Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mohawk Industries Inc (MHK, Financial) reported adjusted earnings per share of $3, up 9% year over year.
- The company generated free cash flow of approximately $142 million during the quarter, totaling $239 million year to date.
- Mohawk Industries Inc (MHK) purchased 755,000 shares or 1.2% of its stock for approximately $90 million.
- The company is implementing restructuring actions expected to generate annualized savings of approximately $100 million.
- Mohawk Industries Inc (MHK) has been recognized as one of America's climate leaders by US Today for its reduction in greenhouse gas emissions over the past four years.
Negative Points
- Net sales for the quarter were $2.8 billion, down 5.1% compared to last year.
- Residential purchases across geographies remained weak, impacting overall sales.
- The company is facing market pressures on pricing and mix, as well as foreign exchange headwinds.
- Flooring remodeling is significantly influenced by suppressed housing turnover rates due to elevated mortgage rates and high home prices.
- The commercial sector, although outperforming residential, is experiencing some softness with fewer projects being initiated.
Q & A Highlights
Q: The restructuring or cost-out program, whichever you call it, I'm just curious. You've gone through a couple of these in the last few years. The projects that you've identified here, why were they not included in the last one? Or asked a different way, like why take cost and capacity out now?
A: Well, when we're looking at the market where it is now, we think there'll still be some time before we see a significant recovery into next year. And so we're trying to work through how we're going to optimize the profits both in the short term and the long term. And we believe that taking more costs out will position us better in the second half, and it will also increase our profitability as the market recovers. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Within this, I guess, the second component of this, as you think about solving for the growth scenarios in '25, how much capacity do you have to support growth next year? Or embedded in that, what is the growth assumption you're considering as you rightsize capacity or optimize capacity?
A: As we think about next year, we think that we're going to start seeing the cycle move from what the low point is at. Demand for housing today remains strong, and we think there's pent-up demand in the remodeling markets. Though we can't predict the timing of it, the decline of inflation, the change in interest rates will positively impact consumer confidence, housing sales, home remodeling, commercial activity, which all should have a significant impact on our category. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Can you just talk about how the anticipated savings, which I think you shared some aggregate numbers on that, how that would fall across the three reporting segments?
A: As you look at the restructuring savings, first of all, the initial actions that we took last year, we've realized about -- of the $150 million that we announced, about $110 million through the second quarter, you should see approximately about $130 million by year end. That program was fairly evenly spread across all three of the segments, maybe with Flooring North America a little bit more. With the announcement today of the additional $100 million, as we said, $20 million to $25 million would be recognized this year, a much larger piece into the following year. (James Brunk, CFO)
Q: Can you talk a bit about what some of those benefits or those features are that you're stressing in those products? And as those gain traction over the coming quarters, how should we think about what they can contribute in either the back half of this year or even into next year in terms of perhaps mix shift and what that could mean for the business on top line as well as a profitability perspective?
A: In the new products, one is we've continued to invest in putting them out in the marketplace and bringing new products, and every category is participating. In ceramic, we put in new assets that can make tiles with different color intensity, textures, three-dimensional surfaces, different shapes, and sizes. In LVT, we've taken actions that we can actually enhance the coloration and textures. And we've also introduced a different core, we call it a renewable polymer core, as another category. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Can you talk about what's embedded from a top-line standpoint for 3Q and how you're thinking about that into 4Q as well?
A: At this point, we don't anticipate anything changing the present conditions in the third quarter. And we've built in just a continuation of weak demand and pressure on pricing and all -- and continued low industry utilization. We don't see the mix changing with the consumer in the period much from where it is. And so we see the trading down continuing. We see new construction may be softening a little bit, but not a lot. And then we still have remodeling that's compressed and -- just to remind everybody, the remodeling business is our highest margin business because they tend to buy better quality products than the other residential channels. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Were those businesses up year over year?
A: LVT and laminate, the volumes have improved. We've improved some of the margins in those businesses as we go through. You have to remember, last year, there was all kinds of also negative pressures in the comparisons. So laminate is gaining share, and we're doing our self-help actions. And LVT is helping those. (Jeffrey Lorberbaum, Chairman and CEO)
Q: What drove the upside to the second quarter, if there were specific areas within perhaps, for example, North America that maybe came in a little better than expected, either -- and just more broadly on either the sales or the margin side?
A: The 3Q guide, as I just said, has got the assumption that the present conditions in the second quarter continue into the third quarter. It had, don't forget, Europe. I mean, you have to know that when they go on vacation, people quit spending money. And whatever is happening, it takes a huge dip in a different -- the holidays are different in every country. So it pulls down our period. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Are you actually seeing input -- sequential input cost inflation as we've gone through the year so far?
A: Prices have been fairly stable. I mean, we buy a lot of pieces. So there are some that are going up. We'll have to see how they evolve and where they're going to go. But again, as you come out of these cycles, they're all going to go up. And so we have to manage our way out of it when it occurs. (Jeffrey Lorberbaum, Chairman and CEO)
Q: Based on some of our work and talking to the channel and feedback from the field, in the case that you've gained some market share this year. I wanted to see if you could clarify what gains you're seeing either by channel or by product categories and how sustainable you think these gains may be?
A: We've been aggressive in the marketplace, like everybody else is being in the market. We have good relationships with people. We are bringing products and value propositions are different. We've been investing through the downturn in our sales and marketing activities. We continue to provide merchandising and promotions to help them maximize their business, and I think we're being rewarded in some places for that and increasing our distribution. (Jeffrey Lorberbaum, Chairman and CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
