Q1 2024 Mohawk Industries Inc Earnings Call

Operator: Good morning everyone, and welcome to the Mohawk Industries first quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please contact 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 and 1. To remove yourself from the question queue, you may press star and two. Please also note today's event is being held. At this time, I'd like to turn the floor over to James Brunk. Please go ahead.

Good morning, everyone and welcome to the Mohawk Industries' first quarter 2024 earnings conference call.

All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star can you followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press star and one can do.

We remove yourself from the question queue, you May press Star and two please also note today's event is being recorded.

At this time I'd like to turn the floor over to James Brown. Please go ahead.

James F. Brunk: Thank you, Jamie. Good morning, everyone.

James Brown: Thank you Jamie good morning, everyone welcome to the Mohawk Industries quarterly Investor Conference call.

James F. Brunk: Welcome to Mohawk Industries' quarterly investor conference call. Joining me on today's call are Jeff Lorberbaum, Chairman and Chief Executive Officer, and Chris Wellborn, President and Chief Operating Officer. Today we'll update you on the company's first quarter performance and provide guidance for the second 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 in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including, but not limited to, those set forth in our press release and our periodic filings with the Securities Exchange Commission.

James Brown: Joining me on today's call are Jeff lower Bond, Chairman, and Chief Executive Officer, and Chris Wellborn, President and Chief operating Officer today, We will update you on the company's first quarter performance and provide guidance for the second quarter of 'twenty 'twenty four.

James Brown: Like to remind everyone that our press release and statements that we make during this call may include forward looking statements as defined in the private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with the securities. Thanks.

James Brown: <unk> Commission. This call May include discussion of non-GAAP numbers for a reconciliation of any non-GAAP to GAAP amounts. Please refer to our form 8-K and press release in the investors section of our website.

James F. Brunk: This call may include discussion of non-GAAP numbers. For reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8K and press release in the Investor section of our website. I'll now turn the call over to Jeff.

Now I'll turn the call over to Jeff.

Jeffrey S. Lorberbaum: Thanks, Jim. Good morning, everyone. Though economic headwinds are impacting our industry, our results reflect the positive effects of the actions we're taking to enhance our performance. Our net sales for the first quarter were $2.7 billion, down 4.5% compared to last year. Adjusted earnings per share were $1.86, up 6% versus 2023 as a result of restructuring productivity initiatives and benefits from lower cost materials and energy, partially offset by weaker pricing in May. Currency exchange rates continue to affect our operating income, with a negative impact in the quarter of approximately $12 million, or 15 cents on EPS.

Jeffrey S. Lorberbaum: Thanks, Jim Good morning, everyone.

Jeffrey S. Lorberbaum: So economic headwinds are impacting our industry our results reflect positive effects of the actions, we're taking to enhance our performance. Our net sales for the first quarter were $2 7 billion down four 5% compared to last year adjusted earnings per share were $1 86 up six.

Jeffrey S. Lorberbaum: <unk> versus 2023 as a result of restructuring productivity initiatives and benefits from lower cost for materials and energy, partially offset by weaker pricing and mix.

Jeffrey S. Lorberbaum: Currency exchange rates continue to affect our operating income with a negative impact in the quarter of approximately $12 million or 15 cents on a P. S.

Jeffrey S. Lorberbaum: Across our regions, market conditions remain similar to the prior quarter, with significant pricing and mixed pressure due to industry competition for volume. Thus, slowing the commercial channel continues to outperform residential. Residential remodeling remains soft due to low housing sales and the impact of inflation on discretionary spending. Retailers have reported that consumers are reluctant to initiate higher-ticket projects with flooring facing greater pressure since most replacements can be readily deferred.

Jeffrey S. Lorberbaum: Across our regions market conditions remained similar to the prior quarter with significant pricing and mix pressure due to industry competition for volume so.

Jeffrey S. Lorberbaum: So slowing the commercial channel continues to outperform residential residential remodeling remains soft due to low housing sales and the impact of inflation on discretionary spending.

Retailers have reported that consumers are reluctant to initiate higher ticket projects with flooring facing greater pressure since most of the placements can be readily differed.

Jeffrey S. Lorberbaum: Our teams remain focused on managing through the near-term environment, realizing sales opportunities, reducing controllable costs, and completing restructuring initiatives. We continue to manage our production levels to align inventories with market demand. To stimulate sales, we're investing in new product introductions with enhanced features that convey the value of our collection.

Jeffrey S. Lorberbaum: Our teams remain focused on managing through the near term environment, realizing sales opportunities, reducing controllable costs and completing our restructuring initiatives. We continue to manage our production levels to align inventories with market demand.

Jeffrey S. Lorberbaum: To stimulate sales, we're investing in new product introductions with enhanced features that convey the value of our collections.

Jeffrey S. Lorberbaum: Given inflationary pressures, labor benefits, and other items, we continue to take additional actions to reduce our cost structure and improve productivity. Globally, there is optimism about consumer confidence improving, interest rates declining, and a rebound in the housing market. The timing of this inflection in each market depends on inflation levels and actions by their central banks. Latin America aggressively raised interest rates to combat inflation, and now the region is among the first to implement rate reduction.

Jeffrey S. Lorberbaum: Given inflationary pressures in labor benefits and other items, we continue to take additional actions to reduce our cost structure and improved productivity.

Jeffrey S. Lorberbaum: Globally, there is optimism about consumer confidence improving interest rates declining and a rebound in the housing market.

Jeffrey S. Lorberbaum: Timing of this inflection in each market depends on inflation levels and actions by their central banks Latin America aggressively raised interest rates to combat inflation and now the region is among the first to implement rate reductions.

Jeffrey S. Lorberbaum: Brazil's central bank initiated several rate cuts, and Mexico recently lowered rates for the first time since 2021. In the U.S. and Europe, central banks are maintaining interest rates as they focus on achieving their targeted inflation levels.

Jeffrey S. Lorberbaum: <unk> Central Bank initiated several rate cuts in Mexico recently lowered rates for the first time since 2021.

Jeffrey S. Lorberbaum: In the U S and Europe central banks are maintaining interest rates as they focus on achieving their targeted inflation levels.

Jeffrey S. Lorberbaum: The present forecast for U.S. new home starts and existing home sales is for a slight increase in 2024, with greater improvement in the second half of the year. In some countries, governments are subsidizing housing investments by reducing mortgage rates. In the U.S., builders are stimulating purchases of their properties by buying down interest rates for consumers.

Jeffrey S. Lorberbaum: The present forecast for U S. New home starts and existing home sales is for a slight increase from 2024 with greater improvement in the second half of the year and.

Jeffrey S. Lorberbaum: In some countries governments are subsidizing housing investments by reducing mortgage rates.

Jeffrey S. Lorberbaum: In the U S builders are stimulating purchases of their properties by buying down interest rates for consumers.

Jeffrey S. Lorberbaum: The Realtors Association recently noted that life events eventually require buyers and sellers to make moves regardless of interest rates. The desire for home ownership remains strong, and people will find a way to realize that goal. Since our last call, Newsweek named Mohawk one of America's greatest workplaces for women, and Green Builder selected our Pure Tech PVC-Free Resilient Flooring as one of their top products of the year. We're pleased to be recognized for both our commitment to our people and our product innovation. Now Jim will provide a review of our financial performance for the quarter.

Jeffrey S. Lorberbaum: The U S. Realtors Association recently noted that life events, eventually require buyers and sellers to make moves regardless of interest rates. The desire for home ownership remained strong and people will find a way to realize that goal.

Jeffrey S. Lorberbaum: Since our last call Newsweek named Mohawk, one of Americas greatest workplaces for women.

Jeffrey S. Lorberbaum: And green builder selected our pure Tech PVC free resilient flooring is one of their top products of the year.

Jeffrey S. Lorberbaum: We're pleased to be recognized for both our commitment to our people and our product innovation.

Jeffrey S. Lorberbaum: Jim will provide a review of our financial performance for the quarter.

James F. Brunk: Thank you, Jeff. Again, sales were just under $2.7 billion. That's a 4.5% decrease as reported and 5.5% on a constant basis due to year-over-year price and mix pressures continuing due to a combination of tight demand, the pass-through of lower input costs, and consumer trading down. Our Flooring Rest of the World segment was impacted the most by the price and mix issue in the quarter.

Jim: Thank you Jeff again sales were just under $2 $7 billion. So it's a four 5% decrease as reported and five 5% on a constant basis due to year over year price and mix pressures continuing due to a combination of tight demand the pass through of lower input costs and the consumer trading down.

Jim: Our flooring rest of the World segment was impacted the most by the price and mix issue in the quarter.

James F. Brunk: Gross margin was 24.2% as reported, or 24.4% on an adjusted basis, versus 24.1% in the prior year, primarily due to lower cost, material, and energy of $147 million, substantially offsetting the negative impact of price and mix of $152 million, in addition to the benefit of our productivity and restructuring actions of $35 million. SJ&A expense was 18.8% as reported and 18.4% on an adjusted basis, basically in line with the prior year. They gave us an operating margin of 5.5%, as reported.

Jim: Gross margin was 24, 2% as reported or 24, 4%.

Jim: Just the basis versus 24, 1% in the prior year, primarily due to lower cost material and energy of $147 million substantially offsetting the negative impact of price and mix of $152 million. In addition to the benefit of our productivity and restructuring actions.

Jim: A $35 million.

SG&A expense was 18, 8% as reported and 18, 4% on adjusted basis basically in line with the prior year.

Jim: Gave us an operating margin of five 5% as reported nonrecurring charges were $17 million in the quarter, giving us an adjusted operating margin of six 1%, that's a slight improvement over prior year driven by the lower input costs of approximately 136 million and increased productivity of four.

James F. Brunk: Non-recurring charges were $17 million in the quarter, giving us an adjusted operating margin of 6.1%. That's a slight improvement over the prior year, driven by lower input costs of approximately $136 million and increased productivity of $47 million, offsetting the negative impact of weaker price and mix of $153 million and the unfavorable impact of foreign currency of $12 million and temporary manufacturing shutdowns of $10 million. Interest expense for the quarter was $15 million, that's slightly favorable versus the prior year. Our non-GAAP tax rate is 21.8% versus 22.6% in the prior year. We expect Q2's tax rate to be between 20 and 21% and the full-year rate to be between 19 and 21%.

<unk> 7 million offsetting the negative impact of a weaker price and mix of $153 million and the unfavorable impact of foreign currency of $12 million and temporary manufacturing shutdowns of $10 million interest expense for the quarter was $15 million at slightly favorable versus prior year.

Jim: Our non-GAAP tax rate was 21, 8% versus 22, 6% in the prior year, we expect Q2's tax rate to be between 20, and 21% and full year rate to be between 19 and 21%.

James F. Brunk: That gave us earnings per share as reported of $1.64 and an adjusted basis of $1.86, an increase of 6% versus the prior year. Turning to the segments, global ceramic head sales are just over $1 billion. That's a 1.4% decrease as reported and 5% on a legacy and constant basis due to the unfavorable impact of price and product mix and lower volume as industry demand remains compressed. Operating Margin on an Adjusted Basis was 5%.

Jim: Give us an earnings per share as reported of $1.64 and on an adjusted basis of $1 86 and.

Jim: An increase of 6% versus prior year.

Jim: Turning to the segments global ceramic had sales of just over $1 billion. That's a one 4% decrease as reported and 5% on a legacy and constant basis due to the unfavorable impact of price and product mix and lower volume as the industry demand remains compressed operating margin.

Jim: Our operating margin on an adjusted basis was 5% that's a decrease of approximately 130 basis points due to the unfavorable impact of price and product mix of approximately $40 million, reflecting the continued difficult market conditions and the unfavorable impact of foreign currency of approximately 11.

James F. Brunk: That's a decrease of approximately 130 basis points due to the unfavorable impact of price and product mix of approximately $40 million, reflecting the continued difficult market conditions, and the unfavorable impact of foreign currency of approximately $11 million, partially offset by lower input costs of $32 million and productivity gains of $14 million. In Florida and North America, we had sales of $900 million. That's a 5.6% decrease as reported due to lower remodeling activity impacting volume, as well as pressuring price and mix across our product lines. However, the business improved through the quarter, and we are introducing new residential collections with unique features to enhance our carpet, laminate, and resilient sales.

Jim: Partially offset by lower input costs of $32 million and productivity gains of $14 million in flooring North America, we had sales of $900 million. That's a five 6% decrease as reported due to lower remodeling activity impacting volume as well as pressuring pricing.

Jim: Across our product lines, the business improved through the quarter and we are introducing new residential collections with unique features to enhance our carpet laminate and resilient sales operating margin on an adjusted basis was five 3%, that's a significant improvement versus prior year with favorable impact of lower <unk>.

Jim: Cost of $57 million and productivity gains of $23 million as we benefit from our cost optimization and restructuring initiatives. This was partially offset by unfavorable impact of price and product mix of $20 million and finally fly rest of the world that sales of just over 730 million.

James F. Brunk: Operating Margin on an Adjusted Basis was 5.3%. That's a significant improvement versus the prior year with the favorable impact of lower input costs of $57 million and productivity gains of $23 million as we benefit from our cost optimization and restructuring initiatives. This was partially offset by the unfavorable impact of price and product mix of $20 million. And finally, Florida and the rest of the world had sales of just over $730 million.

Jim: That's a seven 4% decrease as reported or five 9% constant basis due to the unfavorable impact of price and product mix, partially offset by an increase in our unit volume even in a generally weak environment across Europe.

Jim: Operating margin on an adjusted basis was 10, 1%. That's a decrease of 250 basis points driven by the unfavorable impact of price and product mix of approximately $92 million, primarily in our panels business, which has declined substantially compared to the high prior year comps when the <unk>.

James F. Brunk: That's a 7.4% decrease as reported, or 5.9% on a constant basis, due to the unfavorable impact of price and product mix, partially offset by an increase in our unit volume, even in a generally weak environment across Europe. Operating Margin on an Adjusted Basis was 10.1%, that's a decrease of 250 basis points, driven by the unpayable impact of price and product mix of approximately $92 million, primarily in our panels business, which declined substantially compared to the high prior year comps when the industry was running near capacity. These are partially offset by lower input costs of $48 million, higher unit volume of $11 million, and productivity gains of $10 million.

Jim: Industry was running near capacity.

Jim: These were partially offset by lower input costs of $48 million stronger unit volume of $11 million and productivity gains of $10 million corporate and eliminations was $11 million for the quarter in line with prior year and our full year forecast is for $45 million.

Jim: Looking at the balance sheet cash and cash equivalents for just over $650 million with free cash flow in the quarter of $97 million inventories for just over $2 $5 billion with the year over year inventory decrease of about $200 million, primarily due to a reduction in costs.

Our inventory days were reduced to 125 days versus a year end level of 130.

James F. Brunk: Corporate Eliminations were $11 million for the quarter, in line with the prior year, and our full year forecast is for $45 million. Looking at the balance sheet, cash and cash equivalents were just over $650 million, with free cash flow in the quarter of $97 million. Inventories were just over $2.5 billion, with a year-over-year inventory decrease of about $200 million, primarily due to a reduction in cost. Our inventory days were reduced to 125 days versus a year-end level of 130.

Jim: Property plant and equipment were just shy of $4 $9 billion, our capex for the quarter was 87 million with depreciation and amortization of 154 million. The company plans to invest approximately $480 million to $500 million in 2024 with DNA for the full year forecast.

Jim: Would be approximately $600 million.

Jim: Overall, the balance sheet and cash flow remained very strong with gross debt of just over $2 6 billion and leverage at 1.4 times at this point I will turn it over to Chris to review, our Q1 operational performance.

William Christopher Wellborn: Property, plant, and equipment was just shy of $4.9 billion. Our capex for the quarter was $87 million, with depreciation and amortization of $154 million. The company plans to invest approximately $480 to $500 million in 2024, with revenue for the full year forecasted to be approximately $600 million. Overall, the balance sheet and cash flow remain very strong, with gross debt at just over $2.6 billion and leverage at 1.4 times. At this point, I will turn it over to Chris to review our Q1 operational performance.

William Christopher Wellborn: Thanks, Jim.

William Christopher Wellborn: During the quarter sales in our global ceramic segment remained soft across our regions. The industry is operating below historical levels and market competition to capture volume is affecting both our pricing and margins.

William Christopher Wellborn: Product mix is also declining as higher value residential remodeling channel is softest.

William Christopher Wellborn: And those customers undertaking new projects are selecting lower cost options.

William Christopher Wellborn: Reduced energy prices are enhancing our results the wages benefits and other costs have increased.

William Christopher Wellborn: We continue to execute cost reduction initiatives, including utilization of lower cost materials product re formulations and reductions in SG&A spending.

William Christopher Wellborn: During the quarter, sales in our global ceramic segment remain soft across our regions. The industry is operating below historical levels, and market competition to capture volume is affecting both our pricing and margins. Product mix is also declining as the higher value residential remodeling channel is soft, and those customers undertaking new projects or selecting lower cost options. However, reduced energy prices are enhancing our results, though wages, benefits, and other costs have increased. We continue to execute cost reduction initiatives, including utilization of lower cost materials, product reformulations, and reductions in SG&A spending.

William Christopher Wellborn: We're driving productivity through increased efficiencies higher yields and consolidating our distribution network.

William Christopher Wellborn: Our investments in new printing polishing and rectifying technologies are delivering higher value sales and formats to improve our mix, we're introducing decorative innovations with new glazes, three dimensional surfaces and updated our tiznow mosaics.

William Christopher Wellborn: We are launching larger formats in floor and wall tile and porcelain slabs, along with smaller offerings that replicate the handcrafted visuals.

William Christopher Wellborn: Our broad product offering quality and service advantages are helping us expand business with both new and existing customers.

William Christopher Wellborn: In the U S cold weather caused the suspension of operations at a number of our manufacturing facilities and service centers in January impacting our cost and revenue our Tennessee quartz countertop expansion should be completed later this year and we're developing new products and enhanced marketing tools to support our additional.

William Christopher Wellborn: We're driving productivity through increased efficiencies, higher yields, and consolidation of our distribution network. Our investments in new printing, polishing, and rectifying technologies are delivering higher-value sales and formats to improve our mix. Additionally, we are introducing decorative innovations with new glazes, three-dimensional surfaces, and updated artisanal mosaics.

William Christopher Wellborn: Capacity.

William Christopher Wellborn: The U S ceramic tile industry has filed a petition against India in response to widespread dumping of ceramic tile in the U S market and expects tariffs between 400, and 800% plus additional duties for subsidies.

William Christopher Wellborn: We are launching larger formats in floor and wall tile and porcelain slabs, along with smaller offerings that replicate handcrafted visuals. Our broad product offering, quality, and service advantages are helping us expand business with both new and existing customers. In the U.S., cold weather caused the suspension of operations at a number of our manufacturing facilities and service centers in January, impacting our cost and revenue. Our Tennessee Quartz countertop expansion should be completed later this year, and we're developing new products and enhanced marketing tools to support our additional capacity. The U.S. ceramic tile industry has filed a petition against India in response to widespread dumping of ceramic tile in the U.S. market and expects tariffs between 400 and 800 percent, plus additional duties for subsidies.

William Christopher Wellborn: Other countries, where we operate are considering similar actions in Europe, we're seeing robust growth in porcelain panel sales after a recent expansion.

Sales have also benefited from our new smaller and larger size premium products European energy prices have moved to lower levels than forecasted, which should benefit consumers in Mexico, and Brazil were optimizing our sales and improving our operations were implementing new distribution and product strategies in each country.

William Christopher Wellborn: So our brands complement each other in the marketplace.

William Christopher Wellborn: And our flooring rest of World segment markets remained soft despite declining inflation in the quarter our volumes increase from the prior year's low levels, which may be an indication of improving trends in our categories.

William Christopher Wellborn: Though our results were impacted by pricing pressures as we pass through lower input costs in highly competitive markets.

William Christopher Wellborn: Our quick step brand sales improved during the quarter as we align realign price points, reflecting lower costs and increased marketing efforts to stimulate demand.

William Christopher Wellborn: Other countries where we operate are considering similar actions. In Europe, we're seeing robust growth in porcelain panel sales after our recent expansion, and sales have also benefited from our new smaller and larger size premium products. European energy prices have moved to lower levels than forecasted, which should benefit consumers.

William Christopher Wellborn: We've completed the restructuring of our residential L. B T program and are beginning to see the savings we anticipated.

William Christopher Wellborn: The change is delivering substantial growth in our residential Richard L V T, which is replacing our discontinued flexible products and.

William Christopher Wellborn: In insulation, we recently experienced material increases and are raising our prices accordingly.

And our panels business margins have declined from a cyclical high comparisons due to the underutilization of industry capacity, partially offset by mix improvement and our decorative collections we've.

William Christopher Wellborn: In Mexico and Brazil, we're optimizing our sales and improving our operations. We're implementing new distribution and product strategies in each country so our brands complement each other in the market. In our Flooring Rest of World segment, markets remain soft despite declining inflation.

William Christopher Wellborn: We've announced selective price increases and panels to reflect rising material costs, we continue to implement productivity initiatives and containment.

William Christopher Wellborn: And cost containment projects across the business, including labor efficiencies higher yields and alternative materials.

William Christopher Wellborn: In the quarter, our volumes increased from the prior year's low levels, which may be an indication of improving trends in our category, though our results were impacted by pricing pressures as we passed through lower input costs in highly competitive markets. Our Quick-Step brand sales improved during the quarter as we realigned price points, reflecting lower costs and increased marketing efforts to stimulate demand. We've completed the restructuring of our residential LBT program and are beginning to see the savings we anticipated.

William Christopher Wellborn: We're enhancing our bolt on acquisition in M. D F boards sheet vinyl and mezzanine flooring and will complete our premium laminate expansion this year.

William Christopher Wellborn: In Australia, and New Zealand reduced input cost and increased productivity offset lower pricing and volumes in a slow environment.

William Christopher Wellborn: And our flooring North America segment, our results versus the prior year benefited from declining raw material and energy costs, partially offset by lower price and mix, while residential remodeling was generally weaker overall market conditions vary depending on channel and product category.

William Christopher Wellborn: The change is delivering substantial growth in our residential rigid LVT, which is replacing our discontinued flexible product. In insulation, we've recently experienced material increases and are raising our prices accordingly. In our panels business, margins have declined from our cyclical high comparisons due to the underutilization of industry capacity, partially offset by mixed improvement in our decorative collection. We've announced selected price increases and panel changes to reflect rising material costs. We continue to implement productivity initiatives and cost containment projects across the business, including labor efficiencies, higher yields, and alternative materials.

William Christopher Wellborn: Sales improved through the quarter, so many retailers and some of our facilities were temporarily closed in January due to weather.

William Christopher Wellborn: Lower market demand in consumers trading down or creating a competitive marketplace pressuring average selling prices and product mix based on builder optimism new single family home sales should improve through the year positively impacting our flooring business.

William Christopher Wellborn: Commercial sales continue to outperform residential led by this specifies hospitality retail and government channels.

William Christopher Wellborn: Retailers are embracing our new residential product launches, including pet premier carpet and pure tech resilient planks.

William Christopher Wellborn: We're optimizing sales of our consolidated a coordinated accessories and growing our recently acquired rubber trim business, we're increasing the sales of our nonwoven acquisition with new customers and product expansions, our west Coast L. B T facility is increasing production and our Georgia restructuring initiatives are being <unk>.

William Christopher Wellborn: We're enhancing our bolt-on acquisitions in MDF boards, sheet vinyl, and mezzanine flooring, and we'll complete our premium laminate expansion this year. In Australia and New Zealand, reduced input costs and increased productivity offset lower pricing and volumes in a slow environment. In our Flooring North America segment, our results versus the prior year benefited from declining raw material and energy costs, partially offset by lower price and mix. While residential remodeling was generally weaker overall, market conditions varied depending on channel and product category.

William Christopher Wellborn: Implemented during the quarter, we delivered productivity gains across the segment with operational improvements better yields and enhanced logistics I'll return the call to Jeff for closing remarks.

Jeffrey S. Lorberbaum: Thank you Chris the flooring industry appears to be at the bottom of the cycle and we are managing controllable aspects of our business to improve our results we.

Jeffrey S. Lorberbaum: We continue to reduce our fixed and variable costs through ongoing restructuring and additional productivity initiatives, we're aligning production with market demand to control working capital, which increases our unabsorbed overhead too.

William Christopher Wellborn: Sales improved through the quarter, though many retailers and some of our facilities were temporarily closed in January due to weather. Lower market demand and consumers trading down are creating a competitive marketplace, pressuring average selling prices and product mix. Based on builder optimism, new single-family home sales should improve through the year, positively impacting our flooring business. However, commercial sales continue to outperform residential, led by the specified hospitality, retail, and government channels. Retailers are embracing our new residential product launches, including Pet Premier Carpet and Puritech Resilient Plank.

Jeffrey S. Lorberbaum: Enhanced sales and margins were upgrading our product offering with unique features and investing in new merchandising.

Jeffrey S. Lorberbaum: This year, we're completing our Lv T quartz countertop and premium laminate expansion project to support our products with the greatest growth potential when the market recovers.

Jeffrey S. Lorberbaum: Our other capital investments are focused on reducing costs delivering product innovation or maintaining the business.

Jeffrey S. Lorberbaum: Due to European vacation schedules, our second quarter sales are seasonally higher than the third quarter. Given these factors, we anticipate our second quarter adjusted EPS to be between $2 68.

William Christopher Wellborn: We're optimizing sales of our consolidated coordinated accessories and growing our recently acquired rubber trim business. We're increasing the sales of our nonwoven acquisition with new customers and product expansion. Our West Coast LVT facility is increasing production, and our Georgia restructuring initiatives are being implemented. During the quarter, we delivered productivity gains across the segment with operational improvements, better yields, and enhanced logistics. I'll return the call to Jeff for closing remarks.

Jeffrey S. Lorberbaum: And $2 78.

Jeffrey S. Lorberbaum: Excluding any restructuring or one time charges.

Jeffrey S. Lorberbaum: Residential flooring sales should lead the recovery.

Jeffrey S. Lorberbaum: Consumer confidence improves the housing market strengthens and postpone remodeling projects are initiated existing home sales will normalize in a meaningful catalyst for flooring just homeowners replace it more often before listing of property or soon after completing a purchase across our geographies housing.

Has not kept pace with household formations and substantial home construction will be required for many years satisfy those needs. Additionally, as homes age increase remodeling investments are required to maintain property values as.

Jeffrey S. Lorberbaum: Thank you, Chris. The flooring industry appears to be at the bottom of this cycle, and we are managing controllable aspects of our business to improve our results. We continue to reduce our fixed and variable costs through ongoing restructuring and additional productivity initiatives. We're aligning production with market demand to control working capital, which increases our unabsorbed overhead.

Jeffrey S. Lorberbaum: As the world's largest flooring manufacturer, we expect to significantly benefit from our brand leadership investments in new capabilities and recent acquisitions as the flooring market recovers.

Jeffrey S. Lorberbaum: We have the products to inspire consumers the infrastructure to support to deliver superior service and the balance sheet to invest in opportunities for the business.

Jeffrey S. Lorberbaum: To enhance sales and margins, we're upgrading our product offering with unique features and investing in new merchandise. This year, we are completing our LVT quartz countertop and premium laminate expansion project to support our products with the greatest growth potential when the market recovers. Our other capital investments are focused on reducing costs, delivering product innovation, or maintaining the business. Due to European vacation schedules, our second quarter sales are seasonally higher than the third quarter. Given these factors, we anticipate our second quarter adjusted EPS to be between $2.68 and $2.78, excluding any restructuring or one-time charges.

Well now be glad to take your questions.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session to ask a question you May press star and one on a touchtone phone.

Speaker Change: If you are using a speaker phone, we do ask that you. Please pick up your handset prior to pressing the keys to ensure the best sound quality.

Speaker Change: Withdraw your question you May press Star two.

Speaker Change: We also ask that you please limit yourselves to a question and a single follow up any interest of time.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Okay.

Speaker Change: Our first question today comes from Matthew Bouley from Barclays. Please go ahead with your question.

Matthew Adrien Bouley: Morning, everyone. Thank you for taking the question.

Jeffrey S. Lorberbaum: Residential flooring sales should lead to recovery. As consumer confidence improves, the housing market strengthens, and postponed remodeling projects are initiated. Existing home sales will normalize and are a meaningful catalyst for flooring since homeowners replace it more often before listing a property or soon after completing a purchase. Across our geographies, housing has not kept pace with household formations, and substantial home construction will be required for many years to satisfy those needs. Additionally, as homes age, increased remodeling investments are required to maintain property value.

Matthew Adrien Bouley: But obviously the trajectory of interest rates.

Matthew Adrien Bouley: Is it a little different than what the market thought earlier this year.

Matthew Adrien Bouley: Two parts are you do you have any different thoughts around how you're thinking about earnings growth for Mohawk I think previously you had expected in the second half of the year that you could see growth year over year clearly it was positive year over year in the first quarter, but any kind of thoughts around that.

And so the business into the second half and then just how are you managing the business any differently, assuming this different rate environment capital allocation managing capacity any restructuring actions being considered any thoughts around how that has evolved here. Thank you.

Jeffrey S. Lorberbaum: As the world's largest flooring manufacturer, we expect to significantly benefit from our brand leadership, investments in new capabilities, and recent acquisitions as the flooring market recovers. We have the products to inspire consumers, the infrastructure to deliver superior service, and the balance sheet to invest in opportunities for the business. Now, I'll be glad to take your questions.

Matthew Adrien Bouley:

Matthew Adrien Bouley: The recent comments by the fed that interest rates will stay higher.

Matthew Adrien Bouley: Somewhat impact housing sales in our flooring industry improvement as we go through the year. The industry has been running at extremely low levels and eventually buyers and sellers have to do transactions.

Matthew Adrien Bouley: People, who are not moving should increase remodeling overtime and housing sales are expected to increase from their very low levels.

Operator: Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and one on a touchtone phone. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality.

Matthew Adrien Bouley: At the same time, we said, we anticipated commercial with slow significantly.

Matthew Adrien Bouley: It's possible it could be better than we expected given the stronger economies at this time, we still anticipate.

Matthew Adrien Bouley: The improvement in the second half and exceed the results this year.

Operator: To withdraw your questions, you may press star and 2. We also ask that you please limit yourselves to a question and a single follow-up in the interest of time. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Matthew Bouley from Barclays. Please go ahead with your question.

Speaker Change: Got it perfectly and then I guess, maybe sticking with the capital allocation side.

Speaker Change: Your you know your.

Speaker Change: Pleading some of your capacity investments this year.

What does that mean for capital expenditures beyond 2024.

Speaker Change:

Speaker Change: And just kind of any additional thoughts around around the share repurchase within that capital allocation set of priorities. Thank you.

Matthew Adrien Bouley: Good morning, everyone. Thank you for taking the time to answer the question. So, obviously, the trajectory of interest rates is a little different than what the market thought earlier this year. I guess there are two parts. Do you have any different thoughts around how you're thinking about earnings growth for Mohawk? I think previously you had expected in the second half of the year that you could see growth year over year. Clearly, it was positive year over year in the first quarter.

Speaker Change: Well first of all just to remind you our forecast this year somewhere between $480 $500 million.

Speaker Change: That's below.

Speaker Change: D&A of about $600 million.

Speaker Change: 45% of that is really focused on cost reductions and product innovation, 15% is relatively to complete.

Speaker Change: Those growth investments that you just mentioned.

Matthew Adrien Bouley: But any kind of thoughts around the cadence of the business into the second half? And then just are you managing the business any differently, assuming this different rate environment, capital allocation, managing capacity, any restructuring actions being considered? Any thoughts around how that has evolved here? Thank you.

And the remaining 40% or so is on the maintenance of the business.

Speaker Change: Going forward into next year.

Speaker Change: Given the completion of the capacity.

Speaker Change: Projects, you know the focus will be on cost reductions and product innovation and the maintenance of business unless of course, we'd come up with new ideas from a from a capacity standpoint.

Jeffrey S. Lorberbaum: The recent comments by the Fed that interest rates will stay higher could somewhat impact housing sales and the flooring industry's improvement as we go through the year. The industry has been running at extremely low levels, and eventually, buyers and sellers have to do transactions. People who are not moving should increase remodeling over time, and housing sales are expected to increase from their very low levels. At the same time, we anticipate commercial activity would slow significantly. It's possible it could be better than we expected given the stronger economies at this time. We still anticipate, you know, improvement in the second half and better results than this year.

Speaker Change: Terms of other cash priorities again, we will focus on broadening our.

Our product offering and innovations around products.

Speaker Change: Identify acquisitions, whether they be bolt ons or acquisitions that would help us get into new markets and then share buybacks are still being considered as part of that allocation.

Speaker Change: Okay. Thanks, Jim Good luck everyone.

Speaker Change: Our next question comes from Tim <unk> from Baird. Please go ahead with your question.

Tim: Hey, guys good morning.

Tim: Maybe just to start.

Tim: Just you know in the first quarter I mean price mix I think.

Tim: Kind of more than offset some of the.

Tim: The raw material improvement or raw material cost improvement that you saw on a year over year basis. So.

Matthew Adrien Bouley: Got it perfectly. And then, maybe, sticking with the capital allocation side, you're, you're completing some of your capacity investments this year. What does that mean for capital expenditures beyond 2024? You know, and just kind of any additional thoughts around the share repurchase within that capital allocation set of priorities? Thank you.

Tim: As you kind of think about the next few quarters.

Tim: How should how should we.

Tim: Kind of model or kind of think about that price mix cadence and maybe just price costs in general.

Tim: As you kind of go through 2024.

Speaker Change: Let me start with some of the assumptions around Q2, though give us a baseline as we entered Q2, we are seeing some signs of increasing volume but are seeing continued.

James F. Brunk: First of all, just to remind you, our forecast for this year is somewhere between $480 and $500 million. That's below D&A of about $600 million. About 45% of that is really focused on cost reductions and product innovation, 15% is relatively to complete those growth investments that you just mentioned, and the remaining 40% or so is on the maintenance of the business. Going forward into next year, given the completion of the capacity projects, the focus will be on cost reductions, product innovation, and the maintenance of the business, unless, of course, we come up with new ideas from a capacity standpoint.

Speaker Change: And mixed pressure, we expect seasonality to be more aligned with historical levels.

Speaker Change: We continue to invest in innovative products process improvements and cost reduction to try to control our costs still anticipate that FX will continue to be a headwind as well in terms of material costs. In Q2, we would anticipate the benefits from lower cost.

Cost from a year over year perspective to be offset.

Speaker Change: By that price and mix pressure with our flooring rest of the world continuing to be under the most pressure.

James F. Brunk: In terms of other cash priorities, again, we'll focus on broadening our product offering and innovations around products, identifying acquisitions, whether they be bolt-ons or acquisitions that would help us get into new markets, and then share buybacks are still being considered as part of that allocation.

Speaker Change: Yeah.

Speaker Change: Okay. Okay, that's really helpful.

Speaker Change: And then just I guess on the on the panel kind of price mix, you know kind of commentary when do the comps there just get easier.

Speaker Change: I think the panels business is going to be under pressure all during this year.

Matthew Adrien Bouley: Thanks, Jim. Good luck, everyone.

Speaker Change: But what does that kind of will get less.

Operator: Our next question comes from Tim Woos from Baird. Please go ahead with your question.

Speaker Change: We will get easier in the second half.

Speaker Change: Okay.

Speaker Change: Okay great.

Speaker Change: Thanks Beth.

Speaker Change: Okay.

Timothy Ronald Wojs: Hey, guys, good morning.

Speaker Change: Our next question comes from Susan Macquarie from Goldman Sachs. Please go ahead with your question.

Timothy Ronald Wojs: Maybe just to start, you know, just, you know, in the first quarter, I mean, price mix. I think it kind of more than offsets some of the, you know, the raw material improvement or raw material cost improvement that you kind of saw on a year-over-year basis. So, as you kind of think about the next few quarters, how should we, you know, kind of model or kind of think about, you know, that price mix cadence and maybe just price costs in general, you know, as you kind of go through 2024?

Susan Marie Maklari: Thank you good morning, everyone.

Susan Marie Maklari: Good morning.

Susan Marie Maklari: Jeff.

Susan Marie Maklari: You are starting to realize more of the benefits of the productivity and the restructuring efforts, even with the business continuing to be under pressure can you talk a bit about how that can contribute to the margin profile over time, and maybe where do you think that this can go even if the macro.

Susan Marie Maklari: Remains less supportive.

Susan Marie Maklari:

Susan Marie Maklari: Let's start out with the general.

Susan Marie Maklari: View by different channels and the residential flooring sale, you know always rebound from the low level that they're at.

James F. Brunk: Let me start with some assumptions around Q2 that will give us a baseline. As we enter Q2, we are seeing some signs of increasing volume, but we are seeing continued price and mix pressure. We expect seasonality to be more aligned with historical levels. We continue to invest in innovative products, process improvements, and cost reduction to try to control our costs. I still anticipate that FX will continue to be a headwind as well.

Susan Marie Maklari: Similar confidence improves housing of pros, you'll have to postpone remodeling that hasnt been done in the last couple of years.

Susan Marie Maklari: They were pressured by inflation so that comes back we expect.

Susan Marie Maklari: And as you said the mix and average selling prices as the market improves.

It actually changes because there's more higher value retail replacement business and it helps the margins.

Susan Marie Maklari: The benefit from all the different activities on a continuous basis that the cost reductions the products investments the growth initiatives.

James F. Brunk: In terms of material costs in Q2, we would anticipate the benefits from lower costs from a year-over-year perspective to be offset by that price and mix pressure, with the rest of the world continuing to be under the most pressure.

Susan Marie Maklari: The different acquisitions that we've made over the past year and a half we expect them to benefit our results significantly as this thing improves.

Timothy Ronald Wojs: Okay, okay, that's really helpful. And then just, on the panel kind of price mix, you know, kind of commentary, when do the comps there just get easier?

Susan Marie Maklari: This will increase the margins with higher volumes and it will get leverage in the SG&A and the other overhead costs as well as <unk>.

Susan Marie Maklari: The increased productivity. So you know coming out of the cycle, we're at a low level, which happened in the last big downturn the first.

James F. Brunk: I think the panel's business is going to be under pressure throughout the duration.

Susan Marie Maklari: Expectation is that we get back to 10% operating income and then continue to expand it further.

Timothy Ronald Wojs: Okay. So that kind of... It'll get easier in the second half.

Operator: Our next question comes from Susan Maklari from Goldman Sachs. Please go ahead with your question.

Speaker Change: Okay. That's helpful color and then I guess, you mentioned that you still expect to expand in the second half of this year just any thoughts on more specifics around how that may come together, what some of the key factors could be especially as you think about the flooring North America segment.

Susan Marie Maklari: Thank you. Good morning, everyone. Good morning.

Susan Marie Maklari: Jeff, it seems like you are starting to realize more of the benefits of productivity and the restructuring efforts, even with the business continuing to be under pressure. Can you talk a bit about how that can contribute to the margin profile over time? And maybe where you think this can go, even if the macro remains less supportive?

Speaker Change:

Speaker Change: But let me start out with that we think we're going to have the normal seasonality, which means.

Speaker Change: Typically in the U S. The peak of the year tends to be the end of the second quarter into the third quarter, and we think it's going to be more normal lives.

Jeffrey S. Lorberbaum: To start out with the general view by different channels, residential floor and sale prices, you know, always rebound from the low level that they're at. Consumer confidence improves, housing improves. You have the postponed remodeling that hasn't been done in the last couple of years, as people were pressured by inflation. So that comes back.

Speaker Change: You know at the moment, which we've said the demand is still as weak with continued pressure on pricing. So.

Speaker Change: Until the volume gets back we think theres still be the pressure there.

Jeffrey S. Lorberbaum: We expect, as you said, the mix in average selling prices, as the market improves, it actually changes because there is more higher-value retail replacement business, and it helps the margins. We will benefit from all the different activities on a continuous basis, the cost reduction, the product investments, and the gross initiatives. The different acquisitions that we've made over the past year and a half, we expect them to benefit our results significantly as the business improves.

Speaker Change: Along with the mix.

Speaker Change: What else is different.

Speaker Change: Again, we just assuming that the.

Speaker Change: The replacement business, which has been really low.

Speaker Change: At some point they have to start if theyre going to stay in their houses they're going to have to start improving them and then some of the people are going to have to move just because of their lifestyles. So I can't stay at the bottom forever. So we're assuming that even if interest rates don't change a lot that we'll start seeing some of this improvement there and as you look in the other country.

Jeffrey S. Lorberbaum: This will all increase the margins with higher volumes, and we'll get leverage in the SG&A and the other overhead costs as well as increased productivity. So, you know, coming out of the cycle, we're at a low level, which happened in the last big downturn. The expectation is that we get back to 10% operating income and then continue to expand it further.

Speaker Change: Around the world they look like they're going to start lowering interest rates sooner and faster and the same thing should occur in those countries with consumer confidence in moving forward and doing more remodeling, which is the first thing that picks up.

Speaker Change: Okay. Thank you for that color and good luck with everything.

Speaker Change: Yes.

Speaker Change: Our next question comes from John Lovallo from UBS. Please go ahead with your question.

Susan Marie Maklari: Okay, that's helpful color. And then I guess, you know, you mentioned that you still expect to expand in the second half of this year. Any thoughts on, you know, more specifics around how that may come together, what some of the key factors could be, especially as you think about the Flooring North America segment?

John Lovallo: Good morning, guys. Thank you for taking my questions.

John Lovallo: The first one maybe just focusing on the second quarter.

John Lovallo: It seemed I think previously you had expected sort of on a year over year basis energy cost reductions offset negative price mix in that productivity would offset wage and benefit inflation. I guess the question is that do you expect the expectation still for the second quarter and did that happen in the first quarter only.

Jeffrey S. Lorberbaum: Well, we start out with that. We think we're gonna have normal seasonality, which means, you know, typically in the US, the peak of the year tends to be the end of the second quarter into the third quarter. And we think it's going to be more normalized. At the moment, as we've said, demand is still weak with continued pressure on pricing. So until the volume gets back, we think there will still be pressure there, along with the mix.

John Lovallo: And in North America.

John Lovallo: Well first of all in the first quarter as I said, if I just look at the materials and energy it was about $147 million favorable terms.

John Lovallo: Terms of lower cost compared to the 153 unfavorable price and mix. The most pressure was seen as we said in the flooring rest of the world category.

Jeffrey S. Lorberbaum: Now, again, we're just assuming that they start lowering interest rates sooner and faster. And the same thing should occur in those countries with consumer confidence and moving forward and doing more remodeling, which is the first thing that picks up.

John Lovallo: And it's the one place where our materials and energy did not offset the negative price mix I would think in the second quarter I would anticipate.

Susan Marie Maklari: Okay, thank you for that color, and good luck with everything.

That trend continuing where the pressure is the highest in flooring rest of the world.

Operator: Our next question comes from John Lovallo from UBS. Please go ahead with your question.

Speaker Change: Okay. Okay got it and then just trying to wrap my head around the second half of the year I mean should we expect a negative impact from from pricing to sort of lap to maybe less of a price mix headwind year over year, but also probably less favorable impact from lower input costs and then.

John Lovallo: Good morning, guys. Thank you for taking the time to answer my questions.

John Lovallo: The first one, maybe just focusing on the second quarter, you know, it seemed, I think, that previously you'd expected, sort of on a year over year basis, energy cost reductions, this offset, you know, negative price mix, and that productivity would offset, you know, wage and benefit inflation. I guess the question is, is that still the expectation for the second quarter? And did that happen only in North America in the first quarter?

Speaker Change: From there you need volume to drive productivity to offset any additional inflation is that the right way to think about it.

Speaker Change: Yes, John It is the right way to think about it what I would anticipate as you start to lap.

John Lovallo: The prior year.

John Lovallo: This mix will become less of a headwind again, we're speaking about year over year, but youre also right start to also lap the lower cost and so that will become less impactful as well really what it's going to turn into is as we anticipate volume.

James F. Brunk: Well, first of all, in the first quarter, as I said, if I just look at materials and energy, it's about $147 million favorable in terms of lower costs compared to the $153 unfavorable price and mix. The most pressure was seen, as we said, in the floor and rest of the world category, and that is the one place where materials and energy did not offset the negative price mix. I would think in the second quarter, I would anticipate that trend continuing where the pressure is the highest on the floor and rest of the world.

John Lovallo: Getting a little bit stronger.

John Lovallo: Get a pickup in volume, but you also get a benefit and less shutdown cost as well and so that will be the focus as we go into the second half of the year.

Speaker Change: Great. Thank you.

Speaker Change: Our next question comes from filling from Jefferies. Please go ahead with your question.

John Lovallo: Okay, okay. I got it. And then I'm just trying to wrap my head around the second half of the year. I mean, should we expect a negative impact from, from, you know, pricing to sort of lap to maybe less of a price mix headwind year over year, but also probably a less favorable impact from lower input costs? And then, sort of from there, you need volume to drive productivity to offset any additional inflation. Is that the right way to think about it? Yes, John, that is the right way.

Hi, Good morning. This is actually calling on for Phil I just wanted to start on the commercial piece you noted of the commercial continued to outpace residential but that slowing our volume is higher year over year in that commercial business and then how are you thinking about your commercial foreign volumes as they move through the end of 2024, and then maybe just remind everyone of the size of that commercial business for each.

Speaker Change: For your segments.

Speaker Change: Hmm.

Speaker Change: What we said was that the commercial business is holding up better than we had anticipated.

Speaker Change: We thought that it would fall off faster than it has and it is performing better than we thought we still think it's going to continue slowing through the year as new projects haven't.

James F. Brunk: Yes, John, that is the right way to think about it. What I would anticipate as you start to lap the prior year, price mix will become less of a headwind. Again, we're speaking about year over year, but you're also right.

Speaker Change: Been initiated in the last year, so we're still anticipating a slowing.

James F. Brunk: I'm also going to start to lap the lower cost, so that will become less impactful as well. Really, what it's gonna turn into is as we anticipate volume getting a little bit stronger, you'll get a pickup in volume, but you also get a benefit in less shutdown cost as well. And so that will be the focus as we go into the second half of the year.

Speaker Change: And in commercial we also have pricing is more resilient since the products are more unique. So you don't have as much price pressure and presently the hospitality retail government channels are outperforming and just as a comment on the back side, when we start getting better its going to take longer for the commercial team.

Speaker Change: Prove because it takes a longer time to.

Speaker Change: Get the planning approvals and construction to begin in the business.

Operator: Our next question comes from Phil Ng from Jeffrey's. Please go ahead with your question.

So you want to give an overall.

Speaker Change: The.

Speaker Change: Commercial makes up roughly about 20% 25%.

Philip H. Ng: Hi, good morning. This is actually Colin on for Phil.

Speaker Change: The overall Mohawk business with it being the highest in the ceramic segment.

Philip H. Ng: I just wanted to start on the commercial piece. You noted that commercial continued to outpace residential, but that it's slowing. Are volumes higher year over year in that commercial business? And then how are you thinking about your commercial flooring volumes as we move through the end of 2024? And then maybe just remind everyone of the size of that commercial business for each of your segments.

Speaker Change: Okay. That's helpful color and I guess I just wanted to touch on the India ceramic tile tariffs can you just talk about the price point of the Indian imports, how youre positioned versus that price point and what percentage of your portfolio that could really benefit from the tariff on the Indian tile.

Speaker Change: Okay.

Speaker Change: Well the the prices of imports have been declining with excess capacity and energy and freight costs and of course, India has been growing.

William Christopher Wellborn: What we said was that the commercial business is holding up better than we had anticipated. We thought that it would fall off faster than it has, and it has. We're performing better than we thought, but we still think it's going to continue slowing through the year as new projects haven't been initiated in the last year. So we're still anticipating it slowing down. In commercial, you also have pricing more resilient since the products are more unique, so you don't have as much price pressure.

Speaker Change: Tayo Council of North America expects those tariffs to be between 400, 800%.

Speaker Change: And that should help our volume and increased market pricing since its been pushed down so low.

Speaker Change: They tend to be more focused in the low to mid end of the marketplace.

Speaker Change: To answer that part of the question.

Speaker Change: Great. Thank you and good luck. Thank you.

Speaker Change: Our next question comes from Keith Hughes from tourist. Please go ahead with your question.

Keith Brian Hughes: Alright, thank you.

Keith Brian Hughes: Your comments around business, creating earlier in the call I know that was highlighted in the release have you also seen some volume improvements.

William Christopher Wellborn: And presently, the hospitality retail government channels are outperforming. And just as a comment on the backside, when we start getting better, it's going to take longer for the commercial to improve because it takes a longer time to get the planning, approvals, and construction to begin in the business. And overall, the commercial makes up roughly about 20-25% of the overall Mohawk business, with it being the highest in the ceramic segment.

Keith Brian Hughes: Flooring North America.

Keith Brian Hughes: At this point now in the first quarter volumes were still lower in.

Keith Brian Hughes: Both before and North America, and global ceramic segments, we did see as we noted some volume improvement and the rest of the World segment.

Keith Brian Hughes: Okay. So no sequential movement of those two.

Keith Brian Hughes: Right.

Keith Brian Hughes: Remember the first quarter is always lower than the fourth quarter.

Keith Brian Hughes: Alright.

Keith Brian Hughes: Speaking from a year over year perspective as well.

Philip H. Ng: That's a helpful color. And I guess I just wanted to touch on the India ceramic tile tariffs. Can you just talk about the price point of those Indian imports? What your position versus that price point is? And what percentage of your portfolio could really benefit from the tariff on the Indian tile?

Keith Brian Hughes: Okay.

Keith Brian Hughes: Second question in ceramic.

Keith Brian Hughes: I guess, if you could talk about the end user markets in North America, I know commercial has been strong what what areas of commercial.

Keith Brian Hughes: Hum.

Keith Brian Hughes: But at least the numbers up.

Keith Brian Hughes: Well generally the commercial business in ceramic I would say, it's been flat it hasnt decreased as much as we thought it would but as Jeff said, we expect that to soften as we go through the year.

William Christopher Wellborn: Well, the prices of imports have been declining with excess capacity, energy, and freight costs, and, of course, India has been growing. The Tile Council of North America expects those tariffs to be between 400 and 800 percent, and that should help our volume and increase market pricing since it's been pushed down so low.

Keith Brian Hughes: I think the comment was the our business is about flat I don't think the market is.

Keith Brian Hughes: Yes.

Keith Brian Hughes: Within commercial.

Keith Brian Hughes: Office is weaker but what areas are offsetting that is that right.

Keith Brian Hughes: So that would be the <unk> talked about before like hospitality.

Philip H. Ng: They tend to be more focused in the low to mid-end of the marketplace, to answer that part of the question.

Keith Brian Hughes: The medical schools, those things has still been strong.

Philip H. Ng: Great, thank you, and good luck!

Speaker Change: And I would add to that Doug.

Government as well.

Thank you.

Speaker Change: Yes.

Operator: Our next question comes from Keith Hughes from Truist. Please go ahead with your question.

Speaker Change: Our next question comes from Michael Rehaut from J P. Morgan. Please go ahead with your question.

Keith Brian Hughes: Thank you. Your comment around business improving earlier in the call, I know that was highlighted in the release. Have you also seen some volume improvements in flooring North America?

Speaker Change: Hi.

Michael Jason Rehaut: Hey, good morning, Thanks for taking my questions.

Michael Jason Rehaut: First I would love to get your thoughts around price mix trends for flooring, North America, and global ceramic and.

William Christopher Wellborn: At this point, no, in the first quarter, volumes were still lower in both the foreign of North America and global ceramics segments. However, we did see, as we noted, some volume improvement in the rest of the world segment.

Speaker Change: As we look into.

Michael Jason Rehaut: The second quarter and even the second half of the year.

Michael Jason Rehaut: Given the current demand backdrop.

Michael Jason Rehaut: Would you expect you know pricing and mix to remain negative as we get into the back half and what kind of trends.

Keith Brian Hughes: Okay, so no sequential movement in those two is what you're saying.

Michael Jason Rehaut: Would be driving that or would be driving any type of change into the positive.

William Christopher Wellborn: Remember, the first quarter is always lower than the fourth quarter.

Keith Brian Hughes: I was speaking from a year-over-year perspective as well.

You know given the right now the low housing sales industry volumes are still down significantly.

William Christopher Wellborn: Okay, second question on ceramics. I guess if you could talk about the end user markets in North America. I know business has been strong, but what areas of business have been moving the numbers up?

We think price mix remains under pressure, especially given the high fixed cost of operations.

The industry will start to rebound as you start to see consumer confidence in housing activity.

Keith Brian Hughes: Well, in general, the commercial business in ceramics, I would say it's flat. It hasn't decreased as much as we thought it would, but as Jeff said, we expect that to soften as we go through the year.

Certainly increase.

Michael Jason Rehaut: But we do believe we should start to get towards the bottom of the cycle, but I would anticipate price mix being a headwind for.

William Christopher Wellborn: I think the comment was, our business is about flat; I don't think the market is.

Keith Brian Hughes: And within commercial, I assume office is weaker, but what areas are offsetting that? Is that right?

For the balance of the year.

Michael Jason Rehaut: I mean, one thing that should help us in the future as remodeling comes back the margins in that at least on ceramic tend to be higher.

William Christopher Wellborn: That would be the same one we talked about before.

William Christopher Wellborn: Yeah, like hospitality, medical schools, those things have still been strong, and I would add to that.

Speaker Change: Right Okay.

Speaker Change: I guess the margins on commercial though are also a little bit higher so that would be.

William Christopher Wellborn: And I would add to that government, government as well.

Speaker Change: Depending on how much commercial slows a little bit of an offset as well or or or is that the right way to think about that.

Operator: Our next question comes from Michael Rehaut from J.P. Morgan. Please go ahead with your question.

Speaker Change: So you think about it that's more specified in nature and it tends to be.

Michael Jason Rehaut: Hi, excuse me, good morning; thanks for taking my questions. First, I would love to get your thoughts around price-mix trends for flooring North America in global ceramics. As we look into the second quarter and even the second half of the year, given the current demand backdrop, would you expect pricing and mix to remain negative as we get into it, or would that drive that or would that drive any type of change into the positive?

Richard Richard blend of products and margin.

Speaker Change: Right right.

Speaker Change: Well second question.

Speaker Change: Would love to get your thoughts you do a continuous amount of productivity restructuring.

Speaker Change: Adjustments to your footprint.

Speaker Change: I know theres, a lot of moving pieces, there but would.

James F. Brunk: You know, given right now the low housing sales, industry volumes are still down significantly. We think the price mix remains under pressure, especially given the high fixed costs of operations. You know, the industry will start to rebound as you start to see consumer confidence in housing activity certainly increase. But you know, we do believe we should start to get towards the bottom of the cycle, but I would anticipate price mix being that headwind for the balance of the year.

Speaker Change: Would love to try to get a sense for what.

Speaker Change: If it.

Speaker Change: Cost savings benefits your restructuring actions.

Speaker Change: Contributed to the second quarter in aggregate.

Speaker Change: And you know if that type of contribution or benefit.

Speaker Change: That youre seeing right now on a quarterly pace.

James F. Brunk: I mean, one thing that should help us in the future as remodeling comes back is that the margins on that, at least on ceramic, tend to...

Speaker Change: Would increase into the back half of the year or or or just kind of stay.

Speaker Change: Consistent with what Youre seeing there.

Michael Jason Rehaut: Right, okay. I guess the margins on commercials, though, are also a little bit higher. So that would be Transcribed by https://otter.ai, A richer, a richer blend of product. Right, right.

Speaker Change: This past quarter.

Speaker Change: Well, let me frame a little bit.

Speaker Change: Better for you Mike in terms of the restructuring actions.

Speaker Change: We continue to execute the actions that we have previously identified we've realized about hum about $90 million of the savings of about $150 million goal.

Michael Jason Rehaut: Well, second question; I would love to get your thoughts. You do a continuous amount of productivity, restructuring, and adjustments to your footprint. I know there's a lot of moving pieces there, but, you know, we'd love to try and get a sense for what benefits the cost-saving benefits, your restructuring actions, contributed to the second quarter in aggregate. And, you know, if that type of contribution or benefit that you're seeing right now on a quarterly basis would increase into the back half of the year or just kind of stay consistent with what you're seeing this past quarter.

Speaker Change: Through the first quarter, so thats last year through the first quarter of this year. So we have about another $60 million.

Speaker Change: Benefit that is going to flow through.

Speaker Change: The P&L most of that or much of the restructuring has been executed including closure of high cost assets. The restructuring of <unk> T operations, discontinuing low margin products and reducing administrative structure and all the businesses are continuing cost reduction.

James F. Brunk: Let me frame it a little bit better for you, Mike, in terms of the restructuring action. We continue to implement the actions that we have previously identified. We've realized about $90 million of the savings of about $150 million goal through the first quarter. So that's last year through the first quarter of this year. So we have about another $60 million of benefits that is going to flow through the P&L. Much of the restructuring has been executed, including closure of high-cost assets, the restructuring of LVT operations, discontinuing low-margin products, and reducing the administrative structure.

Speaker Change: And SG&A operations and logistics.

Speaker Change: First quarter, yes that certainly was part of the benefit of the of the $47 million that I noted in our productivity and that will help as we go through the balance of the year.

Speaker Change: Great. Thanks, so much.

Speaker Change: Our next question comes from Mike Dahl from RBC. Please go ahead with your question.

Michael Glaser Dahl: Hi, Thanks for taking my questions first one is.

James F. Brunk: And all the businesses are continuing cost reductions in SG&A operations and logistics. In the first quarter, that certainly was part of the benefit of the $47 million that I noted in our productivity, and that will help as we go through the balance of the year.

Obviously on a year on year basis, Theres, a lot of noise looking at kind of the price mix.

Michael Glaser Dahl: <unk> on a sequential basis.

Michael Glaser Dahl: Maybe specifically for North America.

Michael Jason Rehaut: Great. Thanks so much.

Michael Glaser Dahl: And and.

Michael Glaser Dahl: In global ceramic.

Operator: Our next question comes from Mike Dahl from RBC. Please go ahead with your question.

Michael Glaser Dahl: Can you talk to kind of the sequential trend there.

Michael Glaser Dahl: You've seen year to date are versus <unk> and <unk>.

Michael Glaser Dahl: Thanks for taking my questions. The first one is, obviously, on a year-on-year basis, there's a lot of noise looking at kind of the price mix, comparisons on a sequential basis, and maybe specifically for North America. And Global Ceramics. Can you talk to kind of the sequential trends that you've seen year to date or versus 4Q and price mix, what's embedded in the 2Q guide and then, on the flip side, obviously on cost you address. Some of the year on year dynamics we've seen, you know, obviously a pickup in oil. So can you also speak to whether or not, in foreign North America, in particular, you're starting to see, you know, some upward pressure sequentially on your cost basket?

Michael Glaser Dahl: Price mix, what's embedded in the <unk> Guide and then the flip side, obviously on costs you addressed.

Michael Glaser Dahl: Some of the year on year dynamics, we've seen obviously a pickup in oil. So can you also speak to you.

Michael Glaser Dahl: Whether or not and for North America in particular are you starting to see.

Michael Glaser Dahl: Yeah, some upward pressure sequentially on either hand, your cost basket.

Michael Glaser Dahl: So from let me start with your comment on the sequential on on price mix.

Michael Glaser Dahl: From a flooring North America and global ceramic.

Michael Glaser Dahl: From Q4 to Q1, it was relatively flat, but from Q1 and Q2.

James F. Brunk: So from, let me start with your comment on the sequential price mix, you know, from Fluorine North America and Global Ceramic, from Q4 to Q1, it was, you know, relatively flat, but from Q1 to Q2, I would anticipate that you'll see more pressure in Fluorine North America. Again, that's sequentially from Q1 to Q2. Some of that is around seasonality, some of that is in the price mix pressures in that segment, but from an overall company standpoint, I still would say that Fluorine, the rest of the world, remains under probably the most pressure because of what we've talked about in the panels area.

Michael Glaser Dahl: I would anticipate that youll.

Michael Glaser Dahl: Youll see more pressure in flooring North America again, that's sequentially Q1 to Q2.

Michael Glaser Dahl: Some of that is around seasonality. Some of that is is in the price mix pressures in that segment.

Michael Glaser Dahl: But from an overall company standpoint, I would say that flooring rest of the world remains under probably the most pressure because of what we've talked about in the.

Michael Glaser Dahl: The panels area.

James F. Brunk: It's still an opportunity; there's still going to be additional productivity and cost reductions to help offset that. And as you look forward with it, we think we're coming, the raw materials and input costs coming into the year were too low. We have seen some movements in the first quarter, and we expect limited increases given the present environment that we're in. We think that as business improves in the future, at some point, we would expect the suppliers to raise prices, and we'll have to follow with increases to pass them through. And then it's also possible, given all the economic events and or regional conflicts, that they could change. And I think that's what we're trying to do.

Michael Glaser Dahl: There's still opportunity there is still going to be additional productivity and cost reductions to help offset that and as you look forward with it we think we're coming the raw materials and input costs coming into the year. We're at a low we have seen some movements in the first quarter and we expect limited increases.

Michael Glaser Dahl: Given the present environment that we're in.

Michael Glaser Dahl: Think that as business improves in the future at some point, we would expect the suppliers to raise prices and we'll have to follow with increases to pass them through.

Michael Glaser Dahl: And then it's also possible given all the economic events and our regional conflicts that they could.

Michael Glaser Dahl: Our view on it overnight.

Speaker Change: Right Yeah, Okay fair enough. Thanks, and then second question.

Michael Glaser Dahl: Right, yeah. Okay, fair enough. Thanks.

Michael Glaser Dahl: And then there is the second question.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Specifically with respect to the second half and 3Q, you did make a comment highlighting European seasonality, 2Q versus 3Q. I feel like, normally, that might be a comment that we see more next quarter as a reminder to the people as you're thinking about your 3Q guide. Can you just talk about, you know, the intent behind that? And we were just trying to remind everybody that European business is on a different cycle, as well as we have some South American businesses here in the middle of their winter, so when everybody doesn't always consider non-US businesses, and we just, as you're putting through the models, we just wanted to remind you, So in the context of the year on year improvement, it is the idea that sequential If you're looking for them, um...

Speaker Change: You know.

Speaker Change: Specifically with respect to the second half and three Q you did make a comment highlighting European seasonality <unk> versus <unk> I feel like normally.

Speaker Change: That might be a comment that we've seen more next quarter as a reminder to people as you're thinking about your <unk> Guide can you just talk to the.

Speaker Change: The intent behind that.

Speaker Change: So we went just fine.

Speaker Change: We were trying to remind everybody that the European business is on a different cycle as well as we have some south American businesses, you're in the middle of their winter as yet so everybody doesn't always consider the non U S businesses and we just as you're putting through the models. We just wanted to remind you.

Speaker Change: So in the context of.

Speaker Change: The year on year improvement.

Speaker Change: The idea that sequentially <unk> earnings could be down sequentially.

Speaker Change: So if youre looking.

James F. Brunk: If you're looking... It's a little early to tell that, a lot depends on the rebound and if we start to see that volume increase like we talked about earlier, but the real point was that Europe tends to peak in the second quarter from a historical standpoint.

Speaker Change: It's a little early to tell that was dependent on the rebound and if we start to see that volume increase likely.

Speaker Change: Like we talked about earlier, but the real point was that Europe tends to peak.

Speaker Change: In the second quarter.

Speaker Change: From a historic standpoint.

Speaker Change: Got it okay. Thank you.

Operator: Our next question comes from Kathryn Thompson from Thompson Research Group. Please go ahead with your question. Hi, thank you for taking my question.

Speaker Change: Our next question comes from Kathryn Thompson from Thompson Research Group. Please go ahead with your question.

Kathryn Ingram Thompson: Hi, Thank you for taking my questions today.

Kathryn Ingram Thompson: Hi, thank you for taking my questions today. So you talked about the move for tariffs on. We do acknowledge that, and we've gotten some feedback about the Chinese tariffs having rolled off last year, and we are hearing just more about dumping activities, particularly for LVT since the end of last year. What are your thoughts or updates on the potential reinstatement of tariffs, or better yet, what are you seeing in terms of trends in Europe for your products? Thank you.

Kathryn Ingram Thompson: You talked about the.

Kathryn Ingram Thompson: New for <unk>.

Speaker Change: Our cash on.

Kathryn Ingram Thompson: Surfaces in the U S. But we do we do acknowledge that and we've gotten some feedback about the Chinese.

Kathryn Ingram Thompson: Tariffs have rolled off last year and are hearing just more.

Kathryn Ingram Thompson: Dumping activities, particularly for <unk> T.

Kathryn Ingram Thompson: End of last year.

Kathryn Ingram Thompson: What are your thoughts or updates on.

Kathryn Ingram Thompson: Potential reinstatement of tariffs or better yet what are you seeing in terms of trends in Europe for your products. Thank you.

Kathryn Ingram Thompson: Yeah.

Kathryn Ingram Thompson:

William Christopher Wellborn: Well, you asked about LVT in general. So LVT sales have slowed, as have other foreign categories. Pricing has declined with lower raw materials, import costs, and transportation. In the U.S., you know, our West Coast facility is increasing production, and our Georgia restructuring is being completed. And in Europe, we completed the restructuring of our LVT operations. We've implemented the change in our residential LVT to rigid, and sales are expanding. And we're improving our product mix and reducing costs to increase our profitability as we go through the year. That's specific to LVT.

Kathryn Ingram Thompson: Well you asked about.

Speaker Change: Lv T in general So L. B T sales have slowed is another foreign categories pricing has declined with lower raw materials import cost and transportation.

Speaker Change: In the U S. Our west coast facilities, increasing our production in our Georgia restructuring is being completed and in Europe. We completed the restructuring of our <unk> operations. We've implemented the change in our residential L. B T to rigid and where sales are expanding and we're improving our product mix and reducing cost to increase our profitability as we go through the year that's specific.

Speaker Change: Perfect to L T.

Speaker Change: Has it been an announced.

Kathryn Ingram Thompson: There haven't been any announced on LVC at this point. Are you seeing competitive pressures just from lower priced LBT hitting the market in Europe?

Speaker Change: Actions against dumping.

Speaker Change: An LDC at this point.

The answer to the other.

Speaker Change: Are you seeing are you seeing competitive pressures.

From lower priced <unk> hitting the market in Europe.

Speaker Change: Like additional.

William Christopher Wellborn: I mean, it's a very competitive environment, but the products that we are putting into the market tend to be at the higher end and are actually doing pretty well.

Speaker Change: Okay, well I mean, it's a very competitive environment, but the.

Speaker Change: The products that we are putting in the market tend to be at the higher end that are actually doing pretty well.

Kathryn Ingram Thompson: Okay, that's helpful. And then I know that not to beat the commercial and market horse to death but maybe pull the string a little bit more and with the preponderance of megaprojects. And, you know, one of the things the market focused on was a lackluster ABI number that came out this week, but on the other hand, our industry contacts that we talked to point out that often, large, you know, kind of mega projects aren't necessarily captured in that ABI number.

Speaker Change: Okay.

Speaker Change: It's helpful and then.

Speaker Change: And I know that and not to beat the commercial end market force.

Speaker Change: Yes, but.

Speaker Change: Maybe pulling the string a little bit more and with the preponderance of Mega projects and you know one of the things.

Speaker Change: The market focused on a lackluster abi.

Speaker Change: Remember they came out this week, but on the other hand.

Speaker Change: Our industry contacts that we talked to point out that often.

Speaker Change: Large kind of mega projects arent necessarily captured in that <unk> number.

Kathryn Ingram Thompson: So channel checks are showing a better commercial end market versus what the ABI would suggest, against the backdrop of these larger-scale projects. What does Mohawk do to get in early? I know it's always a process. You've always said that in the past, but this is truly a different period of time. How do you position yourself with these larger type projects? And how do you kind of win in this environment? Well, I can just do it.

Speaker Change: Channel checks are showing.

Speaker Change: Our commercial end market.

Speaker Change: First is about the Abi would suggest.

Speaker Change: Against the backdrop of these larger scale projects.

Speaker Change: What does Mohawk due to get in early in the conversation I know, it's always a process you've always said that in the past, but this is truly a different period of time, how do you position yourself.

Speaker Change: With these larger type projects and how do you kind of how do you win in this environment.

William Christopher Wellborn: Well, I can just answer one thing on that. In our carpet commercial and our ceramic commercial, we've got a lot of people that are calling on these commercial projects together and are sharing resources, and It works out really well and gives us an advantage. We, um...

Speaker Change: Can just answer one thing on that that.

Our carpet commercial and our ceramic commercial we've got a lot of people that are calling on these commercial projects together and are sharing resources and its works out really well and gives us an advantage.

William Christopher Wellborn: We're calling on the designers, the architects, the building owners, and the contractors all at the same time. We are participating in the planning of the different projects, and we've been able to position ourselves well in the marketplace. And our comments, I guess, are agreeing with you that it's holding up a little stronger than we anticipated, but we still think it's going to continue to slow, and we're being

Speaker Change: We.

Speaker Change: We're calling on the designers architects the building owners and the contractors all at the same time.

Speaker Change: We are participating in the planning of the different projects and we've been able to.

Speaker Change: Position ourselves well in the marketplace and our comments I guess are agreeing with you that it is holding up a little stronger than we anticipated, but we still think it's going to continue to slow and we're being aggressive in our.

Speaker Change: Calling on and offerings to the marketplace.

Kathryn Ingram Thompson: Okay, great, thank you.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Operator: Our next question comes from Laura Champine from Loop Capital. Please go ahead with your question.

Speaker Change: Our next question comes from Laura Champine from Loop capital. Please go ahead with your question.

Laura Allyson Champine: Hi, my question is on excess capacity. I think that you quantified a sort of ballpark running at 75% utilization in the not-too-recent past. Where is that now, and how high would you like to get it with your current restructuring initiatives, assuming volumes stay where they are today?

Laura Allyson Champine: Hi, My question is on excess capacity I think that you've quantified sort of ballpark running at 75% utilization.

Laura Allyson Champine: And then not too recent past where is that now and where can how high can you how high would you like to get it.

Laura Allyson Champine: With your current restructuring initiatives.

Laura Allyson Champine: Assuming volumes stay where they are today.

James F. Brunk: The restructuring initiatives we've done, you know; we're still in a 75-80% range. It also depends on which period and quarter you're in. So as you go through the year, though, I think it should move up. And the question really is, when does the market get back and really change the dynamics? We tend to try to flatten our production out over the year to even it out, to level it. We haven't done anything that's going to dramatically change it, you know, capacity utilization without the marketplace improvement.

Laura Allyson Champine: The restructuring initiatives we've done.

Laura Allyson Champine: Still on a 75% to 80% range it should it.

Laura Allyson Champine: It also depends which period and quarter year and so as you go through the year, though I think it's going to it should move up.

Laura Allyson Champine: And the question really is when does the market get back and really changed.

Laura Allyson Champine: The dynamics, we tend to try to flatten our production out over the year to even it out too.

Laura Allyson Champine: To level it out as best we can.

Laura Allyson Champine: We haven't done anything thats going to dramatically change it.

Laura Allyson Champine: The capacity utilization without the marketplace improvement.

Laura Allyson Champine: As we said on CAFX, really, our focus is more on cost reduction and product innovation as we just complete the growth investments that we had talked about before.

As we said on Capex are really our focus is more on the cost reduction and product innovation.

As we just complete the growth investments that we had talked about before.

Laura Allyson Champine: I know that it flexes back and forth, but do you find yourself becoming more or less vertically integrated, meaning, you know, are you extruding your own yarn, or are you doing less so with this cost inflation that you're seeing?

Speaker Change: I know that it flexes back and forth, but do you find yourself, becoming more or less vertically integrated.

Speaker Change: Meaning you know.

Speaker Change: Or you're extruding your own yarn or you're doing less so with this cost inflation that you're seeing.

James F. Brunk: It hasn't changed.

Speaker Change: It Hasnt changed.

Operator: Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Speaker Change: Okay.

Speaker Change: Thank you thank.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.

Stephen Kim: to get to a 10% operating margin and then look to take it further. But that 10% number just kind of was, I just wanted to explore that a little bit. I'm curious, what kind of volume growth do you think is needed to reach that target on an annualized basis relative to kind of like where we are from, where we are here? Is it, you know, we're talking about keeping like maybe 10% kind of volume growth from here, or just kind of get some order of magnitude in your estimation?

Stephen Kim: Yes, thanks, very much guys you earlier in the call I think you talked about the fact, you're obviously targeting to get to a 10% operating margin and then and then look to take it further but that 10% number just kind of was I just wanted to explore that a little bit I'm curious what kind of volume growth do you think is needed to reach that target on an.

Stephen Kim: Our lives basis relative to kind of like where we are from where we are here or is it you know we're talking about you thinking like maybe 10% kind of volume growth from here or just kind of get some some order of magnitude in your in your estimation.

James F. Brunk: I'm not sure I have the number to give you. We have our models out for the next three years, and we see ourselves reaching that with the different models we've done. And I don't recall the volume changes that are built into it. The timing, like you know, it's impossible to define the moment in time when it changes. We think we're going to see some of it this fall, and we should see significantly more next year as we come out of this.

Speaker Change: I'm not sure I have the number to give you we have our models out for the next three years and we see ourselves reaching that with a different models, we've done and I don't recall the volume changes that are built into it the timing like you know it's impossible to define.

Speaker Change: <unk>.

Speaker Change: The moment in time it changes.

Speaker Change: We think we're going to see some of it this fall and we should see significantly more next year as we come out of this.

James F. Brunk: And Stephen, given how underutilized we are, as that volume moves up, we get a substantial benefit as it moves.

Speaker Change: Stephen given how underutilized we are as that volume moves up we get we get a substantial benefit.

Stephen Kim: Yeah, I mean, clearly, I mean, that's the one thing, you know, obviously, that's outside of your control. I mean, it sounds like you're doing everything you can certainly on the cost side and even on the product side. But at the end of the day, that's the part that, you know, the market's gonna determine for you. And so, but it sounds like it's, but it sounds like you're looking for something, you know, fairly, fairly material.

Speaker Change: As it moves.

Stephen Kim: Yeah, I mean, clearly I mean, that's the one thing obviously that's outside of your control I mean, it sounds like you're doing everything you can certainly on the cost side and even on the product side, but at the end of the day that that's the part that.

Stephen Kim: That you know the market is going to kind of determine for you and so but it sounds like it's up but it sounds like you're looking for something fairly fairly material I mean, it's not like I mean, I do a 10% type growth number out there that that.

Stephen Kim: I mean, I threw a 10% type growth number out there that I didn't think that that was unreasonable. Is that kind of in the ballpark of the kind of expansion off the bottom that you would see at a minimum?

Stephen Kim: I didn't think that that was an reasonable is that is that kind of in the ballpark of the kind of expansion in off the bottom that you would see at a minimum.

James F. Brunk: Yeah, you know, Stephen, the numbers that you're talking about are not unusual as you come out of a downturn. Even if you go back to the last one, that first year you get a kind of accelerated pop in sales as remodeling starts to come back, and new home construction is stronger. So it's not unusual to get a multi-year benefit from the rebound before you get more back into normal growth, which in flooring could be, you know, GDP plus type numbers.

Speaker Change: Yes, Stephen the numbers that Youre talking about are not unusual as you come out of a downturn. Even if you go back to the last one that first year, you're getting kind of an accelerated path in the sales as remodeling starts to come back.

New home construction is stronger.

Speaker Change: It's not unusual to get.

Speaker Change: Our multi year.

Speaker Change: Benefit from the rebound before you get more back into a normal.

Speaker Change: Both which in flooring could be GDP plus type numbers.

Stephen Kim: Yeah, exactly. Okay, well, that'll be fun to watch.

Speaker Change: Yeah, Yeah, exactly okay, well that'll be fun to watch second question relates to flooring rest of world, specifically I'm looking at the margins there.

Stephen Kim: The second question relates to flooring the rest of the world, specifically. I'm looking at the margins there, and in each of the past three years, your margins have declined from the first quarter, which was your highest, actually, to the second, to the third, to the fourth. It was actually kind of a steady decline, and then going even further back, typically, the margins are stronger, certainly in the front half, than they are in the back half.

Speaker Change: In each of the past three years your margins have declined from the first quarter, which was the highest actually to the second to the third to the fourth it was actually up what's kind of a steady decline and then going even further back you know typically the margins are stronger in the certainly in the front half than they are in the back half just wondering are there any structural factor.

Stephen Kim: I'm wondering, are there any structural factors that you can call out, maybe the vacations as part of that, and is there any reason to think that 2024 would track differently from that recent trend where we've seen just sequential declines in margins?

Speaker Change: That you can call out maybe.

Speaker Change: Maybe maybe the vacations as part of that but is there any reason to think that 2024 would track differently from that that recent trend, where we've seen you know just sequential declines in margins.

James F. Brunk: Listen, in Europe, you're correct. When you come out of the... You tend to ship a little more going into the third quarter because of the vacations, both of us and our customers. The vacations last two, three weeks, which in many cases, we shut down the entire factory. Then you hit the fourth quarter, and you have the Christmas vacations in addition to that. So both of those things cause the second quarter to be a peak.

Speaker Change: Listen in Europe, you're correct when you come out of the.

Speaker Change: You tend to ship, a little more going into the third quarter because of the vacations both of us and our customers. The vacations last two or three weeks, which in many cases, we shut down the entire factories. Then you hit the fourth quarter, which you have the Christmas vacations. In addition to which so both of those things caused us.

Speaker Change: Quarter to be a peak.

Stephen Kim: Alright, thanks very much guys, I appreciate it.

Speaker Change: Gotcha, alright, thanks, very much guys I appreciate it.

Operator: Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.

Speaker Change: Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.

Sam Reed: Awesome. Thanks so much, guys.

Sam Reed: Awesome. Thanks, so much guys wanted to dig a bit deeper on pricing, particularly in the U S. But perhaps ask it from a slightly different vantage point. So can you walk through some of the differences that you might be seeing by channel.

Sam Reed: I wanted to dig a bit deeper on pricing, particularly in the U.S., but perhaps ask it from a slightly different vantage point. So, can you walk through some of the differences that you might be seeing by channel? For instance, are there any deviations in price dynamics that you've been seeing more recently, say, between the independent retailers versus the home centers?

Sam Reed: For instance are there any deviations in price dynamics that you've been seeing more recently say between the independent retailers versus the home centers.

William Christopher Wellborn: In general, the retail business is under a lot of pressure. You have the home centers that, in general, have a lower income level buying on average from our specialty retailers, so they've been impacted more than the other channels at this point.

Sam Reed: And.

Sam Reed: In general.

Sam Reed: The retail business is under a lot of pressure you have the home centers in general have a.

Sam Reed: Lower income level.

Sam Reed: Buying on average from our specialty retailers, so they've been impacted more than the other channel at this point.

William Christopher Wellborn: And I would say overall, particularly in ceramics, the one that's been off the most has been the remodeling, which affects not only the home centers, like Jeff said, but it's also one of our higher-margin businesses that's been under pressure.

Sam Reed: And I would say overall like particularly in ceramic the one that's been off the most has been the re modeling which not only affects the home centers like Jeff said, but it's also one of our higher margin businesses that's been under pressure.

Sam Reed: That makes sense. And then maybe switching gears, just quickly talking about tile here. You know, your dial tile business had a pretty impressive display at the Kitchen and Bath show this year. At least, I was impressed by it. And that was in Vegas, obviously. You know, wanted to see, though, any wins that you'd gotten from that event or kind of any feedback, you know, just sort of curious kind of what the outcome was there. Thanks.

Speaker Change: No that makes sense and then maybe switching gears just quickly talking tile here.

Speaker Change: Dialed downhaul business had a pretty impressive display at the kitchen and Bath show this year I'm at least I was impressed by it.

Speaker Change: And that was in Vegas, obviously.

Speaker Change: Wanted to I wanted to see though any wins that you've gotten from that event or kind of any feedback you know just sort of curious kind of what the what the outcome was there. Thanks.

Speaker Change: I think we.

William Christopher Wellborn: had a really good show, and if you just talk about U.S. ceramics, the new construction and commercial improvements have expanded our distribution. Our price and mix have been negatively impacted, but we've done a lot with new, innovative, and higher margin products that are gaining traction and partially offsetting these price declines. So there's been a lot of work in our ceramic business in the U.S., particularly to improve our product mix, and I think it's paid off. And we've taken some.

Speaker Change: Had a really good show and if you just talk about U S ceramic.

Speaker Change: The new construction and commercial improved as we expanded our distribution.

Speaker Change: Our price and mix had been negatively impacted but we've done a lot on new innovative and higher margin products that are gaining traction and partially offsetting these price declines.

Speaker Change: So theres been a lot of work in our ceramic business in the U S, particularly to improve our product mix and I think it's paid off and we've taken some market share from the high end Europeans with our cost higher and we've also been able to expand in some of the builder channels as our service levels were better.

William Christopher Wellborn: And we've taken some market share from the high-end Europeans with a higher cost, and we've also been able to expand in some of the builder channels as our service levels were better than the imported products coming in.

Speaker Change: Then the imported products coming in.

Sam Reed: Absolutely, guys, helpful, and thanks so much. Our next question comes from Eric Broussard from Cleveland Research. Please go ahead with your question.

Speaker Change: Absolutely guys helpful. Thanks, so much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Eric <unk> from Cleveland Research. Please go ahead with your question.

Speaker Change: Okay.

Eric: Yes, two things if I could first of all what.

Eric: Better than expected in the quarter I think the earnings were a little bit better than you.

Eric Broussard: The first quarter results were better because we had greater benefit from restructuring productivity. We had declines in input costs that he went through with you a minute ago, which offset the lower pricing and mix. The weaker sales did result in more unabsorbed overhead, which we had expected. Floor North America improved the most, but it had the most easy cops from the group. And then the rest of World Peace, we keep reviewing that the panel business really did a margin step change from last year, and it has seen industry volume decline, and. Anything else you want to add, Jim? Now the commercial channel, again, keeps outperforming residential at this point, but as Jeff said, probably the biggest gains for the quarter were around

Eric: Even the tissue guys, a little bit better than consensus I know, that's not your number but what's what's what's better than expected.

Eric: So the first quarter results.

Eric: We're better because we had greater benefits from restructuring and productivity.

Eric: We had declines in input costs as he went through with you a minute ago offset the lower pricing and mix.

Eric: Weaker sales did result in more unabsorbed overhead, which we had expected.

Eric: Florida, North America improved the most but it had the most.

Eric: Easier comps from the group and then the.

Rest of World Peace, we keep reviewing that the panel business really did the margin step change from last year and it is the industry volume decline.

Eric: And.

Eric: Anything else you want to add Jim.

Now the commercial channel again keeps outperforming residential at this point, but as Jeff said probably the.

Eric: The biggest gains for the quarter were around the productivity of that.

James F. Brunk: The commercial channel, again, keeps outperforming residential at this point, but as Jeff said, probably the biggest gains for the quarter were around productivity across the segments.

Speaker Change: Segments through us.

Speaker Change: Okay, and then and then secondly, the optimism going into the second half.

Speaker Change: What are you seeing in the business now you talked about North America price mix.

Speaker Change: Guess erosion a bit incrementally into <unk>, what are you seeing within your business now the results March or even April.

James F. Brunk: And we're seeing the normal seasonality improvements through the first quarter and going into the second that we would expect, and we don't have any definitive information that you don't have.

Speaker Change: Is improving and kind of informs that second half optimism.

Speaker Change: And we're seeing the normal seasonality improvements through the first quarter and going into the second that we would expect and we don't have any definitive information that you don't have.

James F. Brunk: Yeah, and we'll continue to watch certain signs. We look at indicators, you know, like consumer confidence. Obviously, we've talked about interest rates, but also discretionary spending and continued monitoring of housing starts as well as new construction has been stronger through this cycle along with commercial. Most people are anticipating the remodeling business coming off the bottom. It's been so low with people postponing it, and we're assuming we're going to see some benefits from that also. So we anticipate volumes, really, across the business, to start to pick up, at least in the low single-digit area. One other thing, last year, we

Speaker Change: And we will continue to watch them certain signs as we look at indicators like consumer confidence, obviously, you've talked about interest rates, but also discretionary spending.

Speaker Change: And have continued monitoring the housing starts as well as new build has been has been stronger through this cycle along with commercial most people are anticipating the remodeling business coming off the bottom it's been so low with people postponing. It we're assuming we're going to see some benefits from that also.

Speaker Change: So we anticipate.

Speaker Change: Volume is really across the business to start to pick up at least in the low <unk>.

Speaker Change: Single digit area, one other thing last year.

James F. Brunk: One other thing, last year we reduced inventory substantially; we don't have to do that again.

Speaker Change: Reduced inventory substantially we don't have to do that again.

James F. Brunk: And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Jeff Lorberbaum for any closing remarks.

Speaker Change: Thank you.

Speaker Change: And ladies and gentlemen, with that we'll be concluding today's question and answer session I'd like to turn the floor back over to Jeff Laura bomb for any closing remarks.

Jeffrey S. Lorberbaum: Long term the category will rebound from the downturn as it always has we're well positioned on a product and markets to enhance our results. We appreciate you for taking the time and joining us.

Jeffrey S. Lorberbaum: In the long-term, the category will rebound from the downturn as it always has. We're well-positioned with our product and markets to enhance our results. We appreciate you for taking the time and joining us.

Operator: And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Jeffrey S. Lorberbaum: Good day.

Speaker Change: Thank you.

Speaker Change: And ladies and gentlemen, the conference has now concluded we do thank you for attending today's presentation. You may now disconnect your lines.