Mohawk Industries, Inc. Q4 2012 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ken Zener - KeyBanc Capital Markets - Analyst : Jeff, Frank, good morning. Your success finding deals in a variety of categories and regions in the fourth quarter obviously was very impressive. Do you think -- is your pipeline depleted and/or -- I mean did you have a specific focus on Europe?

Question: Ken Zener - KeyBanc Capital Markets - Analyst : Okay. And then this is kind of a little more macro, ties in obviously with carpet where you are facing input costs. You are going to ask for price given your history of recovery. In kind of two quarters, I expect you will get it. But from a macro perspective, if it's your wood flooring, if it is the tile in Mexico or any number of other building product categories, it seems like everyone is asking for price. And can you give us a little sense of where your conviction comes from? That pricing on wood, tile really will be flowing through given relatively low levels of demand compared to your conviction in carpet, which is tied as much to industry structure as anything else. Thank you.

Question: Ken Zener - KeyBanc Capital Markets - Analyst : Thank you.

Question: Michael Rehaut - JPMorgan Chase - Analyst : Thanks, good morning. It's still Mike Rehaut at JPMorgan. How are you? First question on the -- actually I was wondering if we can just do a little bookkeeping for 2013, if possible. What you expect corporate expense, and I know, if at all possible, to include some of this for your expected completed acquisitions of Marazzi and Spano, what you expect full-year corporate expense and also the tax rate to be once those are completed?

Question: Michael Rehaut - JPMorgan Chase - Analyst : And so neither of those changed, Frank, with the acquisitions? companies.

Question: Michael Rehaut - JPMorgan Chase - Analyst : Okay. Also, on Mohawk, if we could just talk about that for a moment, you had nice 120 bps of margin expansion for 2012 on roughly flattish sales. So I was wondering if you could kind of break down, Frank, what were the drivers of that margin expansion and when you talk about the delay in the price increases coming through, that it really -- you won't fully realize it until the third quarter, you will start to realize it in the second quarter, what that might mean for margins year-over-year. The last couple of quarters, you have had around 150 bps or more of year-over-year margin expansion, what that might mean for the first quarter, in particular, if you might have some higher costs and not an immediate matching of the price inflation. So two kinds of questions there. One on what were the drivers in 2012 of the margin expansion and how that recent expansion might flow potentially without the full benefit of the price increases in '13.

Question: Kathryn Thompson - Thompson Research Group - Analyst : Hi, thanks for taking my questions today. First is on Pergo, as that is integrated into the system, we have a pretty good sense of the revenue flowthrough. But could you help us how we should -- through how we should think about margins, particularly as Pergo is being integrated into Mohawk overall? And if it is going to be seamless or what type of efficiency upside could we potentially see or conversely drag could we see for the short term and first quarter?

Question: Kathryn Thompson - Thompson Research Group - Analyst : Great. And finally, in the Mohawk segment, could you break out as much as you can the growth rate for volume for residential versus non-res? Particularly we just want to get a breakout, a sense of how your modular business is doing relative to residential and any other changes on the -- we know what was going on in the broadloom side with pricing, but anything on the modular side too would be appreciated.

Question: Mike Wood - Macquarie Research - Analyst : Hi, thank you. On the broadloom side, you mentioned that you hope to achieve the cost parody by the end of the second quarter. I am curious in your opinion what you think would be the trigger to get margins back up to their historical average in the sector and essentially get some accretive price actions in broadloom. companies.

Question: Mike Wood - Macquarie Research - Analyst : Okay. Also, on price in the Unilin segment, can you give us a sense by product in Unilin how sensitive each is to the increase in lumber prices and where you can actually proactively substitute out products like potentially in engineered wood to lower-cost substitutes?

Question: Mike Wood - Macquarie Research - Analyst : Thank you.

Question: Sue Maklari - UBS - Analyst : It's actually Sue. Looking out maybe a little bit bigger picture, you guys are definitely increasing your exposure to Southern Europe with Marazzi and also your new board facility coming on in France. Can you talk about how you think about the potential sort of opportunities or risks as you get more into this region, especially sort of your ability to adjust as demand changes over time?

Question: Sue Maklari - UBS - Analyst : Okay. And so then longer term for -- especially for the Dal-Tile, the Unilin segments, are you still thinking that margins get back to say maybe 11%, 12%, somewhere in that range?

Question: Dennis McGill - Zelman & Associates - Analyst : Thank you. Frank, could you look at -- within the Unilin segment, I think volume for the full year was maybe plus 4 on an organic basis. Could you maybe split that out positive and negative across the domestic laminate, domestic hardwood and then the international piece as well just to get the flavor of the puts and takes through the year?

Question: Dennis McGill - Zelman & Associates - Analyst : And within US laminate, how do you think about that category over the next couple of years and your ability to expand it in the face of LVT taking share overall?

Question: Dennis McGill - Zelman & Associates - Analyst : So is your expectation that your laminate business has to grow through marketshare accumulation? companies.

Question: Dan Oppenheim - Credit Suisse - Analyst : Thanks very much. I was wondering, in the Marazzi business, you talked about (technical difficulty) despite demand being relatively low right now. As you think about the next couple years in recovery, what sort of capital requirements do you think there will be in that and how are you looking at that overall?

Question: Dan Oppenheim - Credit Suisse - Analyst : I guess you are talking about 90% in terms -- did you mean in Europe or how are you looking at (multiple speakers)?

Question: Dan Oppenheim - Credit Suisse - Analyst : Okay, thank you. And then in terms of the Mohawk segment just a little bit, you talked -- you've done a great job in terms of the mix improvements there where the rug category has been certainly lagging. You talked about some sales growth initiatives. Is there anything you are doing in terms of just helping the rug side of the business or is that something where it is just much more focused in terms of the higher price point, higher-margin items or is it the expectation that rugs continue to lag? companies.

Question: Eric Bosshard - Cleveland Research Company - Analyst : Good morning. First question on the tile business, wondering if you could help us understand a little bit the incremental margin in 2012, which seems like it is a little bit below trend. I am curious where the incremental margin ought to be in that business into '13 and also interested in how you think how the Marazzi margin compares to that margin over time.

Question: Eric Bosshard - Cleveland Research Company - Analyst :

Question: Eric Bosshard - Cleveland Research Company - Analyst : And then a second question, the stepup in capital in 2013, can you just talk a little bit about where that is? Is that all legacy, is that inclusive of spending for the acquired businesses? companies.

Question: John Baugh - Stifel Nicolaus - Analyst : Good morning, Jeff and Frank. Good year. I wonder if you could just share with us what you are seeing right now in terms of residential US repair and remodel spend and maybe the same for commercial. And then more or less how you think that may unfold as 2013 unfolds. Thank you.

Question: John Baugh - Stifel Nicolaus - Analyst : Do you care to give us a rough guideline of what those revenue expectations are, not necessarily for the first quarter, but as you think about say the resi repair and remodel for '13? Thanks.

Question: Keith Hughes - SunTrust Robinson Humphrey - Analyst : Thank you. I will shift John's question to Europe. How have trends in Europe been and is there any sort of bottoming you are seeing in Western Europe in the Unilin business? companies.

Question: Keith Hughes - SunTrust Robinson Humphrey - Analyst : If you look at Eastern Europe, that was a big market for you and you are there with Marazzi in terms of growth. Are we looking at another good growth year in Eastern Europe, specifically Russia in '13?

Question: Keith Hughes - SunTrust Robinson Humphrey - Analyst : Thank you.

Question: Desi Depiro - RBC Capital Markets - Analyst : Hey, thanks for taking the question. On the depreciation and amortization guidance, it doesn't look like it includes Marazzi. So what can we expect for 2013 depreciation for that business?

Question: Desi Depiro - RBC Capital Markets - Analyst : Great, thank you. companies.