In addition to these capacity increases we also have many cost saving investments, including fiber manufacturing and transportation projects that will improve productivity and profitability within this segment with that I'll return the call to Jeff.

Thanks, Chris.

After a record setting 2021, we're enthusiastic about <unk> future growth and profitability.

This year GDP is expected to grow 3% to 5% in most of our markets with residential sales remaining strong and commercial improvement.

Interest rates will likely rise, but should remain historically favorable and support continued home sales and remodel.

During the year, we anticipate inflation moderating and constraints and labor material and energy decline.

We're selling all of our capacity in many product categories and are optimizing our mix and margins this year.

We've initiated multiple expansion projects to increase our sales and a growing area this year and beyond.

Significantly significant short term material energy and transportation inflation is affecting all of our businesses and we are re engineering formulations, reducing spending and improving efficiencies to offset.

We are presently implementing price increases are announced additional ones across products and geography.

We will continue to adjust our pricing as necessary to recover our margins over time.

In Europe energy costs have dramatically accelerated and have also affected the cost of our materials are.

Our European ceramic business has been the most impacted which we anticipate will create a 40% to $45 million headwind net of price increases in the first quarter.

Given these factors, we anticipate our first quarter adjusted EPS to be $2 93.

$3.

Excluding any restructuring charges.

In the second half, we expect our margins to improve as capacity expands inflation moderates and pricing alignment.

Based on the strength of our company, our product and geographic diversity investments in growing categories and potential acquisitions.

Long range outlook is for higher sales growth and margin expansion.

Flooring is a central part of new construction remodeling and as the world's largest flooring manufacturer Mark has built leading positions in major flooring markets around the globe we.

We expect our business to benefit from strong demand through this economic cycle.

Given todays low inventory of existing homes, new residential construction and remodeling should remain strong for many years.

<unk> sustainable products appeal to today's environmentally conscious end users, which gives us an added advantage in our markets and enhances our bottom line.

In time, we expect the commercial sector returned to its historical growth with pent up demand representing a significant opportunity.

In addition to expanding capacity, we continue to invest in our organization talent and state of the art technology to deliver exceptional design value and service to our customers.

Over the next three years, we anticipate higher sales and margins as we implement our product manufacturing and marketing initiatives.

We will continue to leverage our strong balance sheet to pursue acquisitions that further our geographic reach and product offering while growing our sales and profitability.

We'll now be glad to take your questions.

Ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Management requests that you limit your questions to one primary and one follow up.

Your first question comes from the line of Truman Patterson of Wolfe Research. Your line is open.

Hey, good morning, everyone. Thanks for taking my questions.

Yes.

Good morning.

First just wanted to look at this first quarter EPS guidance.

A just trying to understand if a higher tax rate is embedded in that compared to the fourth quarter and then also when I look at the <unk> Guide historically op margins consolidated normally fall about 200 basis points quarter over quarter.

Is it safe to assume that you're expecting kind of first quarter op margins to outperform that.

That historical decline and are there any segments maybe to call out when we look at it sequentially.

Okay.

The first part of that on the tax rate trim and as I said for the full year looking at <unk>, 22% to 23% I would expect it to be maybe a little bit lower than the bottom of that.

In the first quarter and then as I said, it's going to vary as we go through the year.

And I think also the.

The difference in days in the fourth quarter is also impacting the comparison between the two abnormally.

Channels were behind so the demand was different so there's a lot of differences in the.

Seasonality between the two.

Okay. Okay.

Well in the in the press release and the prepared comments you all have discussed some cost saving initiatives in North America, especially the fiber manufacturing and transportation projects.

Hoping can you give a little more detail on each of those initiatives and is there any way you can.

Help us quantify those over the long term.

Some of it is in the.

Asset purchases, we've done with the investments we upgraded various assets in the fire.

Fiber and yarn manufacturing.

To put in lower cost asset based on how the business has changed over the years.

Some of it is in the transportation, we have put in new processes and systems.

To try to optimize the transportation systems, which we're getting higher weights on the trucks.

And we are improving the.

What we charge for the business are charged for the transportation relative to the market rates as we go through so they are all.

Hitting the business.

Or is it also true is the completion of the actions that we started back in 2020 where are we.

Ted got out of older assets and optimize the plant flow, which eliminate.

And it's going to help on the material side and the labor side.

On a productivity basis.

Alright, Thank you guys.

Yes.

Thank you and your next question comes from the line of Eric bought Shred of Cleveland Research. Your line is open.

Thanks.

Just curious if you could talk about where you think we are.

In the lifecycle of LPT.

And thinking over the last five years, but.

<unk> was all of the industry growth for a period of time and felt like it was taking share from ceramic tile it actually was.

In laminate was doing okay. I'm just curious as you think about over the next three or four years, how those three categories are behaving relative to each other I guess largely in the U S. But also globally.

In the U S. L. T has now grown to approximately 20% of the flooring category.

With that as the size has gotten where it is the rate of growth is going to slow down.

The other categories are those still show.

Volume growth. So we don't believe it's going to take all of the growth going forward as you go through there's been a change in the laminate business.

It was perceived as a cheap alternative and with all the.

Advances we've made in it it's now being C S.

Equal opportunity to <unk>.

<unk>, both LDC in wood because on one side, we've added the waterproof technology on the other side.

Visually as pretty as.

Real wouldn't can't tell the difference on the floor. So it's in the midst of a <unk>.

And pace and we're investing to support it.

When you go to Europe .

Europe laminate is a much larger part of the industry than it is in the U S.

And.

It stopped growing at the same level on the other hand, our premium is Lv T as.

As a category is probably less than half the size. It is in the United States as the market Hasnt accepted and at the same rate as the U S has.

Okay. That's helpful. And then one follow up if I could.

Competitive position of your U S business you referenced in the prepared remarks, but as you look at your cost position.

I guess this is a hard surface focused question, but your cost position relative to imports.

And the incremental transportation cost and they are dealing with I am just curious how you think that influences the performance of the business over the next.

Couple of years and what that means for you.

If I can comment on the ceramic side as the ceramic industry strengthen the import prices have increased.

The ocean freight constraints are causing delays in increasing cost. So I think we're well positioned on the ceramic side in the United States to take additional share.

And the other pieces I think we are in.

Good position the Lv Tu.

We're still in the original plant, we're still improving the cost in the fourth quarter of last year costs were actually impacted by a lack of supply we had to slow down the machines in order just to keep the plant running we expect the productivity and the cost to continue to improve we're investing in a new plant.

Which we think of the cost advantaged versus imports and we think we're in good position to grow with the market. We're also importing a lot of products. So it's not in lieu of the app.

Okay.

Great. Thank you.

Thank you. Your next question comes from the line of Adam Baumgarten of gel Ma'am. Your line is open.

Hey, good morning, everyone I guess, maybe sticking with flooring North America. When you talk about trade down in the segment is that primarily related to carpet or are you seeing it also in some of the other areas like LPT.

Every time you go through significant inflation in the industry some of the consumers start looking.

Hold the value of what they're going to spend or the prices and so as a normal course of events. It is youll see significant inflation. There is some trading down in all the categories.

Got it.

And then maybe switching gears to ceramic you talked about the net headwind from the European natural gas cost increases is that net of all pricing in the segment or is that just net of European sorry.

Ceramic pricing.

It's net of European ceramic pricing.

Okay got it thank you.

And your next question comes from the line of Susan Macquarie.

Macquarie of Goldman Sachs. Your line is open.

Thank you good morning, everyone.

And sticking I guess again with flooring North America I wanted to focus a little bit more on the margin side. You. Obviously are coming off a year, where you have gotten that margin back to the low double digit range. As you think about the initiatives that are going on in that segment can you talk about where you think that that can go over time with the trajectory of it is and how does that maybe compare.

To where we've been in the past in that segment from a profitability perspective.

Okay.

<unk>.

The margins in the business have come back.

There is still below where they were at the peak a few years ago. There has been in the carpet industry theres been a trading down to polyester at lower prices and different pieces. So.

That those margins will probably not get back to the peaks they were at on the other hand, we have.

Adjustments in Lv T. In laminate that those margins, we think have room to grow as we improve the mix and put more investments in as we go through impacting the whole thing in all the categories. You have also the commercial sales are still behind the pre pandemic levels.

Our estimates depends on which product category on which channel that could be 10% to 20% below the.

Pre pandemic levels and those are higher margin products products in sales. So as those come back those are going to improve the margins also.

Okay. That's helpful color and then when you think about all the initiatives that you have going on globally across the business can you talk about how we should think of growth going forward over time, the ability to sort of capture what is going on out there and where do you think growth will really be.

<unk> from within this business in terms of products or even geographies and what are some of the areas that you're really thinking about and looking to incrementally further capture.

What's happened to us is that as the business.

Went through Covid.

Pulled back on all of the investments in the various categories and then when we came out of it we found that many of the categories have grown.

In one year, what we had expected and multiple years, so youll see us trying to catch up with the investments that we're putting in.

We're investing about 800.

$800 million, this year, which will add roughly about $800 million worth of sales.

We think we're taking the right steps to optimize the business.

One is we don't we probably don't get enough credit for is the portfolio of the products that we have we manufacture in five different continents.

In the different markets, we have the leading brands and market positions, we sell them into over 170 different countries.

And so with this with a strong balance sheet you have you see us investing heavily to reduce our costs and broaden our product offering.

We believe theyre going to be more.

Our acquisition opportunities we're talking to.

Several at the moment, we'll have to see how they evolve we think there is more going to come into the marketplace over the next year or two we're well positioned with our balance sheet to take advantage of those.

Can you hear us continuing to invest in leading technologies to give us differentiation to improve the margins.

And with all that we see.

We think we're probably in the mid cycle part of it.

Usually the economy and the industry keep growing as we start raising rates at this point.

The residential markets are running at high rates.

Normally you have when you get towards the cycle we've overbuilt.

Residential housing this time, we're still chasing it so it seems like Theres plenty of room to grow we've talked about the commercial improving so we think were in a right position for higher growth and margin expansion over the next few years.

That's great color. Thank you, Jeff and good luck with everything.

Thank you and our next question comes from the line of Mike Dahl of RBC capital markets. Your line is open.

Good morning, Thanks for taking my questions good morning.

I wanted to follow up on a couple of areas. The first is on.

On kind of the European ceramic in the Nat gas.

Environment in the opening remarks. In addition to the headwinds that you outlined in terms of the 40% to $45 million I think you did say that at this point most.

Competitors are raising prices to adjust can you elaborate a little more because last quarter. It was with some of your competitors who are hedged. So they were enacting is quickly can you talk more about what youre seeing in terms of the competitive dynamics and the pricing environment and whether competition is.

Raising price.

Enough at this point.

Well.

Everybody in the market is raising prices, including us youre right. Some are hedged and thats, probably causing them to raise prices a little less fast and then they need to be but everybody is raising prices.

We expect the energy volatility through the winter due to lower European reserves and uncertain availability.

But the short term the head headwind should peak in Q1.

And then progressively get better after that for a couple of reasons. One is <unk> got youre getting into the summer months, where gas is naturally cheaper and you were also as we look at the forward contracts they are lower than what we're experiencing now.

Got it okay and.

And my second question.

It's around market share and going back to North America, you've made some comments around how you positioned your product and I think you're.

In a position to take share.

A variety of categories, if I look at the fourth quarter data.

Adjust for your days headwind still.

It still seems like from a total value and a volume standpoint, and correct me if I'm wrong, but it seems like volume was kind of flattish on a days adjusted basis, maybe up slightly to down slightly.

The market industry data would still seem to suggest that industry growth in volumes has been call. It high single digits and in value maybe closer to 20%. So that data would seem to suggest maybe it's still some shares slippage. So can you just speak to that.

And talk about how you think your share performance.

Evolve kind of through the quarter and what your expectations are for this year.

Yes.

Let me unbundle, a little bit of what which said there Mike so.

First of all in the fourth quarter Youre right as we look across the segments I would say the volume piece adjusting for days and everything else. The business volume was relatively flat to slightly down and if you think about that that makes sense compared to fourth quarter of 2020, when you had unusual.

Demand levels and so.

Really abnormal seasonality, so that kind of straighten itself out in the fourth quarter also in the fourth quarter of this year.

We had the material and labor constraints, which impacted not only our production, but our sales.

In various product categories, so that definitely impacted that volume.

Yes, the other thing I would add.

When you look at the data on the ceramic market, it's really hard to to read because you've got the.

The imports coming in and the volume the way, they're measuring that is the imports coming into the country, which we think most of the competitors were building inventory during that during that time.

But when we go out and look at the customers, we're getting and the progress we're making in the marketplace. We think we're doing really well.

The industry data on the carpet shows.

Carpet industry was down in units and again, we think it's because of the seasonality differences between the two on the other side, we are probably index higher on the commercial business, which is still 10% to 20% below.

Where it was before the pre pandemic pieces. We're also.

Have a lower percentage of the Lv T, but we're growing our business there.

Okay. All of that makes sense. Thank you. Thank you for that color.

And your next question comes from the line of Michael Rehaut.

J P. Morgan your line is open.

Thanks.

Good morning, everyone.

A few clarification questions.

Before I get into I guess, a bigger picture question. If you could just kind of.

Be more explicit just to make sure we understand.

Number one the second half margin improvement that you are playing out in the in 'twenty two.

We're talking about year over year expansion, when you say improvement.

And also the net net of price impact in the European ceramic of 40 to 45.

That 40% to 45.

The same number that you were referring to last quarter when you were saying.

After the $25 million headwind in <unk> that.

That could approach doubling but we're not we're not changing the definition of the of that 40 to 45 relative to last quarter.

Just wanted to make sure that that's clear.

Let me start with the ceramic piece the ceramic piece the number is still the same however.

Getting there a little different.

We are actually going to get more price than we thought on the other hand, the gas prices were actually higher so a net back down to about the same thing.

Both are different but the debt the.

The definitions of the same Mike So we didn't.

<unk> 25 compared to the 40% to 45 the definition is the same.

Mike what happened in the <unk>.

As we produced in the fourth quarter.

You may have seen the gas prices, but in some cases, they spiked to 170 200, which is very high and of course that as that inventory rolls off in the first quarter you see that impact.

Yes.

We think about the year.

We're starting from the premise that the present trends the economy housing and business investments or could continue as we all expect and all the projections from everybody and what we see as our margins. After the first quarter should improve as the price and costs get aligned better and continue throughout.

The rest of the year.

And don't forget when you get into the fourth quarter. We have we shouldn't have the same energy headwinds that we had last year.

So just to be clear again.

You talked about second half margins improving.

Again, we're talking about on a maybe on a consolidated basis second half margins higher than second half 'twenty, one is that fair to say.

Yes, when we're looking at that sense is that we're saying is that year over year and now I would say it really depends upon how inflation plays out in the first half as well and then the economic trends continuing as most expect in the second half.

If that is what we're addressing.

Right Okay. Good.

Secondly.

You talked about also in the press release this outlook for 3% to 5% GDP growth across most of your markets.

Usually companies have a goal of at least meeting that GDP growth. So when you think about your full year sales growth.

For 2022.

Particularly given the.

The pricing the price increases that you've put into place in the back half of 'twenty one in early 'twenty two.

Should we be expecting your revenue growth kind of in the mid single digit range.

Mostly driven by price is that the right way to think about it and also sorry, one more granular question. If there is any variation in shipping days by quarter for 'twenty two versus 21 that would also be helpful for modeling let's.

Let's see.

Well, let's start out with the.

You are correct that you have the increase in the.

Inflation is going to increase the pace and in the vault.

Volume assumptions you have seem reasonable.

<unk>.

Just to put in at the comparisons will be more difficult in the first half as the customers last year were replenishing inventories and we don't see well see the same thing will be back at a more normal seasonality this year.

And then also on the first half Youll see a bigger impact from price increases in the first half than you will in a second.

As we go into the second half, we think we'll see some stronger volume growth due to better inventories on our part.

It would have.

Production in our translated results.

In terms of days, Mike Theres, one one less day in the first quarter and the other three are the same.

Alright, Thanks, a lot.

Yes.

And our next question comes from the line of Phil.

From Jefferies. Your line is open.

Hey, guys.

Mentioned that supply chain labor impact that your results in the fourth quarter and certainly that was very pronounced in your rest of the world business. So curious how is that kind of shaping up at <unk>.

Would you expect that to kind of improve or it's going to take a little bit more time call. It two keven.

We're still having.

Problems with supply were still having problems with labor.

And its still impacting our business.

Probably the bigger part of it is in our <unk> business, both in the U S and Europe .

For instance, we're running lines at lower speeds to keep them running instead of stopping and starting them.

Have other suppliers and pieces that have.

We've had to stop the plants and then with Covid, we've had people not showing up for work and just having to shut the places down and or having to run places different.

In most areas were seeing some.

Some improvements, but we'll have to see how it works.

Got it okay. That's helpful. So marginally better it's going to take a long time.

And then from a capital project standpoint, you've got a lot of exciting new stuff coming on whether it's lvg ceramics.

Laminate product as well can you.

Remind us how that kind of ramped up through the year and in an appreciating their startup cost and theres, a learning curve component to that.

Is there a good way to think about the EBITDA contribution this year I know a few years back when you had a big ramp up.

You had some headwinds to kind of come out of the gate.

I think if you go back to the introductory remarks, we tried to put what points in time, they would come in because some of them are in the middle of next year and some of them are this year and so theyre all through it if you'll go through that I think you can get a sense of the timing of it.

Our current expansion projects different than the earlier time, we did it or in markets and products that we already have in the marketplace with increasing sales.

The last time, we went into new products and new markets that we had to start at zero and there were significant marketing costs upfront.

This time the investments are focused on our existing laminate business in the U S and Europe .

Ceramic outside the U S where the markets are.

<unk>.

We're sold up we're expanding our countertop business in the U S and Europe , and our <unk> business. So the markets are there for where they are which should reduce the.

The impact of selling up the assets as we start them up and then the same thing we're using technologies that are proven.

Got it.

Hi, Jeff.

I'd say timing wise, if you look so we've launched the first laminate.

New laminate line in the fourth quarter, So youll see some benefit in 'twenty, two that eliminate benefit Lv T <unk> launched but most of the others echoing what Jeff said will will impact.

'twenty three.

More so than in 'twenty two.

Okay, but you expect it to be additive rather than any big headwinds right. So it's more of a good guy that anything.

Yes, okay, great. Thank you.

And our next question comes from the line of Keith Hughes I'm curious your line is open.

Thank you wished in flooring North America, we look at the revenue growth excluding the days.

<unk> was up it was up a good bit.

Compare that to some of the numbers coming out of the carpet industry, even adjusting for days you seem well ahead and I know thats about laminates and LBJ. Just my question is could you put a little bit more of a magnitude on how much those products grew in the fourth quarter versus the average of the segment also for the year as well.

Okay.

And we don't really don't get to that level of granularity Keith Youre right that the certainly in the segment laminate.

In the resilient business grew more than carpet and so they really drove the growth.

Along with I would say the pricing actions that we've put in place really dwarfed anything around volume.

Okay, and then second question on global within global ceramic the North American business. If you could talk about what its growth look like versus the segment average.

What the puts and takes on that.

Well first on U S ceramic products are gaining momentum as imported products are less reliable and landed cost have increased our pricing actions have offset inflation keeping margins in line with prior year.

We introduced several products floor wall and exact offerings that were.

Brazil, Russia, and Mexico will have to optimize mix given the capacity limitations and we think that you EU volume will be under pressure just given natural price increases from natural gas.

Okay. Thank you.

And your next question comes from the line of Stephen Kim of Evercore ISI. Your line is open.

Yes, thanks, very much guys just wanted to clarify to start off some of the capacity that you talked about bringing on in flooring North America.

The $300 million in laminate capacity.

You talked about two phases I just want to make sure that the $300 million encompasses both phases and then the <unk> plan of $160 million.

So when you talk about the site being expanded or able to be expanded as needed I was curious how quickly could you bring on additional capacity within that site and where is that site located.

Okay, well first of all just in terms of the production the original lines.

Designed for high volume long runs and our new production lines are designed for more differentiated products and smaller items.

And then I think the other questions were around laminate the laminate each line does about $150 million. Each the first one is in.

In a startup right now and should be operating.

In the middle of the second quarter close towards potential and then the next line will come in in the middle of next year sometime.

And just to clarify.

What we've said is up to this point, we have globally, we have about $1 billion.

Sales capacity and Lv team that's across five line so the $160 million on the new line is.

It is not really.

Totally different versus the.

The other lines.

Yeah, Yeah, I know you have a couple of smaller lines.

Europe and so forth.

Okay. That's helpful.

Second question relates specifically to productivity I mean, as we look at your EBIT walk on a year over year growth in product.

And EBIT from productivity, specifically you had a couple of really good years now I mean, it was strong in 2020 was strong in 2021.

I'm curious with with all the moving pieces, and particularly like labor inefficiency and absenteeism and whatnot I would think that productivity could start to become a benefit to your EBIT.

From other pieces like maybe labor and so I am curious could you would you expect another strong year of productivity in 2022, and how might that flow in from a timing or a segment perspective.

This one is that we will have to find out what happens to supply and to labor.

Labor.

Around the world in different places at.

Presently we are still struggling with the pieces our assumptions are that it gets better through the year, but to tell you the truth, we haven't seen it yet.

Yes.

At the same time all of these new facilities and things we are going to start bringing up show up has some negative productivity offsetting some of the other positive productivity we have during the year.

Okay. That's helpful Alright, great. Thanks, very much guys.

And your next question comes from the line of Laura rational Pine of loop capital. Your line is open.

Thanks for taking my question.

A follow on to your comments about inflation being lower in the back half I heard.

The answer about gas prices in Europe , but are there any other elements in your thoughts where you can see or basis.

Provides a basis for inflation to be lower back half versus first half of this year.

There is.

Significant.

Short edges that have been causing the raw materials to be at historically high prices, we're assuming that some of that lines up this year and some of the pressure from capacity versus demand offset and then it depends on what happens with the oil and gas prices are.

And the world.

Does that imply that your expectations are that units for the industry will be down year on year, thus freeing up more capacity or do you think there is more capacity coming to market broad late this year.

We think that.

There is more capacity to support some of the product categories that we're in.

For instance, in Europe with a high gas prices are.

Our wood prices are up because theyre, starting to burn wood as an energy source.

It's an unusually high levels, we're assuming that some of that starts to balance out next year.

Got it thank you.

And your next question comes from the line of Matthew Bouley with Barclays. Your line is open.

Hey, good afternoon, everyone and thanks for taking the questions here.

So just on natural gas in the European ceramic market.

I heard Chris you mentioned earlier that you expect some volume pressure.

And European ceramic as a result of these level of price increases that you and competitors are implementing so any more color on the elasticity that you expect there as you lift prices materially.

Or is there an impact to the mix side of it as well.

I mean, so far we have.

Haven't seen our volumes in Europe has still been strong so we haven't seen it but we just anticipate with the pricing that's being taken there that it would make sense that it could put pressure on the market, but so far we haven't seen it.

Right Okay.

And then I guess same topic just on the overall European ceramic market.

Have you seen any changes competitively within the market or that was a great comment you just gave Jeff on people burning wood.

Ceramic manufacturers limiting production at all or is this impacting exports from Italy, or Spain to the U S are there any other.

Any other way the market is adapting to the severity.

Beyond just the pricing side, well, we know some of the on one end you have some of the smaller producers that have cut way back.

As you could expect covering inflation and not killing your demand. It's got two though put pressure between the increased gas prices.

The increased freight cost it's got to put pressure on those exports and that's why we think in the United States, we're going to be in a good position.

Got it well thanks for the color and good luck.

Thank you.

Thank you. Our next question comes from the line of Deepa Raghavan of Wells Fargo Securities. Your line is now open.

Hi, good afternoon, Thanks for taking my question.

Switch gears and ask you about commercial business trends.

Are you able to share how much this business grew in 2021.

Looks like Youre expecting that you're expecting an acceleration in 2022.

It also appears the hospitality industry recovery has been further pushed out.

So essentially the drivers to your commercial business.

As opposite and maybe some institutions like schools et cetera.

Are these the primary drivers that would actually accelerate.

The growth in 2022 am I thinking about the moving pieces within the component commercial verticals correctly.

Well I think it also depends on the category.

Like in ceramic hospitality is doing well hospitals schools, it's still not back to pre pandemic levels, but it's certainly been strengthening.

It's been really led by health care government area and then the other some of the other channels have been slower to respond again, we had good strong growth in.

In 'twenty one versus 'twenty.

As Chris said, its not back to the 19 levels.

Okay just.

Just curious on.

Just the interest rate concerns out there, but the backdrop, you're still calling for R&R as well.

How are you thinking about the R&R spend in the U S. We were outbid the ibis.

And obviously, we're looking at.

Some of the sentiment manufacturers.

Larger format stones, and so obviously the industry is continuing to invest in product innovation, bringing out new products.

It doesn't seem like the interest rate concerns are impacting the industry as such but.

Any comparison what are your thoughts first of all on that should we be concerned in any comparisons to 2018.

You can help us.

I'd say at this time, it's different because of certain items.

We are with it presently.

We're assuming we're in the mid point of this cycle that youre going to still see unemployment decreasing youre going to still see incomes rising.

We expect the economy to keep growing like it does in the mid part of the cycle. The mortgage rates are still historically relatively low.

And unlike the and the cycles. There is still demand for housing is exceeding the supply and supporting new construction you have increased home values that should support continued remodeling as you go through typically aren't going to existing home sales when.

Someone finds a home it takes some multiple they don't do all of the remodeling in the first year. It takes multiple years to do it. So you have all of these homes that were sold over the last two years that should continue to get remodel and then you still have commercial that's still below the pre pandemic levels and there should be pent up demand to help it.

The increase so.

Unless they they move the rates up.

Way higher than we expect.

<unk> to continue improving the category.

Thanks for the color and good luck.

Yep.

Thank you and there are no further questions on queue I will turn the call back over to MS. Laura Brown.

Hosing comment.

We appreciate you joining us today.

We are really optimistic about our long term performance.

Investing to support growth and margin expansion.

We believe that we are in the right spot to optimize our business over the long term. Thank.

Thank you for joining us.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Mohawk Industries Inc Earnings Call

Request a DemoDemo

MHK

Mohawk Industries

Earnings