Mohawk Industries, Inc.

Good morning. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries second quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 the conference, please press star, then zero, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded Friday, August 7th, 2020. Thank you. I would now like to introduce Mr. Frank Boykin. Mr. Boykin, you may begin your conference.

Thank you, Erica. Good morning, everyone. and welcome to Mohawk Industries' quarterly investor conference call. Today, we'll update you on the company's second quarter results. 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. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8K and press release in the Investors section of our website. With regards to our recent litigation and related investigations, our Audit Committee, with assistance from outside legal counsel and forensic accountants, has substantially completed its internal investigation. The company has appropriately filed its Form 10-Q for the second quarter. The company continues to cooperate fully with the government inquiries. Beyond that, we refer you to the disclosure in the 10-Q and remind you we cannot comment further. I'll now turn the call over to Jeff for his opening remarks. Jeff?

Thank you, Frank. For the second quarter, at the height of the COVID disruption, our sales were down 21% as reported, or 19% on a constant currency basis. Adjusted operating income for the period was 36 million, or 2% of sales, and our adjusted EPS was 37 cents. During the period, our cost reduction initiatives, working capital reductions, and lower capital spending generated free cash flow of almost $500 million. Those sales trends have improved significantly since government restrictions were lifted. The current environment is the most unpredictable in the history of our business as the pandemic has affected our markets and operations around the world. During the quarter, all of our businesses were dramatically impacted with most of our customers and facilities operating either in a limited capacity or completely shut down for some time. Residential remodeling was impacted by retail shops closing and consumers staying at home. Commercial has declined as businesses have postponed projects due to economic uncertainty. U.S. housing starts and homebuilder confidence improved sharply in June as the market rebounded. In the period, our operations were curtailed or stopped by government mandates, employee concerns, and lack of demand. We responded to these challenges by keeping our workforce safe, cutting expenses and investments, and furloughing employees. In the US, government programs provided tax credits to our business. Federal unemployment supplements have made attracting workers more difficult. Outside the US, many governments subsidized businesses to keep workers employed, and others required companies to continue paying employees that were not working in full. After the company sales bottomed in April, our May and June results appreciably improved across the segments as stay-at-home restrictions were gradually lifted, consumers initiated remodeling projects, stores reopened, and construction increased. Through the period, our markets improved more than we expected, and our shipments exceeded our production rates, reducing our inventories. Our manufacturing levels were impacted by government restrictions, COVID disruptions, and employee absenteeism across the enterprise. At this time, our visibility of the future continues to be uncertain due to persistent COVID spread, the unknown strength of the economic recovery. Some near-term factors represent a potential upside, including historically low interest rates, rising remodeling activity, consumer discretionary funds being shifted to home improvements, and increasing home purchases. Alternately, potential changes in government policies, consumer and business spending, and higher COVID infection rates could reduce demand around the world, particularly if governments increase restrictions. Given these factors, our business plans must remain flexible to quickly adjust our production levels. We are restructuring the business to enhance our results and future performance. We're reducing SG&A, our headcount, and lower performing products and SKUs. We are closing less efficient operations and investing in more productive equipment. The largest of these changes are in the United States, where LVT sales growth and a strong dollar have impacted many of our businesses. We anticipate these actions will deliver annual savings of approximately $110 to $120 million, with an estimated cost of $170 million. of which $44 million will be in cash. Many of these actions are currently being executed with those affecting our manufacturing costs having to flow through our inventory. It will take much of next year to complete these initiatives and capture the full benefit. Our business is well positioned with a strong balance sheet and deep liquidity. We've recently issued over $1 billion of new bonds to enhance our ability to strategically invest and better position Mohawk for the long term. We're taking the right steps to manage through the pandemic, and we remain focused on delivering innovative products, exceptional value, and superior service. Our talented people are devoted to making Mohawk the best flooring supplier to our customers, improving our business in all areas, and maximizing our results. With that, I'll turn the call over to Frank for our second quarter results.