Q4 2023 Mohawk Industries Inc Earnings Call
Operator: Good day, and welcome to the Mohawk Industry's fourth quarter 2023 Earnings Conference Call. All participants will be in listen-only mode.
Good day and welcome to the Mohawk Industries fourth quarter 2023 earnings Conference call.
All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1 on your telephone keypad.
Should you need assistance, please signal conference specialist, especially the starchy followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Operator: To withdraw your question, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to James Brunk. Please go ahead, sir.
So it's all your question. Please press Star then two.
Please note today's event is being recorded.
I would now like to turn the conference over to James Brown. Please go ahead Sir.
James Brunk: Thank you, Rocco. Good morning, everyone, and welcome to Mohawk Industries' quarterly investor call. Joining me on the call are Jeff Lorberbaum, Chairman and Chief Executive Officer, and Chris Welborn, President and Chief Operating Officer. Today, we'll update you on the company's fourth quarter and full year performance and provide guidance for the first quarter of 2024. I'd like to remind everyone that our press release and statements that we make during this call may include forward-looking statements as defined by 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 8K and press release in the Investors section of our website. I'll now turn over the call to Jeff for his opening remarks. Thanks, Jim.
James Brown: Thank you Rocco good morning, everyone and welcome to Mohawk Industries quarterly Investor call.
James Brown: Joining me on the call are Jeff, Laura Bond, Chairman, and Chief Executive Officer, and Chris Wellborn, President and Chief operating Officer.
James Brown: Today, we will update you on the company's fourth quarter and full year performance and provide guidance for the first quarter of 2024, I'd like to remind everyone that our press release and statements that we make during this call may include forward looking statements as defined by the private Securities Litigation Reform Act of 1995.
It is subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with Securities and Exchange Commission.
James Brown: 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.
James Brown: Now I'll turn over the call to Jeff for his opening remarks, Jeff.
Jeff: Thanks Joan.
Jeffrey S. Lorberbaum: Our fourth-quarter results were ahead of our expectations, with net sales for the quarter of approximately $2.6 billion, down 1.4% as reported, or 4.1% on a constant and legacy basis. Lower demand and residential remodeling and new construction continue to impact our results. Our adjusted EPS for the quarter was $1.96, with benefits from cost containment, productivity, and lower input costs. Pricing and product mix declined, offset by lower raw material and energy costs during the quarter for an exchange at an impact of approximately $22 million on operating income or 27 cents on EPS. Turning to our full-year results, Mohawk's net sales were approximately $11.1 billion, down approximately 5% as reported or 7.7% on a constant basis with an adjusted EPS of $9.19.
Jeff: First quarter results were ahead of our expectations with net sales for the quarter of approximately $2 6 billion down one 4% as reported or four 1% on a constant and legacy basis.
Jeff: Lower demand in residential remodeling and new construction continued to impact our results are.
Jeff: Our adjusted EPS for the quarter was $1 96 with benefits from cost containment productivity and lower input costs pricing and product mix decline offset by lower raw material and energy costs during the quarter Foreign exchange had an impact of approximately $22 million on operating.
Jeff: Income or 27 cents on EPS.
Jeff: Turning to our full year results net sales were approximately $11 1 billion down approximately 5% as reported or seven 7% on a constant basis with adjusted EPS of $9 19 status.
Jeffrey S. Lorberbaum: Last year, interest rates increased, creating challenges for our industry, which is highly sensitive to rate fluctuations. Even though we have a diversified geographic footprint, all of our markets were impacted by similar conditions. During 2013, existing home sales declined substantially, remodeling projects were postponed, and consumers traded down. New home construction was also constrained as rising interest rates and a weak housing market reduced home supply.
Jeff: Last year interest rates increase creating challenges for our industry, which is highly sensitive to rate fluctuation.
Jeff: Even though we have a diversified geographic footprint all of our markets were impacted by similar conditions. During 'twenty three existing home sales declined substantially remodeling projects were postponed and consumers traded down.
Jeff: New home construction was also constrained as rising interest rates and a weak housing market reduced homestar.
Jeffrey S. Lorberbaum: Throughout the year, the commercial sector remained stronger than residential, though investments began to slow as interest rates increased and lending declined. These factors reduced industry demand across our business, creating unabsorbed overhead and shutdown costs. As a result, our industry reduced selling prices, and we passed through declining costs in energy and materials. Under these conditions, we focused on optimizing our revenues and lowering our costs through restructuring actions and manufacturing enhancements. We aggressively managed inventory levels, which reduced our working capital by over $300 million, excluding acquisitions.
Jeff: Throughout the year the commercial sector.
Jeff: It remains stronger than residential though investments began to slow as interest rates increased and lending.
Jeff: These factors reduced industry demand across our business, creating unabsorbed overhead and shutdown costs as a result, our industry reduced selling prices and with pass through of declining cost in energy and materials.
Jeff: Under these conditions, we focused on optimizing our revenues and lowering our costs through restructuring actions and manufacturing enhancements.
Jeff: We aggressively managed inventory levels, which reduced our working capital by over 300 million excluding acquisitions.
Jeffrey S. Lorberbaum: We've also invested in sales resources, merchandising, and new products with innovative features to inspire consumers to purchase Florence. As we integrate our recent acquisitions around the world, we're investing to improve their operations and product offering. In 2023, we completed two acquisitions in Latin America that extended our position as the world's largest ceramic tile producer and solidified our leadership in that region. During the year, we focused our capital expenditures on product innovation and cost reduction, as well as product categories that should have the highest growth as the economy improves. In Europe, a porcelain slab and insulation expansions are now fully operational.
Jeff: <unk> invested in sales resources merchandising and new products with innovative features to inspire consumers to purchase Florida.
Jeff: As we integrate our recent acquisitions around the world, we're investing to improve their operations and product offering.
In 2023, and we completed two acquisitions in Latin America that extended our position as the world's largest ceramic tile producer and solidified our leadership in the region.
Jeff: In the year, we focused our capital expenditures on product innovation and cost reduction as well as product categories that should have the highest growth as the economy improves.
Jeff: In Europe, our porcelain slab and installation expansions are now fully operational.
Jeffrey S. Lorberbaum: While in North America, our premium laminate LVT projects are progressing. During the second half of this year, we anticipate completing the expansion of laminate in Europe and quartz countertops in the United States. We close the year with debt leverage of one and a half times, free cash flow of $716 million, and available liquidity of $1.9 billion. We are retiring a term loan of approximately $900 million in Q1, which has a higher interest rate. We are well positioned to manage current conditions and emerge stronger from this economic cycle when the rebound occurs. Finally, in January, Newsweek recognized Mohawk as one of America's greatest workplaces for diversity.
Jeff: While in North America, our premium laminate and <unk> projects are progressing.
Jeff: During the second half of this year, we anticipate completing the expansion of laminate in Europe, and quartz countertops in the United States.
Jeff: We closed the year with debt leverage of one and a half times free cash flow of $716 million and available liquidity of $1 9 billion.
Jeff: We're retiring a term loan of approximately $900 million in quarter, one which has a higher interest rate.
Jeff: We are well positioned to manage current conditions and emerge stronger from this economic cycle when the rebound occurs.
Jeff: Finally in January Newsweek recognized Mohawk as one of Americas greatest workplaces for diversity, our talented people are our most valuable asset and we are proud that our team's mirrored the communities in which we operate.
James Brunk: Our talented people are our most valuable asset, and we are proud that our teams mirror the communities in which we operate. And now Jim will provide an overview of our fourth quarter financial results. Thank you, Jeff.
Jeff: And now Jim will provide an overview of our fourth quarter financials. Thanks.
James Brunk: Sales for the quarter were just over $2.6 billion. That's a 1.4 percent decrease as reported and 4.1 percent on a constant basis. As price and mix pressures and unfavorable FX offset limited year-over-year volume improvements, gross margin on an adjusted basis was 24.7% versus 22.4% in the prior year. The improvement is due to lower inflation, offsetting unfavorable price and mix, along with increased productivity, partially offset by the impact of FX. SG&A expense as a percentage of sales was 18% on an adjusted basis, which was in line with the prior year.
Jim: Thank you Jeff sales through the quarter with just over $2 $6 billion. That's a one 4% decrease as reported and four 1% constant basis as price and mix pressures and unfavorable FX offset limited year over year volume improvement gross.
Jim: Gross margin on an adjusted basis was 24, 7% versus 22, 4% in the prior year. The improvement is due to lower inflation offsetting unfavorable price and mix along with increased productivity, partially offset by the impact of FX SG&A.
Jim: <unk> as a percentage of sales was 18% on an adjusted basis, which was in line with the prior year.
James Brunk: That gives us an operating income as reported of 6.4%. On an adjusted basis, 6.7% versus 4.5% in the prior year. As lower inflation of $156 million offset unfavorable price and mix of $127 million as well as productivity gains of $57 million, only were partially offset by unfavorable FX of $22 million. Interest expense for the quarter was $17 million.
Jim: That gives us an operating income as reported of six 4%.
Jim: On an adjusted basis, six 7% versus four 5% in the prior year as lower inflation of $156 million offset unfavorable price and mix of $127 million as well as productivity gains of $57 million only were partially offset by unfavorable FX.
Jim: Of $22 million interest.
Jim: Interest expense for the quarter was $17 million, our non-GAAP tax rate was 21, 3% in the current year. We expect Q1 2024, its tax rate to be approximately 21% to 22% and the full year 2024 to be between 18, 5%.
James Brunk: Our non-GAAP tax rate was 21.3% in the current year. We expect Q1 2024's tax rate to be approximately 21 to 22% and the full year 2024 to be between 18.5 and 20.5%. That gives us an earnings per share on an adjusted basis for the quarter of $1.96. Turning to the segments, Global Ceramic had sales of just under $1 billion. That's a 0.6% increase, as reported, or a 4.7% decrease on a constant legacy basis, with all geographies seeing increased pressure on price and mix, driven by lower demand and decreases in energy costs. Operating margin on an adjusted basis was 4.8% vs. 7% in the prior year, due to unfavorable price mix of $41 million, only partially offset by lower energy and material costs of $29 million. Unfa Florida North America had sales of just over $900 million; that's a 3.6% decrease as reported.
Jim: 25%.
Jim: It gives us an earnings per share on an adjusted basis for the quarter of $1 96.
Jim: Turning to the segments global ceramic had sales of just under $1 billion Thats, a 0.6% increase as reported or four 7% decrease on a constant legacy basis with all geographies seeing increased pressure and price and mix driven by some driven by lower demand and <unk>.
Jim: Increases in energy costs.
Jim: Operating margin on adjusted basis was four 8% versus 7% in the prior year due to unfavorable price mix up $41 million, only partially offset by lower energy and material costs of $29 million.
Jim: Unfavorable FX of $13 million and reduced sales volume of $10 million accounted for the balance of the decrease in year over year margins and were only partially offset by productivity gains of $17 million.
Jim: Flooring North America sales of just over $900 million Thats, a three 6% decrease as reported as demand levels and tight budgets continued pressure pricing and mix our commercial category outperformed residential led by the hospitality channel.
James Brunk: As demand levels and tight budgets continue to pressure pricing and mix, our commercial category, Outperform Residential, led by the Hospitality Channel. In this environment, we are focused on new, innovative products which are being well-received and position us to take advantage of the pent-up demand. Operating margin on an adjusted basis was 6.9% and significantly ahead of the break-even margin in the prior year due to lower inflation of $73 million, especially in material costs, offsetting the weakness in price and mix of $37 million. Also benefiting our results were gains in productivity of $29 million. And for the rest of the world, sales were just over $700 million for the quarter.
Jim: In this environment, we are focused on new innovative products, which are being well received and position us to take advantage of the pent up demand.
Jim: Operating margin on an adjusted basis was six 9% and significantly ahead of the breakeven margin in the prior year due to lower inflation of $73 million, especially in material costs offsetting the weakness in price and mix of $37 million also benefiting our results for <unk>.
Jim: Gains in productivity of $29 million.
Jim: And flooring rest of the world sales were just over $700 million for the quarter. That's a one 5% decrease as reported and 4% on a legacy constant basis stronger volume in insulation resilient end laminate were offset by continued price and mix pressures in all product categories.
James Brunk: That's a 1.5% decrease as reported and 4% on a legacy constant basis. Higher volume and insulation, resilient, and laminate were offset by continued price and mix pressures in all product categories. Consumer sentiment in Europe continues to be impacted by geopolitical events combined with higher interest rates, which is limiting remodeling activity and increasing the competitive environment. Operating margins on an adjusted basis were 10.6% versus 7.7% in the prior year. Due to lower inflation of $59 million, offsetting unfavorable price mix of $49 million, productivity gains of $12 million, and higher sales volume of $10 million also contributed to the year-over-year improvement in operating performance, only partially offset by unfavorable FX of $9 million. Corporate Eliminations for the quarter were $11 million.
Jim: Sumer sentiment in Europe continues to be impacted by geopolitical events combined with higher interest rates, which is eliminated remodeling activity and increasing the competitive environment.
Jim: Operating margins on adjusted basis were 10, 6% versus seven 7% in the prior year due to lower inflation of $59 million offsetting unfavorable price mix of $49 million productivity gains of $12 million and higher sales volume of $10 million also contributed to the year over year.
Improvement in operating performance, only partially offset by unfavorable FX of $9 million.
Jim: Corporate and eliminations for the quarter were $11 million.
James Brunk: And in 2024, we expect them to be approximately $43 to $48 million. Finally, turning to the balance sheet, cash and cash equivalents were $643 million for the quarter, with free cash flow of $56 million in Q4 and $716 million for the full year. Inventories were just shy of $2.6 billion, with a total inventory reduction of approximately $300 million excluding acquisitions, with a reduction of 8 days versus the prior year to 130 days. Property, plant, and equipment were just shy of $5 billion, with Q4 CapEx of $240 million and the full year at $613 million and DNA of $630 million. The company plans to reduce CapEx by approximately 20%, to $480 million in 2024, with BNA of approximately $610 million. The balance sheet and cash flow of Mohawk remained very strong, with gross debt of $2.7 billion and leverage of 1.5 times, positioning the company well for the market rebound. Now Chris will review our Q4 operational performance. Thank you, Jim.
Jim: And in 2024, we expect them to be approximately $43 million to $48 million.
Jim: Finally, turning to the balance sheet cash and cash equivalents were $643 million for the quarter with free cash flow of $56 million in Q4 and $716 million for the full year inventories were just just shy of $2 6 billion with total <unk>.
Jim: Sorry reduction of approximately $300 million, excluding acquisitions with reduction of eight days versus the prior year to 130 days <unk>.
Jim: Plant and equipment were just shy of $5 billion with Q4, capex of $240 million and the full year at $613 million and DNA of $630 million the company plans to reduce capex by approximately 20%.
Jim: Two $480 million in 2024 with DNA of approximately $610 million.
Jim: The balance sheet and cash flow of mall off remain very strong with gross debt of $2 7 billion and leverage of one five times positioning the company well for the market rebound.
Jim: Now Chris will review, our Q4 operational performance.
Chris Wellborn: Thank you Chen.
Chris Welborn: In our global ceramics segment, industry volume remains low, which is compressing prices and margins. All of our geographies are experiencing similar competitive conditions, and the industry has passed through declining energy costs. We are managing our production to align with demand and have significantly reduced inventory throughout the year. To enhance our mix, we are introducing stylized products in large and small sizes tailored to each market.
Chris Wellborn: Our global ceramic segment industry volume remains low which is compressing prices and margins.
Chris Wellborn: All of our geographies are experiencing similar competitive conditions and the industry pass through declining energy cost.
Chris Wellborn: We are managing our production to align with demand and have significantly reduced inventory throughout the year.
Chris Wellborn: To enhance our mix, we are introducing stylized products in large and small sizes tailored to each market.
Chris Welborn: To contain costs, we have increased productivity, reduced overhead, and implemented alternative formulations. In the U.S., we are expanding our distribution through our local service centers and offering new collections with premium Italian styling to improve our product mix. We're expanding our quartz countertop business with innovative new introductions and increasing our participation in the retail kitchen, bath, and DIY channel. We've integrated Vitramex in Mexico and Elizabeth in Brazil and are enhancing our sales, marketing, and operational strategy. In both countries, demand significantly declined last year due to rising interest rates and slowing economic conditions, which reduced our results.
Chris Wellborn: To contain costs, we have increased productivity reduced overhead and implemented alternative formulations.
Chris Wellborn: In the U S. We are expanding our distribution through our local service centers and offering new collections with premium Italian styling to improve our product mix.
Chris Wellborn: We're expanding our core <unk> countertop business with innovative new introductions and increasing our participation in the retail kitchen, Bath and B Y DIY channels.
Chris Wellborn: We've integrated victory makes it Mexico and Elizabeth in Brazil, and are enhancing our sales marketing and operational strategies in both countries demand significantly decline last year due to rising interest rates and slowing economic conditions, which reduced our results combined with our legacy businesses. These acquisitions give us leading <unk>.
Chris Welborn: Combined with our legacy businesses, these acquisitions give us leading positions in Brazil and Mexico. In Europe, gas prices have continued to decline and are improving our competitive position. We are optimizing our recent expansion of premium porcelain slabs in Italy to meet growing demand in both the residential and commercial channels. In our Flooring Rest of World business, our improved results in the quarter were driven by lower input costs and productivity gains, offsetting pricing pressure and foreign exchange. The European building product category remains under stress, with consumers remaining cautious and retailers reducing their inventory levels.
Chris Wellborn: <unk> in Brazil, and Mexico.
Chris Wellborn: In Europe gas prices have continued to decline and are improving our competitive position.
Chris Wellborn: We're optimizing our recent expansion of premium porcelain slabs in Italy to meet growing demand in both the residential and commercial channels.
Chris Wellborn: And our flooring rest of world business, our improved results in the quarter were driven by lower input costs and productivity gains offsetting pricing pressure and foreign exchange.
Chris Wellborn: The European building product category remains under stress with consumers remaining cautious and retailers reducing their inventory levels.
Chris Wellborn: We are investing in new products for 2024, while implementing tight cost controls.
Chris Wellborn: We are reenergizing, our flagship quick step brand with interactive displays we are completing the transition to Richard L. V T and we have decommissioned our residential flexible line as.
Chris Welborn: We're investing in new products for 2024 while implementing tight cost control. We are re-energizing our flagship Quick-Step brand with interactive displays. We are completing the transition to rigid LVT, and we have decommissioned our residential flexible line.
Chris Wellborn: That's material and energy costs decline, we reduced prices across our product categories in response to the competitive market and installation. We have recently experienced material increases and are raising our prices accordingly.
Chris Welborn: As material and energy costs decline, we reduce prices across our product categories in response to the competitive market. In insulation, we have recently experienced material increases and are raising our prices accordingly. Our wood panel performance has declined during the year from cyclically high pricing to a more competitive environment with excess capacity.
Chris Wellborn: Our wood panels performance has declined during the year from cyclically high pricing to a more competitive environment with excess capacity.
Chris Wellborn: We continue to implement restructuring actions and enhance our smaller bolt on acquisitions and installation M. D F board sheet vinyl and mezzanine flooring.
Chris Wellborn: Okay.
Chris Wellborn: In flooring, North America fourth quarter profitability improved significantly significantly over last year with benefits from decreased input costs restructuring and productivity gains.
Chris Welborn: We continue to implement restructuring actions and enhance our smaller bolt-on acquisitions in insulation, MDF boards, sheet vinyl, and mezzanine flooring. In Florida and North America, fourth-quarter profitability improved significantly over last year with benefits from decreased input costs, restructuring, and productivity gains. However, reduced market volumes led to low industry utilization rates and aggressive competition in the marketplace.
Chris Wellborn: Reduced market volumes led to low industry utilization rates and aggressive competition in the marketplace, we're continuing to invest in sales and marketing initiatives to expand our distribution and improve our long term growth.
Chris Wellborn: To enhance our business, we are making capital investments to increase our differentiated features and lower our manufacturing costs in each product category, we are introducing innovative new collections, which are being well accepted.
Chris Wellborn: We've already begun installing our new displays with retailers around the country to accelerate the sales of these product launches.
Chris Welborn: We are continuing to invest in sales and marketing initiatives to expand our distribution and improve our long-term growth. Additionally, to enhance our business, we are making capital investments to increase our differentiated features and lower our manufacturing costs. In each product category, we are introducing innovative new collections which are being well accepted. We have already begun installing our new displays with retailers around the country to accelerate the sales of these product launches. We have created the next generation of LVT with our SolidTec Premier Collection featuring new technology that enhances visuals with higher definition, color, and texture. We've also introduced a new flooring category called PureTech, which is PVC-free. It is an alternative to LVT made from a renewable polymer core that is waterproof and made with 70% recycled content.
Chris Wellborn: We have created the next generation of L. B T with our solid two Premier collection, featuring new technology that enhances visuals with higher definition color and texture.
Chris Wellborn: We've also introduced a new foreign category called pure Tech, which is PVC free it.
Chris Wellborn: It is an alternative to L. V. T made from renewable polymer core that is waterproof and made with 70% recycled content.
Chris Wellborn: The commercial channel outperformed our expectation led by the hospitality sector, we are leveraging our customer relationships to expand our needle punch flooring and trim acquisitions.
Chris Wellborn: With that I'll return the call to Jeff for his closing remarks. Thank.
Jeff: Thank you Chris.
So we entered 2024 the industry is at a cyclical low and we expect quarter, one seasonality to be more aligned with long term historical levels. Our businesses are minimizing their expenses, reducing overhead and restructuring to adapt to the present condition, we're continuing to invest in innovative products.
Jeffrey S. Lorberbaum: The commercial channel outperformed our expectations, led by the hospitality sector. We are leveraging our customer relationships to expand our needle punch flooring and trim acquisitions. With that, I'll return the call to Jeff for his closing remarks. Thank you, Chris.
To increase our sales and mix, we are reacting to competitive pressures to optimize our volumes as we pass through the declines in our input costs, we continue to manage our inventory and anticipate temporary shutdowns to align with demand.
Jeffrey S. Lorberbaum: As we enter 2024, the industry is at a cyclical low, and we expect quarter one seasonality to be more aligned with long-term historical levels. Our businesses are minimizing their expenses, reducing overhead, and restructuring to adapt to the present conditions. We're continuing to invest in innovative products to increase our sales and mix. We are reacting to competitive pressures to optimize our volumes as we pass through the declines in our input costs. We continue to manage our inventory and anticipate temporary shutdowns to align with demand. All businesses are implementing initiatives to enhance their processes to reduce the impact of inflation.
Jeff: All businesses are implementing initiatives to enhance our processes to reduce the impact of inflation.
Jeff: Given these factors, we anticipate our first quarter.
<unk> to be between $1 60, and $1 70, excluding any restructuring charges.
Jeff: Over the past 18 months, we have initiated many actions across the company to improve our cost structure manage our lower volumes and integrate our recent acquisitions.
Jeff: We've closed four manufacturing facilities in a number of higher cost production lines consolidated administrative functions and reduced overall head count when complete these actions will collectively decrease our operating costs by approximately $150 million with about half of this already realized.
Jeffrey S. Lorberbaum: Given these factors, we anticipate our first quarter EPS to be between $1.60 and $1.70, excluding any restructuring charges. Over the past 18 months, we have initiated many actions across the company to improve our cost structure, manage our lower volumes, and integrate our recent acquisitions. We've closed four manufacturing facilities and a number of higher-cost production lines, consolidated administrative functions, and reduced overall headcount.
Jeff: Combined with our actions improving industry conditions as we emerged from the bottom of this cycle should improve our results in the second half of the year, we anticipate central banks will lower interest rates expanding home sales residential remodeling and commercial projects the pace of improvement of the flooring category will be dependent on.
Jeff: Inflation rates consumer confidence and the strength of home sales.
Jeffrey S. Lorberbaum: When complete, these actions will collectively decrease our operating costs by approximately $150 million, with about half of this already realized. Combined with our actions, improving industry conditions as we emerge from the bottom of the cycle should improve our results in the second half of the year. We anticipate central banks will lower interest rates, expanding home sales, residential remodeling, and commercial projects. The pace of improvement in the foreign category will be dependent on inflation rates, consumer confidence, and the strength of home sales. We believe the U.S. and Latin American markets should improve sooner than Europe given the current geopolitical pressure. Historically, remodeling activity has led the flooring industry out of downturns, followed by new home construction, with commercial projects taking longer given the time to plan and complete. After past housing recessions, our industry has expanded with increased sales and margins for multiple years. However, housing remains in short supply across all our geographies, and increased remodeling investments will be required to update the aging housing stock.
Jeff: We believe the U S and Latin American markets should improve sooner than Europe, given the current geopolitical pressures.
Jeff: Historically remodeling activity has led the flooring industry out of downturns, followed by new home construction with commercial projects, taking longer given the time to plan and complete.
Jeff: After past housing recessions, our industry has expanded with increased sales and margins for multiple years.
Jeff: Housing remains in short supply across all our geographies and increase remodeling investments will be required to update the aging housing stock.
Our restructuring actions and investments in new technology targeted expansions and recent acquisitions will enable us to further expand our business as the world's largest flooring company. We believe we are uniquely positioned to improve our results as the market recovers.
Speaker Change: We'll now be glad to take your questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: You are using a speakerphone please pick up your handset before.
Speaker Change: Before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Speaker Change: And today's first question comes from Susan <unk> with Goldman Sachs. Please go ahead.
Operator: Our restructuring actions, investments in new technology, targeted expansions, and recent acquisitions will enable us to further expand our business. As the world's largest flooring company, we believe we are uniquely positioned to improve our results as the market recovers. We'll be glad to take your questions now. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Susan: Thank you good morning, everyone and thanks for taking the questions good morning.
Susan: Jeff maybe you could start out with how do you think about the cadence and the sequential lift for the business as we move 2024, how should we think about coming into this year at the cyclical low that you talked about and where we can go to over the next several quarters do you still think that there is the <unk>.
Potential for that second half last night, you talked about on the last quarter call.
Jeff: Let's start with last year, the interest rates increase throughout the year and our business declined with lower investments in housing and commercial projects.
Susan Marie Maklari: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Susan Maklari of Goldman Sachs. Please go ahead.
Jeff: This year, we anticipate the reverse to occur.
Jeff: Starting with the industry, starting out slower and improving with consumer confidence and interest rates throughout the year.
Susan Marie Maklari: Thank you. Good morning, everyone, and thanks for taking the questions. Jeff, maybe we could start out with how you think about the cadence and the sequential lift for the business as we move into 2024? How should we think about coming into this year at this cyclical low that you talked about and where we can go to over the next several quarters, and do you still think that there's the potential for that second half lift that you talked about on the last quarter call? To start with last year, interest rates increased throughout the year, and our business declined with lower investments in housing and commercial projects. This year, we anticipate the reverse to occur, with the industry starting out slower and improving with consumer confidence and interest rates throughout the year. U.S. mortgage rates have declined from their peak.
Jeff: The U S mortgage rates have declined from their peak in Brazil has already started to lower their rates, we anticipate Europe to lag given geopolitical risks energy prices and slower economies in the rest of our markets.
Jeff: Believe the business will strengthen in the second half from these and improved results from last year. We should also see an improvement in product mix as remodeling grows we expect an extended period of higher demand as the economy recovers and our investments in new products cost reductions and expansion projects should benefit our future.
Jeff: Our results.
Speaker Change: Okay. That's very helpful. And then maybe digging into that a little bit more when you think about the different economies globally and what's going on there relative to the segments of Mohawk segment. How do you think about what that could imply for say flooring, North America versus global summit ceramics or rest of world.
Jeffrey S. Lorberbaum: And Brazil has already started to lower its rates. We anticipate Europe to lag given geopolitical risks, energy prices, and slower economies than the rest of our markets. We believe the business will strengthen in the second half from these and improve results from last year. We should also see an improvement in product mix as remodeling grows. We expect an extended period of higher demand as the economy recovers, and our investments in new products, cost reductions, and expansion projects should benefit our future results. Okay, that's very helpful.
Speaker Change: Anything that you can give us just in terms of the different segments and how youre thinking about the opportunities there.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: Let's see the segments, we see that we think we're gonna see more improvement in flooring, North America, and the ceramic businesses with remodeling in each category, leading the way, we think Europe will take longer improve where they're gonna be pricing pressures.
Susan Marie Maklari: And then maybe digging into that a little bit more, when you think about the different economies globally and what's going on there, relative to the segments of Mohawk, how do you think about what that could imply for, say, flooring North America versus global ceramics or the rest of the world? Anything that you can give us just in terms of the different segments and how you're thinking about the opportunities there? I'm sure the segments we see that we think we're going to see more improvement in flooring North America and the ceramic businesses, with remodeling in each category leading the way. We think Europe will take longer to improve, where there are going to be pricing pressures, continuing in, more in the flooring and panels business than the other categories that we have. And we've kind of seen in Europe, you know, consumers have traded down given, you know, tighter and lower budgets and, you know, the geopolitical crisis is further kind of stressing consumer confidence. But as that region recovers, we know we'll see improvements across our business. Just to remind everybody, in Europe...
Speaker Change: Continuing and.
Speaker Change: More in the flooring and panels businesses in the other categories that we have.
Speaker Change: Kind of seeing in Europe.
Speaker Change: Consumers have traded down given.
Speaker Change: Tighter lower budgets.
Speaker Change: Geopolitical crisis has further.
Speaker Change: Dressed in consumer confidence, but as the region recovers, we know we will see improvements across our business just to remind.
Speaker Change: Everybody in Europe, they still have the higher energy costs and the regulations make it a less dynamic marketplace.
Speaker Change: Drew and then at the same time their wages have increased more than the rest of the world impacting inflation.
Speaker Change: Okay. That's great color. Thank you both and good luck.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from with.
Speaker Change: Jefferies. Please go ahead.
Jefferies: Hey, guys.
Jefferies: Certainly your business has been hard hit with rates being elevated on the R&R side when it comes down.
Jefferies: The bigger driver we should be looking at is tied to housing turnover or rates coming down just kind of improving consumer confidence that it's going to drive demand. So I'm just trying to gauge what are the things that we should look at and when we do see and how quickly that could kind of unleash that pent up demand.
Unnamed Speaker: They still have higher energy costs, and the regulations make it a less dynamic marketplace. The Bulletproof Executive 2013, Okay, that's a great caller. Thank you both and good luck.
Jefferies:
Jefferies: In past cycles, it all starts with consumer sentiment.
Phil Ong: Thank you. And our next question today comes from Phil Ong with Jefferies. Please go ahead.
Jefferies: As it starts improving they start spending money on discretionary spending and that then impacts the remodeling business, which the consumer as soon as they feel more comfortable about it can walk in the stores and start immediately so that always starts it.
Phil Ong: Hey guys, certainly your business has been hard hit with rates being elevated on the R&R side. When it comes down, is the bigger driver we should be looking at tied to housing turnover, or rates coming down just kind of improving consumer confidence that it's going to drive demand? So just trying to gauge what are the things that we should look at, and when we do, and how quickly that could kind of unleash that pent-up demand. In past cycles, it all starts with consumer sentiment. As it starts improving, they start spending money on discretionary spending. And that then impacts the remodeling business, which the consumer, as soon as they feel more comfortable about it, can walk into the stores and start immediately. So that always starts.
Jefferies: The central bank's long interest rates, then starts increasing the home resales, which you also a large part of that shows up in the remodeling business, but as happens concurrently as you start.
Then what happens is with the lower rates you have the builders start building more new homes and they start increasing.
Jefferies:
Jefferies: But just to remind you noticed so they take longer because our products are put in almost right before they sell the home at the end.
And then finally the piece of it works is the you'll start planning commercial projects, but they take a longer time to complete and it works through one after the other.
So you also have two key points one is that in most of our geographies.
Jeffrey S. Lorberbaum: The Central Bank's long interest rates then start increasing home resales, which also a large part of that shows up in the remodeling business, but it happens concurrently as you start. Then what happens is with the lower rates you have, the builders start building more new homes, and they start increasing the prices. But just to remind you, no, so they take longer because our products are put in almost right before they sell the home at the end. And then finally, the piece that works is you start planning commercial projects, but they take a longer time to complete, and it works through one after the other. So you also have two key points.
Jefferies: Homes are really under built so the inventory is low and then it's also an aging inventory. So it's kind of a prime position as we start to come out for remodeling to increase which puts us in a very strong position.
Speaker Change: Okay, and then a follow up Jim.
Speaker Change: You guys have obviously done a lot on the cost front and pivot the portfolio into with some new products. When we think about the recovery in the back half go into 2025 is there a good way to think about the operating leverages that business, whether it's volumes or just top by more broadly from a dropdown standpoint.
Well couple of things are important there so youre right.
James Brunk: One is that, in most of our geographies, new homes are really under-built, so the inventory is low. And then there is also an aging inventory, so it's kind of in a prime position as we start to come out for remodeling, which puts us in a very strong position. In a follow-up, Jim, you guys have obviously done a lot on the cost front and shifted the portfolio with some new products. When we think about the recovery in the back half going to 2025, is there a good way to think about the operating leverage of that business, whether it's volumes or just top line more broadly from a drop-down standpoint? Well, a couple of things are important here.
Speaker Change: The utilization rates.
Speaker Change: Right now are anywhere between 70 and 80%.
Speaker Change: Different of course based on geography, and business is driving some shutdowns, which certainly impacted us in 2023.
Speaker Change: As we look at 2024, lower inventory reductions and improving volumes through the year should reduce that impact and as you as you look further in terms of.
Speaker Change: Demand increasing.
Speaker Change: Incremental margins could be anywhere from 25% to 35% depending on segment and the product category and also whether you are in the premium or more in the commodity product on.
Speaker Change: Okay I appreciate the color guys.
Phil Ong: So you're right that utilization rates, which right now are anywhere between 70 and 80%, differing, of course, based on geography and business, are driving some shutdowns, which certainly impacted us in 2023. As we look at 2024, lower inventory reductions and improving volumes through the year should reduce that impact. And as you look further in terms of demand increasing, incremental margins could be anywhere from 25 to 35% depending on segment and product category and also whether you're in the premium or more in the commodity product category. Appreciate the color, guys.
Speaker Change: Our next question today comes from Eric Washer.
Eric Bosshard: Cleveland Research. Please go ahead.
Eric Bosshard: Thanks two.
Eric Bosshard: Two things if I could first of all on the commercial side.
Eric Bosshard: Jeff you outlined a path to improvement in the back half of the year.
Eric Bosshard: I assume that's more residential focus, especially because commercial has been better.
What is the path youre expecting or we should expect for <unk>.
Commercial to travel from here and is there incremental pressure that that applies to the business in 'twenty, four or perhaps into 25 relative to 'twenty three.
Eric Bosshard: As we went through 'twenty three.
Eric Bosshard: When the rates started going up the commercial business slowed down we expect it to continue to be slower, we think theres going to be a lag time between projects getting started giving how tight the.
Eric Bosshard: Our next question today comes from Eric Bosshard with Cleveland Research. Please go ahead. Thanks. Two things, if I could.
Eric Bosshard: First of all, on the commercial side, Jeff, you outlined a path to improvement in the back half of the year. I assume that's more residential focused, especially because commercial has been better. What is the path you're expecting, or we should expect for, commercial to travel from here? And is there incremental pressure that that applies to the business in 24, perhaps into 25, relative to 22? Yeah, as we went through 23.
Eric Bosshard: The markets are for borrowing money in the cost of borrowing money and then what I described earlier was when the interest rates start falling the projects will come in but then the time it takes to start them before we actually feel it could be a year a year and a half for more.
Eric Bosshard: Yeah.
Eric Bosshard: Okay, and so within that the path for revenue growth for Mohawk.
Eric Bosshard: Is.
Eric Bosshard: Is 25% of the business is Europe, and 25% of the business is commercial.
I'm, just trying to get a sense of the improvement in rates in U S. Residential at the same time those are lags or incremental lags.
Jeffrey S. Lorberbaum: The rates started going up, and commercial business slowed down. We expect it to continue to be slower. We think there's going to be a lag time between projects getting started, given how tight the markets are for borrowing money and the cost of borrowing money. And then what I described earlier was when interest rates start falling, the projects will come in, but then the time it takes to start them before we actually feel it could be a year to a year and a half or more. Okay, and so within this, the path for revenue growth for Mohawk, Yeah. 25% of the business is Europe, and 25% of the business is commercial. I'm just trying to get a sense of the improvement in rates and U.S. residential at the same time; those are lags or incremental lags. Can the revenues of the business grow in that type of an environment, or do you need to wait for the business to recover before the total company can generate profits?
Eric Bosshard: The revenues of the business grow in in that type of an environment or do you need to wait for the commercial to recover before the total company can generate revenue growth.
Eric Bosshard: We're expecting the growth in the residential business to offset that.
Eric Bosshard: The decline in commercial.
Eric Bosshard: So to have growth in it even though the commercial is weaker.
Eric Bosshard: And then the second question is the Capex change in 24 versus 23 can.
Eric Bosshard: Can you just dig into that a little bit what.
Eric Bosshard: What are you doing last 724, what did you do more of 23, just give us a little bit of perspective on that decision sure as I noted in our prepared remarks, our forecast for 'twenty four is about $480 million about 50% of that is going to be focused on cost reductions.
Eric Bosshard: And product innovation, 20% will be to complete the growth initiatives that we've identified around of laminate quartz countertops L. T.
Eric Bosshard: Porcelain slabs and installation.
Eric Bosshard: And then about 30% is for maintenance and other items in the year.
Eric Bosshard: We're expecting the growth in the residential business to offset the decline in commercial and so have growth in it, even though commercial is weak. And then the second question, the CapEx change in 24 versus 23. Can you just dig into that a little bit? What are you doing less of in 24? What did you do more of in 23?
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question comes from Stephen Kim with Evercore. Please go ahead.
Speaker Change: [laughter].
Stephen Kim: Yes. Thanks, very much guys first question I guess could you talk a little bit more about the pricing dynamic.
Stephen Kim: Maybe give us a sense for how it's it's varying at all across products or or markets.
James Brunk: Give us a little bit of perspective on that. Sure, as I noted in a couple of remarks, you know, our forecast for 2024 is about $480 million. About 50% of that is going to be focused on cost reductions and product innovation. 20% will be to complete the growth initiatives that we've identified around laminate quartz countertops, LVT, porcelain slabs, and insulation, and then about 30% is for maintenance and other items. Thank you. Thank you. And our next question comes from Stephen Kim with EPCOR. Please go ahead.
Stephen Kim: I gather in the U S, particularly in ceramic it seems like you know you've got some pressure coming from imports, but I was wondering if you could just sort of contextualize that.
Stephen Kim: Sort of across your portfolio the pricing dynamics specifically.
Stephen Kim: What we believe is that pricing is generally at the bottom or near the bottom.
Stephen Kim: And so you should continue to see that.
Stephen Kim: That trend through the year now from a comparable standpoint from year over year, you're certainly still see the pressure.
Stephen Kim: We anticipate though that lower material and energy basically to align with price and mix and then other inflation items, such as wages and benefits and insurances and those types of items to be more covered by productivity and restructure.
Stephen Kim: Yeah, thanks very much, guys. First question, I guess, could you talk a little bit more about the pricing dynamic? Maybe give us a sense for how it's, if it's varying at all, across products or markets? I gather in the US, particularly in ceramics, it seems like, you know, you've got some pressure coming from imports.
Stephen Kim: <unk> actions.
Stephen Kim: In the EU.
Stephen Kim: Europe remains weak with pricing pressures and lower production rates, but as Jeff pointed out as we go through.
Stephen Kim: But I was wondering if you could just sort of contextualize that, you know, sort of across your portfolio, the pricing dynamic specifically. So, you know, what we believe is that, you know, pricing is generally at the bottom or near the bottom, and so you should continue to see that trend through the year. Now, from a comparable standpoint, from year over year, you certainly still see the pressure.
Stephen Kim: The second half of the year and that improvements should drive improved year over year results.
Stephen Kim: Okay.
Stephen Kim: Paul.
Stephen Kim: Okay.
Stephen Kim: Okay.
Stephen Kim: Yeah.
Speaker Change: I'm, sorry, Steve and Youre going to have to repeat that here okay.
Yeah.
Speaker Change: Okay.
This is the this is the operator, we're not able to make out what you're saying I'm Gonna cleared. The question was if you can dial back in we'll get you back in the queue Sir.
James Brunk: We anticipate, though, that lower material and energy costs basically to align with price and mix, and then other inflation items such as wages and benefits and insurance and those types of items to be more covered by productivity and restructuring action. In the EU, Europe, you know, remains weak with pricing pressures and lower production rates, but as Jeff pointed out, as we go through the second half of the year, and that improvement should drive improved year-over-year results. OK. I spoke for 12.
Speaker Change: Our next question comes from Timothy <unk> with Baird. Please go ahead.
Timothy: Guys good morning.
Timothy: Just just really two questions. So the first one maybe just a longer term or bigger picture question around M&A.
Timothy: Historically, you know, Jeff kind of coming out of cycles, there's been a little bit more kind of M&A activity.
Timothy: In the flooring industry over the last couple of decades.
Timothy: I guess, how would you kind of characterize the opportunity around M&A is maybe we come out of the bottoming of the.
Unnamed Speaker: I'm sorry, Stephen, you're going to have to repeat that. Sure. Bye. Mr. Kim, this is the operator.
Timothy: This cycle I mean would that same kind of M&A opportunity be there today like it was over the last several cycles.
Operator: We're not able to make out what you're saying. I'm going to clear the question. If you can dial back in, we'll get you back in the queue, sir. Our next question comes from Timothy Wojs with Baird. Please go ahead. Guys, good morning. Just, just really two questions.
Timothy: So I don't know how to predict the future but in the past.
Timothy: What's happened is that when you get with low margins and the businesses that the.
Timothy: Expectations of the sellers are high and the expectations of the buyers are low and you cant get together. So as you start coming out and the margins start going back up it's easier to align with valuations so anybody who.
Timothy Ronald Wojs: So the first one, maybe just a longer term or bigger picture question around M&A. You know, historically, you know, Jeff, kind of coming out of cycles, there's been a little bit more kind of M&A activity in the flooring industry over the last couple of decades. I guess, how would you kind of characterize the opportunity around M&A as maybe we come out of the bottoming of this cycle?
Timothy: Who has wanted to seller wants to get out it typically comes as you're in the first couple of innings of the coming out of it and I would expect the same thing is going to happen. This time.
Okay. Okay. Good.
Speaker Change: And then just.
Speaker Change: Second question on on the new kind of L. B T formulations and lines is there any way just to give us an update on kind of what youre seeing with that and maybe any sort of kind of preliminary feedback are expectations for maybe what sales might look like there over the next.
Jeffrey S. Lorberbaum: I mean, would that same kind of M&A opportunity be there today like it was over the last several cycles? I don't know how to predict the future, but in the past, what happened was that when you get with low margins in businesses, the expectations of the sellers are high, and the expectations of the buyers are low, and you can't get together. So as you start coming out, and the margins start going back up, it's easier to align with valuations, so anybody who has wanted to sell or wants to get out, it typically comes as you're in the first couple of innings of the game. And I would expect the same thing is going to happen. Okay, okay, good.
Speaker Change: A couple of quarters.
Speaker Change: If I can just comp.
Speaker Change: Comment that we're ramping up our west coast production in our new extrusion process in Georgia we've.
Speaker Change: We've also got unique technologies to provide.
Speaker Change: Improved visuals and surfaces.
Speaker Change: And so we've got a lot and we're also introducing a new renewable polymer core as an alternative.
Speaker Change: So it takes a once you get the equipment running you still have to align the sales with it and it takes a while to get the you can't sell it before the equipment up and running so it's coming up now on the sales are coming up and we would expect to fill it up as we go through the year.
Speaker Change: Okay.
Chris Welborn: And then just on the second question about the new kind of LVT, you know, formulations and lines, is there any way just to give us an update on kind of what you're seeing with that and maybe any sort of kind of preliminary feedback or expectations for maybe what sales might look like there over the next, you know, several quarters? I can just comment that we're ramping up our West Coast production and our new extrusion process in Georgia. We've also got unique technologies to provide improved visuals and surfaces, and so we have a lot, and we're also introducing a new renewable polymer core as an alternative. So it takes a while to get the equipment running, and you still have to align the sails with it.
Speaker Change: Feedback preliminarily from the channel or is it just kind of too early.
Speaker Change: It's too early to tell exactly we have we're gaining commitments to fill it up and we think we will get filled up you know as we go through the middle of the year.
Speaker Change: Okay, Okay very good thanks, everybody.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from Keith Hughes Truest. Please go ahead.
Thank you.
Keith Hughes: Just a question more on the pace of business in North America, It's a weak volume in the quarter or is the remodel market appear to be bottoming out right now or is there a way.
Speaker Change: You can tell where the pace of businesses go on here in the short term.
Speaker Change: Hum.
Speaker Change: We can do is get feedback one as we know our own volumes, we get feedback from our customers of how they see it they are all pretty optimistic at this point about next year getting better.
Speaker Change: But theres no way to actually measure of where the pieces and what's going to change it other than the things that impacted our consumer sentiment seemed to have bottomed so that helps as people get.
Jeffrey S. Lorberbaum: It takes a while to get the equipment, you can't sell it before the equipment's up and running, so it's coming up now, and the sales are coming up, and we would expect to fill it up as we go through the year. Okay, any preliminary feedback from the channel, or is it just kind of too early? It's too early to tell exactly. We have, and we're gaining commitments to fill it up. And we think we'll get it filled up as we go through the middle of the year. Okay. Okay. Very good. Thanks, everybody.
Speaker Change: The.
Speaker Change: Higher prices on homes and things Theres people had been postponing it so it really comes down to.
Speaker Change: Gaining confidence and the pieces and it's not that much different than the other regions. If you want to know the truth, they're all in similar places.
Speaker Change: Yeah.
Speaker Change: Okay and then.
Speaker Change: Raw materials, obviously part of the quarter here Jim.
Jim: Well those numbers, assuming input cost stay where they are now well those numbers continue to be a positive for you and sort of how long how many quarters until they they fade away.
Timothy Ronald Wojs: Thank you. And our next question today comes from Keith Hughes at Truist. Please go ahead.
Jim: So youre right. They are they are starting to fade away, but I anticipate that.
Keith Hughes: Thank you. Just a question more on the pace of business in North America. I mean, it's a weak volume in the quarter.
Jim: You'll continue to see.
Jim: Lower.
Jim: Energy and materials flow through.
Jim: From a comparison standpoint.
Keith Hughes: Is the remodel market period bottoming out right now? Is there a way you can tell where the pace of business is going here in the short term? All we can do is get feedback. One thing we can do is we know our own volumes; we get feedback from our customers on how they see it. They're all pretty optimistic at this point about next year getting better.
Jim: At least through the first half of the year on year over year basis.
Jim: In terms of raw material.
Jim: Energy, which kind of aligns with where price and mix are in that same time period.
Jim: So at a diminishing rate in the first and second quarters.
Yeah.
Jim: Yes, because there is that that much less to kind of flow out of the inventory through the P&L.
Jeffrey S. Lorberbaum: But there's no way to actually measure where the piece is and what's going to change it other than the things that have impacted our consumer sentiment seem to have bottomed. So that helps as people get the higher prices on homes and things that there are people have been postponing. So it really comes down to gaining confidence in the pieces, and it's not that much different in the other regions if you want to know the truth. They're all in similar places.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: And our next question today comes from.
Speaker Change: Michael Rehaut with Jpmorgan. Please go ahead.
Speaker Change: Hi, guys, it's Andrew on for Mike I. Appreciate you taking my question.
Speaker Change: Just one for me.
Speaker Change: As you think further out in all the initiatives you've been taking.
Speaker Change: Cost actions and mix initiatives.
Andrew: All the things that have been going on there where do you think the margin perhaps in flooring North America can get to or maybe on a longer term basis.
James Brunk: Okay, and then raw materials are obviously part of the quarter here. Jim, will those numbers, assuming input costs stay where they are now, will those numbers continue to be a positive for you, and sort of how long, how many quarters until they fade away? You're right, they are starting to fade away, but I anticipate that you'll continue to see lower energy and materials flow through from a comparison standpoint at least through the first half of the year on a year-over-year basis. So, at a diminishing rate in the first and second quarter, is that a way to think about it? Yes, because there's that much less to kind of flow out of the inventory through the...
Andrew: How does that compare to what we're seeing recently in the segment.
Andrew:
Andrew: The margins in this segment are still low as the plant utilization goes up.
Andrew:
Andrew: Stoppages of the plants, you're going to get decreased costs, you're going to get leverage on the SG&A.
Andrew: As it goes up as well.
Andrew: We're going to try to hold the SG&A barely flat and the volume goes up so we'll get leverage there and those things will expand the margins and we think you will see.
Andrew: No.
Andrew: Continued margin growth as it occurs over the next few years.
Speaker Change: Thank you and then maybe also actually.
Speaker Change: These investments in sales resources and merchandising is there any way to like.
Keith Hughes: Okay, thank you. And our next question today comes from Michael Rehaut with J.P. Morgan. Please go ahead. Hi guys, this is Andrew Azeon from Mike.
Speaker Change: Quantify the magnitude of those initiatives are.
Speaker Change: Is that more of a longer term.
Speaker Change: On the horizon.
Speaker Change: Part of the magnitude is in the.
Speaker Change: <unk>.
Andrew Azeon: I appreciate you taking my question. Just one for me, as you think further out and all the initiatives you've been taking with cost actions and mixed initiatives, all the things that have been going on there, where do you think the margin, perhaps in flooring North America, can get to, maybe on a longer term basis? And how does that compare to what we're seeing recently in the segment? The margins in the segment are still low as plant utilization goes up.
You can see it in the SG&A costs, which relative to historical highs, we make conscious choices to maintain our sales organizations to continue investing in products continue investing in merchandising, but in order to set us up for the long term. So you can see it in the.
Speaker Change: Higher level of SG&A as a percent of sales, which will come down as the volume comes up.
James Brunk: Stoppages of the plants, you're going to get decreased costs. You're going to get leverage on the SG&A as it goes up. We're going to try to hold the SG&A barely flat, and the volume goes up, so we'll get leverage there. And those things will expand the margin.
Speaker Change: As you see the pick up in there.
Speaker Change: The placement of samples and new materials in the marketplace and we strengthened in the through the second half as consumer sentiment.
Speaker Change: Bruce.
Speaker Change: Then that will position us ourselves as as we go through the end of the year into next year.
James Brunk: We think you'll see... The Bulletproof Executive 2013, Thank you. And then maybe also in these investments in sales resources and merchandising, is there any way to, like..., quantify the magnitude of those initiatives, or is that more of a longer term full screen thank you. Give us a kind of horizon for change to come. Get in here, get in here, get in here.
Speaker Change: Thanks, a lot guys. Good luck in the next quarter. Thank.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from Joe <unk> with Deutsche Bank. Please go ahead.
Joe: Yeah, Thanks, very much guys good morning.
Joe: Jim you are talking here about the price mix sort of offsetting the deflation benefits that youre seeing and then on the other side of it the productivity sort of offsetting.
Unnamed Speaker: Here's a ponder, ponder, ponder, ponder. The power of Christian devotion. Here's a candlelight. Here's a candlelight. Here's a candlelight.
Joe: You know the other bad guys here I mean, it sounds like you are to the place where you've been trying to get to which is the improvement in EBIT is just going to be a function of volume and if we're talking about a back half improvement.
Unnamed Speaker: Just a little onion. Keep us in our Aunque condition. There's a funz, and I am very upset.
Unnamed Speaker: But who can tell when? This issue, it's the New Age that is going to undermine everything that we know to be on the other side. There's the Death Penalty, there's the sine, the royalty, there's the prongs. Part of the magnitude is in the. We can see it in the SG&A costs, which relative to the historical high, we make conscious choices to maintain our sales organizations, to continue investing in products, and to continue investing in merchandise in order to set us up for the long term. You can see it in the higher level of SG&A as a percent of sales, which will come down as the volume comes up. So as you see in the pickup in,
Joe: It seems like maybe what you're suggesting is that we could see flattish EBIT in the front half, which you already kind of guiding to on the first quarter and then EBIT up in the second half so potentially EBIT up for the year are you willing to kind of what's that.
Speaker Change: Yes, I think thats pretty much in line Joe It was.
Speaker Change: Jeff indicated as a business.
Speaker Change: Our strength is.
Speaker Change: If in fact, we're correct.
James Brunk: The placement of samples and new materials in the marketplace, and we strengthen through the second half as consumer settlement improves, then that will position us ourselves, and we'll go through the end of the year into next year. Thanks a lot, guys. Good luck in the next quarter. And our next question today comes from Joe Auersmaer with Deutsche Bank. Please go ahead. Yeah, thanks very much, guys. Good morning.
Speaker Change: Through the second half of the year than it will be a volume led story to improve the results.
Speaker Change: From a year over year perspective, and then from a full year perspective. This is a comment as the if the business picks up as historical with remodeling. The mix also improves because they sell better products to homeowners.
Joe Auersmaer: Jim, you are talking here about the price mix sort of offsetting the deflation benefits that you're seeing, and then on the other side of it, the productivity sort of offsetting, you know, the other bad guys here. I mean, it sounds like you're at the place where you've been trying to get to, which is that improvement in EBIT is just going to be a function of volume. And if we're talking about a back half improvement, it seems like maybe what you're suggesting is that we could see flattish EBIT in the front half, which you're already kind of guiding to in the first quarter, and then EBIT up in the second half, so potentially EBIT up for the year. Are you willing to kind of bless that?
Speaker Change: And you also have the benefit Joe of more steady production and with that you have less.
Speaker Change: Of the shutdown, which is that unabsorbed overhead, which also plays into the second half of the year as.
Speaker Change: If volumes do indeed begin to improve.
Joe: Right. This is actually my second question on the shutdowns because it feels like you've had.
Joe: If we're just looking at the back half of the most recent two backups there sort of negative on negative.
Joe: And the way I've always understood. This is there are positives once you lap them, so if youre getting volume growth.
James Brunk: I think that's, you know, pretty much in line, Joe, with what Jeff indicated. It's a business that strengthens, you know, if, in fact, we're correct through the second half of the year, then it will be a volume-driven story to improve the results from a year-over-year perspective and then from a full-year perspective. This is a comment as to if the business picks up as historical with remodeling. The mix also improves because they sell better products to home owners. And you also have the benefit, Joe, of more steady production, and with that, you have less of the shutdown, which is that unobserved overhead, which also plays into the second half of the year, as if volumes do indeed increase, and others. Thank you.
Joe: And you're lapping these that would kind of be a double positive, but I'm, just wondering kind of the timing around decision to.
Joe: Improved production.
Joe: You have to do that in anticipation of the improvement in demand in the back half or is it more flexible for you.
Joe:
Given the capacities, we have we assume we're going to flex it up as it occurs so you won't build the inventories in anticipation of it if we were running at very high levels you'd have to build some of it beforehand, but we're not intending to.
Speaker Change: Alright understood. Thanks, a lot guys. Thank you Jackie.
Speaker Change: And our next question today comes from John Lovallo with UBS. Please go ahead.
Joe Auersmaer: Right. This is actually my second question on the shutdowns, because it feels like you've had, if we're just looking at the back halves, the most recent two back halves, they're sort of negative on negative. And the way I've always understood these is that they're positives once you lap them.
John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is just around the comments on returning to normal seasonality in the first quarter.
John Lovallo: If I look at 27 to 2019 for instance.
Is it fair to assume that kind of low <unk> low to mid single digit sequential improvement maybe in both global ceramic and flooring rest of world revenue and maybe flat to slightly down revenue in North America. I mean is that the right way to think about it and along those same lines. How do you think about sort of normal seasonality in segment margins.
Joe Auersmaer: So if you're getting volume growth and you're lapping these, that would kind of be a double positive. But just wondering kind of the timing around the decision to improve production. Do you have to do that in anticipation of the improvement in demand in the back half? Or is it more flexible?
Joe Auersmaer: Given the capacities we have, we assume we're going to flex it up as it occurs, so you won't build the inventories in anticipation. If we were running at very high levels, you'd have to build some of it beforehand, but we're not. All right, understood. Thanks a lot, guys. And our next question today comes from John Lovallo with UBS. Please go ahead. Good morning, guys.
John Lovallo: From fourth quarter to the first quarter.
If you look from a segment perspective in the first quarter.
John Lovallo: We believe Florida, North American margins should improve from last year with increased productivity and lower costs, some of which coming from the restructuring actions.
John Lovallo: Thanks for taking my questions. The first one is just around the comments on returning to normal seasonality in the first quarter. So if I look at 2017 to 2019, for instance, is it fair to assume that kind of low to mid-single-digit sequential improvement, maybe in both global ceramic and flooring rest of world revenue, and maybe flat to slightly down revenue in North America? I mean, is that the right way to think about it?
John Lovallo: Ceramic and flooring rest of the world are more impacted by a lower mix.
John Lovallo: Weaker mix and lower volumes with flooring rest of world being impacted more given.
John Lovallo: Given so much of its market right now is in Europe.
John Lovallo: And lower prices and wood panels, and the laminate category is compressing margins.
John Lovallo: Got it is that cadence that I mentioned in terms of revenue, though consistent with how you guys are thinking about it low to mid single digit sequential improvement in both global ceramic and flooring rest of the world and maybe flat to down in North America.
James Brunk: And, you know, along those same lines, how do you think about sort of normal seasonality in segment margins from the fourth quarter to the first quarter? So if you look from a segment perspective in the first quarter, we would believe a floor in North America's margin should improve from last year with increased productivity and lower costs, some of which coming from the restructuring effort. Ceramic and Point Rusted World are more impacted by a lower mix, a weaker mix, and a lower volume.
Speaker Change: Are you speaking of just in the first quarter versus the prior year.
Speaker Change: Sorry sequentially fourth quarter to first quarter.
Speaker Change: Yes.
Speaker Change:
Speaker Change: So fourth quarter.
Speaker Change: Yeah.
Speaker Change: Why don't we can we can follow up.
Speaker Change: Follow up on that one sure yeah no problem. So the second question is just on capital allocation I know you guys mentioned paying down the $900 million term loan any thoughts on when you might get back into the market in terms of repurchases.
James Brunk: For more information, visit www. FEMA.gov. Is that cadence that I mentioned in terms of revenue, though, consistent with how you guys are thinking about it? Load amid single-digit sequential improvement in both global ceramics and floor and the rest of the world, and maybe flat to down in North America? Are you speaking of just in the first quarter versus the prior year? Sorry, sequentially, fourth quarter to first quarter, fourth quarter. Please see the complete disclaimer at https://sites.google.com/cites.google.com. Why don't you follow up on that one? Sure, yeah, no problem.
Speaker Change:
Speaker Change: We haven't decided to do it yet we can we can change whenever we terminated the short term, we still see uncertainties in difficult financing conditions, we've decided to pay off $900 million of debt.
Speaker Change: In the first quarter.
Speaker Change: So we haven't decided to.
Speaker Change: Again buying.
Speaker Change: Buying back stock at this moment.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thank you and our next question comes from Laura.
John Lovallo: The second question is just on capital allocation. I know you guys mentioned paying down the $900 million term loan. Any thoughts on when you might get back into the market in terms of repurchases? We haven't decided to do it yet. We can change it whenever we determine it in the short term. We still see uncertainties and difficult financing conditions. We decided to pay off $900 million of debt in the first quarter.
New capital. Please go ahead.
Laura Champine: Thanks for taking my question I'm.
Laura: On the flooring North America, we were struck with the 700 basis point year over year profit improvement given that sales were down 4% I'm wondering if that is mostly cost recapture if theres something else really driving that and then on the segment profitability for ceramic one.
Jeffrey S. Lorberbaum: So we haven't decided to... and buy back stock at, Okay, thank you guys. Thank you. And our next question comes from Laura Champine with Loop Capital. Please go ahead.
Laura: <unk> how much of a hit that segment is taking from the acquisitions.
Laura: Acquisitions in Brazil, and Mexico.
Speaker Change: So they.
Speaker Change: The Florida North America, the earnings did improve from lower costs offsetting pricing restructuring as well as productivity gains in the period and.
Laura Champine: Thanks for taking my question. On Flooring North America, we were struck with a 700 basis point year-over-year profit improvement given that sales were down 4%. I'm wondering if that is mostly cost recapture or if there's something else really driving that. And then on the segment profitability for ceramics, I'm wondering how much of a hit that segment is taking from the acquisitions in Brazil and Mexico. The floor in North America, earnings did improve from lower costs, offsetting pricing, restructuring as well as productivity gains in the period. We continue to invest in all these different marketing activities and new product collections to drive. We think it's going to carry over into the first quarter and continue on with the march. And Laura, in South America...
Speaker Change: And then we continue to invest in all of these different marketing activities and new product collections to drive business.
Speaker Change: We think it's going to carryover into the first quarter and continue on with the margins.
Speaker Change: And Laura on the South America.
Speaker Change: Both in Mexico, and Brazil had dramatic increases in interest rates, which impacted the acquisitions and our base business.
Speaker Change: In that environment, we've done a lot to reduce the cost.
Speaker Change: We've got the business is more or less fully integrated.
Speaker Change: And the interest rates are starting to come down which should prove this business isn't a lot in the future.
Speaker Change: Got it but any more granularity you can give me on how much the negative impact was on the acquired revenues to the margins in Q4.
James Brunk: Both Mexico and Brazil had dramatic increases in interest rates, which impacted acquisitions and our base business. In that environment, we've done a lot to reduce the cost. We've got the businesses more or less fully integrated. And interest rates are starting to come down, which should improve those businesses a lot in the future.
Speaker Change: Well the businesses are fully integrated I expect that they are somewhat dilutive as the market has slowed down and we're underutilized.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: And our next question comes from Matthew Bouley with Barclays. Please go ahead.
James Brunk: Got it, but any more granularity you can give me on how much the negative impact was on the acquired revenues to the margins in Q4. Well, we the businesses are fully integrated, but I expect that they are somewhat diluted as the markets have flowed down and were underutilized.
Matthew Bouley: Hi, Good morning, Thank you for taking the questions.
Matthew Bouley: Just zooming into global ceramic.
Matthew Bouley: Obviously price cost was positive for the for the entire enterprise, but it but it was still negative.
Laura Champine: Thank you. And our next question today comes from Matthew Bulley with Barclays. Please go ahead. Good morning.
Matthew Bouley: Ceramic or any color on how you're expecting price versus cost to play out sequentially into Q1.
Matthew Bulley: Thank you for taking the questions. Just zooming into Global Ceramic, you know, obviously price-cost was positive for the entire enterprise, but it was still negative in Ceramic. Any color on how you're expecting price versus cost to play out sequentially into Q1 in Ceramic? Thank you. Yeah, I'll comment on Ceramic.
Matthew Bouley: In ceramic thank you.
Speaker Change: Yeah, Let me I'll comment on ceramic so Q4 was in line with what we expected.
Year over year margins were impacted by lower demand price mix and FX and then we also took extra production downtime around the holidays to manage our inventories.
James Brunk: So, Q4 was in line with what we expected. However, year-over-year margins were impacted by lower demand, price mix, and FX. And then we also took extra production downtime around the holidays to manage our inventory. But in that environment, we were still able to enhance our mix with new products. We reduced our costs, and we've increased our productivity. And we also got those acquisitions integrated. You are seeing some decline in price mix as energy prices are coming down, and most of those have been passed along to the consumer. I would say sequentially, so from if that's what you're speaking of from Q4 to Q1, I think we've seen a lot of that botting out, and it should actually slightly end.
Speaker Change: In that environment, we still were able to enhance our mix with new products, we reduced our cost and we've increased our productivity and we also got those acquisitions integrated you are seeing some decline in price mix as the energy prices are coming down and most of those had been passed along.
Speaker Change: To the.
Speaker Change: To the consumers.
Speaker Change: I would say sequentially. So from if thats, what youre speaking of from Q4 to Q1.
Speaker Change: I think you've seen a lot of that bottoming out and it should should actually slightly improve again sequentially.
Speaker Change: Got it okay perfect. Thank you.
Speaker Change: And then second one.
Speaker Change: Obviously, you've gotten or you've announced a few cost reduction programs over the past year can you just sort of remind us of the magnitude of these cost reduction programs together.
James Brunk: Again, sequential. Got it. Okay, perfect. Thank you. And then second one, you know, obviously, you've got or, you know, you've announced a few cost reduction programs over the past year. Can you just sort of remind us of the magnitude of these cost reduction programs together? And are you kind of at run rate today in terms of, you know, those savings flowing through, or is there additional benefit to kind of accrue as we move through 24? Thank you. So we focused on the restructuring actions late over the last 18 months of trying to take out high-cost assets, aligning our capacity, and implementing other lower-cost processes really across all three of the segments. Collectively, there's about $150 million of cost reductions that we should garner from these actions.
Speaker Change: And are you kind of at run rate today in terms of those savings flowing through or there's additional benefit to kind of accrue.
Speaker Change: As we move through 'twenty four thank you.
Speaker Change: So we focused in the restructuring actions late.
Speaker Change: Over the last 18 months of trying to take out high cost assets aligning our capacity and implement other lower cost processes really across all three of the segments collectively.
Speaker Change: Collectively are about $150 million of cost reductions.
Speaker Change: That we should garner from these actions almost half of that has been realized in 2023. So you get the remaining portion.
James Brunk: Almost half of that has been realized in 2023, so you get the remaining portion to flow through 2024. Of course, you're seeing some of that in 2023 being offset by other factors. We'll continue to evaluate our current situation and take actions as necessary to continue to try to... I think there's a pretty good drive and improved results. All right. Thanks, guys.
Speaker Change: Two flow through 2024 of course, Youre seeing some of that in 2023 being offset by by other factors will continue to evaluate.
Speaker Change: Our current the current situation and take actions as necessary to continue to try to drive improved results.
Speaker Change: Alright, Thanks, guys. Good luck.
James Brunk: Good luck. And our next question today comes from Kathryn Thompson with the Thompson Research Group. Please go ahead.
Speaker Change: And our next question today comes from Kathryn Thompson with Thompson Research Group. Please go ahead.
Kathryn Ingram Thompson: Hi, thank you for taking my questions. Tagging on the previous question, you are largely behind the bulk of cost-cutting measures. But earlier in the call, you said that you don't know when, and you can't predict M&A. But that third one
Kathryn Ingram Thompson: Hi, Thank you for taking my questions tagging on the previous question you are largely behind.
Kathryn Ingram Thompson: The bulk of cost cutting measures.
Kathryn Ingram Thompson: But early in the call you said that you don't know when.
Kathryn Ingram Thompson: You can't predict M&A.
Kathryn Ingram Thompson: But that said.
Jeffrey S. Lorberbaum: You can, and we have plenty of public companies and private companies that can comment on their path for growth, including The Balance, more focused on organic growth and what the pipeline looks like for M&A. So could you please comment on your thoughts on growth going forward, both from an organic focus on what products and geographies are a greater focus? and then comment on just the flavor of the pipeline for M&A. Thank you.
Kathryn Ingram Thompson: You can and we have plenty of public companies and private companies that can comment.
Kathryn Ingram Thompson: On their path for growth.
Kathryn Ingram Thompson: Including the balance more focused on organic growth.
Kathryn Ingram Thompson: And what the pipeline looks like for M&A.
Speaker Change: Could you. Please comment on your thoughts on growth going forward, both from an organic focusing on what products and geographies are greater focus and then comment on just the flavor of the pipeline for M&A. Thank you.
Jeffrey S. Lorberbaum: Let's start out with all businesses underutilizing the capacities that we have. So the goal is to drive the utilization of the present product categories and operations that we have as the business improves. On the other ones, there were, on the other products... that we're investing in are the areas where, before we went into this slowdown, they were more constrained, and we're investing in those. Those include the LVT category, which we're in the process of changing the plants over to, and they should be filled up as we go through this year. We're introducing a new LVT renewable polymer core structure that's going into the marketplace and is being well accepted, and Laminit. We're also introducing new technologies in acoustics and durability to improve the use of those assets.
Speaker Change: Well, let's start out with all the businesses are.
Speaker Change: Underutilize the capacities that we have so the goal is to drive the utilization of <unk>.
Speaker Change: The present product categories and operations that we have as the business improved.
Speaker Change: On the other ones that are on the other product.
Speaker Change: That we're investing in are there areas, where before we went into this slowdown that were more constrained and we're investing in those those include the L V T.
Speaker Change:
Speaker Change: Category, which we've in the process of changing the plants over and they should be.
Speaker Change: <unk> up as we go through this year.
Speaker Change: We're introducing a new lv.
Speaker Change: Lv T renewable polymer core structure is going into the marketplace and being well accepted.
Speaker Change: In laminate, we're introducing new technologies, and acoustics and durability to improve the use of those assets ceramic we've putting products in that have differentiated color intensity textures and three dimensional surfaces.
Jeffrey S. Lorberbaum: Ceramic, we're putting products in that have differentiated color intensity, textures, and three-dimensional surfaces, countertops, but it's in every product category. So the main objective is to use the assets that we own and drive them up as we go through. On the acquisition side, there are no pending acquisitions sitting at this moment that we're ready to close, is that we're always in the market to look at opportunities, but there's a large difference between, buyers and sellers at the moment, which we discussed before, so there's nothing immediate, waiting to be closed at this, Any type of just in terms of from an M&A standpoint, is there just a further clarification or confirmation in terms of geographic and or product focus?..
Speaker Change: <unk>.
Speaker Change: The product category.
Speaker Change: So the main objective is to use the assets that we own and drive them up.
Speaker Change: As we go through.
Speaker Change: On the acquisition side there there are no pending acquisitions sitting at this moment that we are ready to close as it were always in the market to look at.
Speaker Change: Opportunities, but there there's a large difference between.
Speaker Change: Buyers and sellers at the moment, which we discussed before so there's nothing immediate.
Speaker Change: Waiting to be closed at this point.
Speaker Change: Any type of just in terms of.
Speaker Change: From an M&A standpoint is there.
Speaker Change: Just a further clarification for confirmation in terms of geographic and product focus.
Speaker Change: Hum.
Speaker Change: Oh.
Speaker Change: The.
Kathryn Ingram Thompson: Was that an acquisition question or an investment question? That's an acquisition question. We just, we're just.
Speaker Change: Was that an acquisition question or an investment Ashwin. That's the acquisition question its an acquisition question.
Speaker Change:
Speaker Change: We just we're just in Latin America, we completed two acquisitions. They are basically fully integrated and so there's nothing more to do on those those managements are taking care of those we have a number of bolt on acquisitions that were finishing up and improving that we haven't.
Jeffrey S. Lorberbaum: In Latin America, we completed two acquisitions. They are basically fully integrated, and so there's nothing more to do in those. Those managements are taking care of those. We have a number of bolt-on acquisitions that we're finishing up and improving that we haven't got all the benefits of across the world. We've gone through them at earlier points.
Speaker Change: All of the benefits across the world, which we've gone through it earlier points those are going through.
Jeffrey S. Lorberbaum: For those who are going through it, we really don't have a specific piece that we need to pick out. The drive, I guess if I had to pick one, would be our insulation business, which is growing. So, I would say investing in additional assets in it. [inaudible] would be done sooner than other ones to expand capacities in an additional area. And then on the acquisition side, it's really more where do we find the right acquisition that fits in with a business. We prefer both on ones because of the... Great, thank you very much.
Speaker Change: We really don't have a specific piece that we need to do to drive I guess, if I had to pick one we have our installation business, which the installation business is growing so I would say that investing in additional assets in it.
Speaker Change:
Speaker Change: Would be done sooner than other ones to expand capacities and an additional area.
Speaker Change: And then on the acquisition side, that's really more what do we find the right acquisition that fits in with our business, we prefer bolt on ones because of the.
Speaker Change:
Speaker Change: The advantage is you get by putting them together.
Speaker Change: But we would go into new geographies, if we found the right product and the right management to drive it.
Kathryn Ingram Thompson: And our next question comes from Adam Baumgarten with Zelman. Please go ahead. Hey, good morning.
Speaker Change: Okay, great. Thank you very much thank you.
Speaker Change: And our next question comes from Adam Baumgarten Gordon with Zelman. Please go ahead.
Speaker Change: Hey, good morning, just just to confirm do you expect residential markets to outperform commercial in 2024, and if that is the case would that have a negative impact on mix and maybe margins.
Adam Michael Baumgarten: Just Jeff, to confirm, do you expect residential markets to outperform commercial in 2024? And if that is the case, would that have a negative impact on mix and maybe margins? Built-in R plans are a decrease in commercial businesses because what happens is you have the projects that were started a year to two years ago complete.
Speaker Change:
Speaker Change: Sure.
Speaker Change: Built in our plans are a decrease in the commercial businesses.
Speaker Change: What happens is you have the projects that were started a year to two years ago completing as they complete there's less things started so theres going to be a gap for a period of time and then the the mix you're correct. The mix in commercial is higher but we think it's going to be offset by gains in the rest.
Jeffrey S. Lorberbaum: As they complete, there's less being started, so there's going to be a gap for a period of time. And then the mix, you're correct, the mix in commercial is higher, but we think it's going to be offset by gains in the residential business and the mix in commercial. Consumer Purchases and Retail, where they buy higher quality products. You have to remember, Adam, when you say residential, it's kind of split, right? New construction and remodeling.
Speaker Change: <unk> business and the mix in the.
Speaker Change: Consumer purchases in retail, which they buy higher quality products and you have to remember Adam when you say residential it's kind of split right, new construction and remodeling and as we've talked about is consumer sentiment improves you should that leads to higher remodeling more higher ticket items, which then.
Jeffrey S. Lorberbaum: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com/policies/, for our business; that can also help. Okay, I got it. And then just thinking about foreign North America, maybe just some color across the various product categories on where you're seeing the most pricing pressure. I know, I think it's pressure across the board, but maybe the degree across the various different products you sell in that business. The whole category is under pressure as volumes have dropped.
Speaker Change: These two enough mix.
Speaker Change: For our business so that can be that can also help.
Speaker Change: Okay got it and then just thinking about for North America, maybe just some color across the various product categories, and where you're seeing the most pricing pressure I know I think it's pressure across the board, but maybe the degree across the various different products, you're selling in that business.
Speaker Change:
The whole category is under pressure as the.
Speaker Change: As the Volte.
Speaker Change: Volumes have dropped.
Jeffrey S. Lorberbaum: As you would suspect, in each category, the more commoditized products have more pressure than the differentiated ones, under pressure with both pricing and mix. LVT prices have declined as import prices have come down. And there's also less volume being sold in the categories, so those might be a little worse than the others.
Speaker Change: As you would suspect in each category the more commoditized products have more pressure than the differentiated ones.
Speaker Change: The carpet volume the carpets under pressure with both pricing and mix.
Speaker Change: Lv T prices have declined as the price is the import prices have come down.
Speaker Change: And there's also less volume being sold in the categories.
Speaker Change: So those might be a little worse than the others.
Adam Michael Baumgarten: Got it. Thanks. I appreciate it.
Speaker Change: Got it thanks I appreciate it.
Rafe Jason Jadrosich: Thank you. And our next question today comes from Rafe Jadrosich with Bank of America. Please go ahead. Hi, good morning. It's Rafe.
Speaker Change: King.
Speaker Change: And our next question today comes from Rajeev <unk> with Bank of America. Please go ahead.
Rajeev: Hi, good morning, Thanks for taking my question.
Rafe Jason Jadrosich: Thanks for taking my question. I wanted to ask if container rates have moved up recently. I'm wondering, is that helping your business or reducing competition, either in Europe or the US? And if container rates were continued to rise, could that lead to less pricing competition on the LVT or ceramic side? Let's start out with imported products. There is a long supply chain. So when things move, it takes a while before it flows through into the marketplaces, and it has to be sustained for a while.
Rajeev: I wanted to I want to ask if he would container rates have moved up recently.
Rajeev: I'm wondering is that helping your business or reducing competition, either in Europe, or the U S and if container rates, where it continued to rise.
Rajeev: Could that lead to less pricing competition on the Lv to your ceramic side.
Rajeev: Let's first start out with imported products Theres, a long supply chain. So when the things move it takes a while before it flows through into the marketplaces and it has to be sustained for a while so it's too early to tell if they if the freight rates.
Jeffrey S. Lorberbaum: So it's too early to tell if the freight rate will move up and stay up. It would. It would flow through after the inventories were absorbed that are already in the market, and prices would rise. At this point, it's too early to decide if it's going to have any impact and be sustained. If container rates stay where they are today for the next quarter or two quarters, do you think that would start to have an impact on pricing and you'd see some price either stabilization or actually improvement? What happened is, as you would suspect, it would have to flow into the cost of the product. It would raise prices, and prices in the marketplace would go up, and it would help our local manufacturers.
Rajeev: Would move up and stay up it would.
Rajeev: It would flow through after the inventories were absorbed that are that are already in the market.
Rajeev: And the prices would rise at this point, it's too early to decide if it's going to have any input MPD impact can be sustained.
Speaker Change: If container rates stay where they are today for the next quarter or two quarters. Do you think that would start to have an impact to pricing and you'd see some price either stabilization to actually improvement.
Speaker Change: What happened is as you would suspect it would have to flow into the cost of the product that would raise the prices and the prices in the marketplace will go up.
Speaker Change: Yeah.
Speaker Change: Would help our local manufacturing.
Jeffrey S. Lorberbaum: And then, where do you compete the most against imported products? Is that in the US? Or is that in Europe? And the context is obviously with some of the disruptions in the red seed.
Speaker Change: Okay, and then where do you compete the most against imported.
Imported product is that in the U S or is that in Europe in the context is obviously with.
Speaker Change: Some of the disruptions in the Red Sea does that like could you Europe business start to benefit from from fewer imports from Asia.
Rafe Jason Jadrosich: Is that like, could your European business start to benefit from fewer imports from Asia? Yeah, the. From Asia, you have the imports in Europe with, http://www.larryweaver.com is. So those two would be the most.
Speaker Change:
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: So from Asia, you have the imports in Europe would be.
Speaker Change: Mostly Lv T. Then you have the ceramic is moving where the most aggressive player as players are in India.
Speaker Change: So those two would be the most on the other side, we do ship product around the world. We ship high end ceramic all over the place we ship sheet vinyl to the middle East and other marketplaces. So it impacts those limited ways.
Jeffrey S. Lorberbaum: On the other hand, we do ship products around the world. We ship high-end ceramics all over the place. We ship sheet vinyl to the Middle East and other marketplaces, so it impacts those in limited ways.
Jeffrey S. Lorberbaum: Thank you very much. Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Jeff Lorberbaum for any closing remarks. Thank you very much. We appreciate your interest in Mohawk. I believe we're well positioned for the recovery that's going to come in the United States.
Speaker Change: Thank you very helpful.
Speaker Change: Thank you this concludes.
Speaker Change: A question and answer session.
Speaker Change: Turn the conference back over to Jeff <unk> for any closing remarks.
Jeff: Thank you very much we appreciate your interest in Mohawk. We believe we are well positioned for the recovery that's going to come in the United States.
Operator: Thank you for joining the call. Have a good day. Thank you. The conference is now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: So thank you for joining the call have a good day.
Jeff: Thank you.
Speaker Change: There is now concluded and we thank you all for attending today's presentation.
Speaker Change: You may now disconnect your lines and have a wonderful day.