Mohawk(MHK) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q1 2020 were $2,286 million, down 6% as reported, and decreased 4% on a legacy and constant basis [15][21] - Gross margin was 27% as reported, or 27.5% excluding charges, compared to 27.1% last year [16] - Earnings per share, excluding charges, were $1.66 compared to $2.13 last year [20] - Operating income, excluding charges, was $163 million or 7.2% of sales compared to 8.5% last year [17] Business Line Data and Key Metrics Changes - Global Ceramics segment sales were $848 million, down 6% as reported or 2% on a constant basis [21] - Flooring North America segment sales were $848 million, down 8% as reported or 7% on a constant basis [22] - Flooring Rest of World segment sales were $589 million, down 5.3% as reported or flat on a constant legacy basis [24] - Operating margin for Global Ceramics was 5.8% versus 10% last year [21] - Operating margin for Flooring North America was 4.9%, an increase of 150 basis points compared to last year's 3.4% margin [23] Market Data and Key Metrics Changes - Demand across all markets has dropped dramatically, with residential remodeling being impacted the most [10] - Sales across the enterprise in April were off about 35% compared to last year due to the virus [18] - The majority of business is in countries where governments are supplementing wages to maintain workforces [12] Company Strategy and Development Direction - The company is reducing capital expenditures, cutting non-critical expenses, and putting stock purchases on hold until the environment improves [11] - Temporary layoffs and furloughs are being implemented globally to balance production with short-term demand [11] - The company is enhancing digital sales as consumers shop online for DIY projects while staying at home [61] Management's Comments on Operating Environment and Future Outlook - Management noted that the world changed during the first quarter due to the pandemic, leading to unprecedented challenges [5] - The company is unable to predict how demand will evolve in the future, emphasizing the need for flexibility [12] - Management expressed optimism about the long-term future of the business despite current challenges [70] Other Important Information - The company obtained a $5 million term loan to expand liquidity to $1.3 billion [13] - Free cash flow during the quarter was $80 million, with total debt of $2.7 billion at the end of the quarter [28] - The company has a strong balance sheet and a BBB+ rating remains unchanged even in the current environment [29] Q&A Session Summary Question: Are retail stores starting to open up in May? - Management indicated it is too early to have details and is monitoring news from different states [73] Question: How is LVT performing in April? - LVT sales continued to expand in Q1 but slowed as the month progressed [75] Question: What is the outlook for raw materials? - Raw materials have declined, but lower material costs will take longer to flow through to costs due to declining sales [76] Question: What is the productivity outlook in Flooring North America? - Productivity improvements are expected to continue, but lower production levels will impact overall productivity [83] Question: What is the current state of the global supply chain? - Supply chain recovery is underway, but the current business trends in the U.S. are declining [91] Question: What is the expected operating loss for Q2? - An operating loss is anticipated on an EBIT basis for Q2 [116]