Mohawk Industries, Inc.

Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries fourth quarter 2018 earnings conference call. All lines have been placed on mute to prevent any background noise. After these speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. Should anyone need assistance at any time during this conference, please press star, then zero, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, February the 8th, 2019. Thank you. I would now like to introduce Mr. Frank Boykin. Mr. Boykin, you may begin your conference.

Thank you, Natalia. Good morning, everyone, and welcome to Mohawk Industries' quarterly investor conference calls. Today we'll update you on the company's results for the fourth quarter of 2018 and provide guidance for the first quarter of 2019. I'd like to remind everyone that our press release and statements that we make during this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. You can refer to our form 8K and press release in the investor information section of our website for a reconciliation of any non-GAAP to GAAP amounts. I'll now turn the call over to Jeff Loeberbaum, Mohawk's chairman and chief executive officer. Jeff?

JEFF LOEBERBAUM, Thank you, Frank. After five consecutive years of record earnings, 2018 proved more difficult than we anticipated. With inflation increasing dramatically, luxury vinyl tile impacting other U.S. flooring products, and most of our markets slowing. In this environment, we selectively invested approximately $1.5 billion to enhance our long-term performance, primarily in new product categories and geographies, with greenfield projects and acquisitions, cost savings initiatives, and buying back shares. Our industry has faced periods with volatile costs, and shifts in consumer preferences before, and we have always navigated through them to emerge stronger in a more competitive position. In 2018, inflation in the U.S. was primarily driven by increasing material costs, escalating transportation and energy costs, and constrained chemical supply. The tight U.S. labor market increased employee turnover, which impacted both efficiencies and training costs. Our ability to offset these pressures was hindered by continuous inflation, more competitive imports due to a stronger dollar, and substitution of LVT for other alternatives. In the US, LVT is taking share from other flooring, and it will become a significantly larger part of our portfolio. Our LVT manufacturing and import strategies are progressing, and our margins will improve in the future. In the US and Europe, We are adding more talent to our LVT operations to increase our production efficiency and differentiation in 2019. While we are managing through these conditions, we are enhancing the long-term value of our business. In 2018, we acquired leading flooring companies in Australia, New Zealand, and Brazil. And in Europe, two flooring distributors and a specialized mezzanine company. We entered the European porcelain slab and carpet tile markets. We expanded our higher quality ceramic in Eastern Europe and initiated sheet vinyl production in Russia and quartz countertop manufacturing in the United States. Much of the benefit from these capital investments will be realized in 2020 and beyond as we achieve higher volume, mix, and productivity. Turning to the fourth quarter results, we generated sales of $2.4 billion, up 3% as reported, or 5% on a constant currency. For the period, our adjusted operating income was $241 million, or 10% of sales, with an adjusted EPS of $2.53. As with our full year performance, The period was affected by significant inflation, slowing markets, and LVT impacting sales of other products. Even as we executed price increases in many products, our businesses experienced increased competition and greater pressures on pricing and mix. In the period, inflation continued to be a headwind across most categories as higher materials flowed through our costs. We decreased our manufacturing production in the fourth quarter to adapt to market demand. Our startup costs in the period were higher than we projected, with LVT production improving slower than anticipated. Our new countertop and sheet vinyl plants initiated manufacturing, and our Polish ceramic tile expansion was still starting up. In the period, we purchased about $274 million of Mohawk stock, reducing our share count by $2.3 million, or the equivalent of 3% of our outstanding shares. For more details on our segments, I'll now turn the call over to Chris Welbert.