Mohawk(MHK) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's net sales for Q2 2019 were $2.6 billion, up 0.3% as reported and up 2.4% on a constant basis compared to the previous year [51] - Adjusted operating income was $277 million, representing 10.7% of sales, which is an improvement of 220 basis points from the first quarter [52] - Adjusted net earnings per share decreased to $2.89, down 18% from $3.51 in the previous year [57] Business Line Data and Key Metrics Changes - Global ceramic segment sales increased by 3.1% as reported and 5.3% on a constant basis, with an adjusted operating margin of 12.4%, down from 15.1% the previous year [57][58] - Flooring North America segment sales decreased by 7% year-over-year to $983 million, with an adjusted operating income of $63 million or 6.4% of net sales [59][60] - Flooring rest of the world segment sales were up 9% as reported and 14.7% on a constant basis, with an adjusted operating income of $107 million or 16.7% of sales [61] Market Data and Key Metrics Changes - The U.S. housing market remains challenging, impacting flooring demand, with LVT (Luxury Vinyl Tile) continuing to grow significantly [9][32] - European markets are experiencing slow growth due to political uncertainties and economic conditions, while the Russian market is expected to improve [10][31] - The Mexican ceramic industry is growing despite a slowing local economy [10] Company Strategy and Development Direction - The company is streamlining operations, consolidating facilities, and reducing production to manage inventory levels [11] - New product categories are being introduced, and promotions are being increased to adapt to market changes [11][21] - The company is focused on enhancing long-term value through investments in new products and geographic expansion [14][70] Management's Comments on Operating Environment and Future Outlook - Management anticipates a difficult environment with pressure on volume and pricing due to excess capacity and soft market conditions [8][68] - The company expects to see improvements in LVT production and sales as new technologies are implemented [40][70] - EPS guidance for Q3 is set at $2.68 per share, excluding one-time charges, with a focus on optimizing long-term growth [70] Other Important Information - The effective tax rate for the quarter was 22%, expected to range between 18% to 20% in Q3 [57] - The company is facing restructuring costs of approximately $94 million for the full year, primarily related to flooring North America [55] Q&A Session Summary Question: Inventory Management and Production Adjustments - Management indicated that inventory adjustments will depend on market conditions and expected production reductions if the industry declines [75][76] Question: LVT Production and European Facility Performance - Significant progress has been made in LVT production, with expectations for the European facility to reach breakeven next year [79][81] Question: Changes in Flooring North America Segment - Management acknowledged underperformance in residential carpet sales and noted increased competition and a shift in customer preferences [85][87] Question: Inventory Levels and Market Conditions - Management expects a more meaningful downtime expense in Q3 due to excess inventory in the ceramic market [89][90] Question: Carpet Market Performance - The carpet industry is experiencing a decline, with a shift towards lower-quality products impacting margins [95][98] Question: Promotional Activities and Pricing Pressure - Increased promotional activities are expected to continue, with pricing pressures embedded in the Q3 estimates [104] Question: Future Cash Flow and Productivity Initiatives - Management indicated that restructuring actions will lead to productivity improvements, but benefits may not be fully realized until next year [121][122]