Mohawk Industries Inc Q3 2024 Earnings Call Transcript

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

Question: Tim Wojs - Robert W. Baird & Co., Inc. - Analyst : Hey, everybody. Good morning. Maybe just first question, Jeff. I mean I know the dynamics kind of going into the fourth quarter with shutdowns and things are still broadly weak. But you have kind of talked about 2025 recovering. And I guess just as you think about next year, do you need lower rates and kind of a normalization and housing turnover to see that recovery? Or do you think there's enough just pent-up demand? And kind of home value equity that can kind of get us back to a growth situation. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Tim Wojs - Robert W. Baird & Co., Inc. - Analyst : Okay. And I guess if that doesn't happen, do you feel like you just keep slugging it out as things kind of bottom? Is that kind of the other side?

Question: Tim Wojs - Robert W. Baird & Co., Inc. - Analyst : Okay. And then just my second question. Do you have any figures or numbers just around how much LVT capacity is based in North America, both your own and just the overall industry?

Question: Tim Wojs - Robert W. Baird & Co., Inc. - Analyst : Okay, sounds good. Thank you, guys. Good luck on the rest of the year.

Question: John Lovallo - UBS Equities - Analyst : Good morning, guys. Thanks for taking my questions as well. Jim, I think the prior expectation from a revenue standpoint in the fourth quarter was for global ceramic and Flooring Rest of World to be up sort of low single digits year-over-year, and I think flooring North America to be sort of flattish. Curious if those have changed. It seems like there might be a little bit of downside to that. So any thoughts on that would be helpful.

Question: John Lovallo - UBS Equities - Analyst : Understood. And then maybe taking it one step further to the margins. I mean it appears that the lapping of the lower material and energy costs are going to turn price/mix, productivity negative here. I mean, how should we sort of think about the cadence of margins by segment as we move into the fourth quarter?

Question: John Lovallo - UBS Equities - Analyst : Okay. Thank you, guys.

Question: Susan Maklari - Goldman Sachs - Analyst : Thank you. Good morning, everyone.

Question: Susan Maklari - Goldman Sachs - Analyst : My first question is talking a little bit more about those company-specific efforts that you did come through in the third quarter. You mentioned productivity and the cost savings. Can you talk a bit more about how those did come together and help to offset some of the broader demand weakness? And how do you build upon those as you look to 2025 and maybe even further out from there?

Question: Susan Maklari - Goldman Sachs - Analyst : Okay. That's very helpful color. And then maybe digging in a little bit more to that product mix. it sounds like you are getting some momentum as you're building into some of these faster-growing categories, exiting some of the underperforming areas and gaining share in there. Can you talk about how that is coming through and the progress and how you're thinking about that over the next several years?

Question: Susan Maklari - Goldman Sachs - Analyst : I don't know. That was good color, Jeff. Thank you, that's helpful. Good luck with everything. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Matthew Bouley - Barclays - Analyst : Morning, everyone. Thanks for taking the questions. I just wanted to ask on the hurricane impact, the $25 million to $40 million. Historically or typically what do you usually see with that kind of rebuild in the year after? Kind of can you recoup all of it? And typically, what would be the kind of timing of recouping some of that? Thank you.

Question: Matthew Bouley - Barclays - Analyst : Okay. Thanks for that, Jim. And then secondly, the plant shutdown that you're guiding to in Q4. Is this kind of just a Q4 thing given the sort of state of demand here and maybe channel inventories, or is the expectation from what you could tell today that you may still be looking to reduce inventories in early 2025 as well? Thank you.

Question: Matthew Bouley - Barclays - Analyst : Alright. Thanks, Jim. Thanks, everyone. Good luck.

Question: Phil Ng - Jefferies - Analyst : Hey, guys. Ocean freight prices have started to move higher. You called out inflation. That said, price mix is obviously still a challenging weighing on your margins in the fourth quarter. Are you seeing any ability to kind of raise price as we look out to 2025? And have you seen price increases from some of your competitors that import goods. Separately, I think one of your larger competitors in (inaudible) announced some capacity closure on the feedstock side and I think another player announced some today on nylon polymer. So kind of help us think through, is this a needle mover in terms of capacity tightening up in North America? And then your ability broadly to get price to offset a more inflationary environment.

Question: Phil Ng - Jefferies - Analyst : Okay. And then Jeff, you expressed confidence that demand will be up across the board in all your segments. Timing this is not easy. But I guess my question is, when do you kind of expect -- how do you kind of expect a year to shape up first half, back half? And in some of the fourth quarter headwinds, whether it's curtailment, the hurricane; hopefully, that gets flushed out. Do you have enough levers to kind of grow EBITDA and EPS because you were growing EBITDA, EPS the first three quarters of this year. So I just want to get a level set of the shape of the year for 2025. And then your ability to drive earnings and EBITDA higher next year?

Question: Phil Ng - Jefferies - Analyst : Helpful. I appreciate the color. Thank you.

Question: Laura Champine - Loop Capital - Analyst : Hi guys, Laura Champine. Question, a follow-up question on hurricane. I really appreciate the quantification of disruption, like $25 million to $40 million. I think you called out when we think about your ability to assist folks and repairing, should we be thinking about a benefit through next year of multiples of that? Or can you help us frame up based on prior storms of this size kind of how much of a revenue lift we should get next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Laura Champine - Loop Capital - Analyst : Got it. On the European business, which seems to be kind of taking another leg down in terms of demand. Should we expect that to recover on a lagging basis relative to your other geographies? Or would that be reading too much into this Q4 softness?

Question: Laura Champine - Loop Capital - Analyst : Got it. Thank you.

Question: Keith Hughes - Truist Securities - Analyst : Thank you. And the way you talk about the $100 million cost reduction plan has been around a while. It looks like you might be talking a little bit more than that. So I guess my question is, what kind of magnitude are we looking at? And how much have you already realized through the third quarter?

Question: Keith Hughes - Truist Securities - Analyst : Okay. that's helpful. Thank you.

Question: Ad Azzi - JPMorgan - Analyst : Hi, everyone. This is Ad Azzi on for Mike. Thanks for taking my questions. I just wanted to ask maybe in Flooring Rest of World, given some of those reduction of cost and simplifying SKU, how large of a net impact are you expecting there? Or is it relatively small?

Question: Ad Azzi - JPMorgan - Analyst : Got it. Thanks. And maybe in LVT and laminate it seems things are going well. If I want to see if you could expand on kind of the growth you expect to see next year and how that is going to play out going forward? Thanks.

Question: Ad Azzi - JPMorgan - Analyst : Got it. Thank you. I appreciate the color. Thank you, gentlemen and good luck. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Adam Baumgarten - Zelman - Analyst : Hey, good morning, guys. Just curious if you saw any benefit to shipments in September for maybe some customer inventory stocking ahead of the port strike, which obviously in hindsight, was resolved. But in September, did you see any bump in shipments?

Question: Adam Baumgarten - Zelman - Analyst : Okay. Got it. And then just on commercial, you talked about demand slowing. Any specific verticals you'd call out as being weaker than they had been maybe earlier in the year?

Question: Adam Baumgarten - Zelman - Analyst : Okay. Thanks a lot.

Question: Eric Bosshard - Cleveland Research Company - Analyst : A follow-up and then a question, if I could. On the commercial conversation, Jim, your comment that I think it's still growing, but entering a period where it's probably going to contract. Is this a pressure point for mix for the business and in '25. I know there's some optimism about better price mix. Is slowing commercial and offset to that and to what magnitude? How should we think about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Eric Bosshard - Cleveland Research Company - Analyst : Okay. That's helpful. And then secondly, I just wanted to clarify as well, Jeff, you commented earlier about expecting demand to improve in '25. And I think most companies, including Mohawk expected demand to improve in the second half of '24, and that obviously hasn't taken place. And so like is your comment like demand improves in -- is there something you're seeing in the business that gives you conviction on that? Or is this a -- like eventually demand is going to improve. I just want to understand the point you're trying to make.

Question: Eric Bosshard - Cleveland Research Company - Analyst : Thank you.

Question: Stephen Kim - EVERCORE ISI - Analyst : Yeah. Thanks very much, guys. I wanted to maybe just start off with a couple of housekeeping items. First, did you repurchase any shares in the quarter? And Jim, can you hear with us what the benefit of volume was to sales in 3Q by segment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Stephen Kim - EVERCORE ISI - Analyst : The benefit of volume to sales across the segments.

Question: Stephen Kim - EVERCORE ISI - Analyst : Yeah. That's -- yeah, okay, great. That's helpful. So I wanted to touch on this benefit the volume. The pickup in volume in flooring North America a little bit more because I think that's probably one of the most interesting areas that investors are focusing on. Because this is -- I mean, obviously, the European environment is a headwind, but it looks like you've sort of you're really kind of bottoming, I guess, I would say, in flooring North America. You talked about LVT. You feel like you're gaining share to laminate you're gaining share. Obviously, I know that laminate has been driven by a lot of innovation. LVT, I guess it's off a kind of a lower base as well. But can you talk a little bit more about your confidence that you're gaining share in flooring North America? Is it limited to those two categories? Are you seeing signs of something broader in flooring North America. I'm specifically talking about you relative to the industry. And is there anything you're doing that is particularly worth calling out either on the distribution side or the merchandising that's different from what you have been doing over the last, call it, year or two.

Question: Stephen Kim - EVERCORE ISI - Analyst : Jim, you just mentioned there, something that caught my ear, which was you said in ceramic, you talked about the visualization technology which we feel is a competitive advantage. I recall that this was definitely something that more than several years back was a real moat around your ceramic business, your visualization technology. It feels like we went through a period where that became a little bit more commoditized. is what you're describing here with the 3D visualization technology, something like the advantage that you had back then?

Question: Stephen Kim - EVERCORE ISI - Analyst : Thank you. That's all my question.

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : Thanks so much. I wanted to circle back on the hurricane impact, kind of a two-part question. So first, could you just walk us through the math you used to get to the $25 million to $40 million estimate. It's very precise. So I just want to understand that. And then looking back in time, I don't think you've called out hurricane impact in past even after some of the activity we might have seen in 2022, which was arguably more damaging. So I just want to understand what's different about this hurricane cycle versus prior cycles?

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : Just in terms of --

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : No, that's really helpful. I think both. And then I wanted to follow up on M&A question. I don't want to read too much into you not repurchasing shares in the third quarter, but would one interpretation of that fee that you're potentially saving up firepower for M&A as the category potentially recovers? Just thinking about the M&A from that angle. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, MHK.N - Q3 2024 Mohawk Industries Inc Earnings Call

Question: Sam Reid - Wells Fargo Securities, LLC - Analyst : No, it makes total sense. Thanks so much.