Mohawk Industries, Inc.

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 first quarter 2021 conference calls. 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 that 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 zero and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, April 30th, 2021. Thank you. I would now like to introduce your speaker, Mr. James Brock. Mr. Brock, you may begin your conference.

Thank you, Natalia. Good morning, everyone, and welcome to Mohawk Industries' quarterly investor conference call. Joining me on today's call are Jeff Lauerbaum, Chairman and Chief Executive Officer, and Chris Wellborn, President and Chief Operating Officer. Today we'll update you on the company's first 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 step 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 reconciliation of any non-GAAP to GAAP amounts, please refer to our form 8K and press release in the investor section of our website. Now I will turn the call over to Jeff for his opening remarks. Jeff? Thank you, Jim.

In the first quarter, we had all-time record sales of almost $2.7 billion. an increase of 17% as reported or 9% on a constant basis with adjusted operating income of $329 million, our highest ever first quarter EPS of $3.49. Our business continued to strengthen in the first quarter and did not reflect the industry's normal seasonality. Around the world, consumers are continuing to invest in their homes and new flooring plays a major role in most remodeling projects. We're also starting to see Moderate improvement in commercial demand as global economies expand and businesses begin to invest in an anticipation of a return to normal. In most countries, construction is considered an essential business, so our sales have been less impacted by government restrictions. Those specific regions have interrupted our customers' businesses. Our flooring rest of the world segment continues to outperform with strong residential sales of our flooring, improved mix from our premium products, and less exposure to commercial channels. The segment benefited from lower marketing expenses, product mix, and increased days, which resulted in a greater margin in the first quarter. Other segments also performed well with strong growth in residential products and expanding operating margins, while their results were impacted by low commercial sales and severe storms in the United States. Market demand strengthened as the period progressed, and our order backlog remains robust going into the second quarter. Most of our businesses are running at high production rates, though inventories remain lower than we would like. Our production and operating costs were impacted in the period by supply limitations in many of our markets, as well as absenteeism, new employee training, and severe winter weather in the United States. Our margins have benefited from stronger consumer demand, our restructuring and productivity actions, and leverage on SG&A costs. We've increased prices in most product categories and geographies, reflecting inflation in raw materials, labor, energy, and transportation. Global transportation capacity has been limited, increasing our costs and delaying receipt of our imported products. We've seen similar constraints on local shipments and are increasing our freight rates to respond. The investments we made in our U.S. trucking fleet and local delivery systems have enabled us to provide our customers with more consistent service while improving our efficiencies. Even with COVID surges in some markets, we anticipate continued strengthening of economies around the world. Government actions and monetary policies are stimulating higher economic growth rates and stronger housing markets, and vaccination programs should reduce the risk of COVID-related disruptions. Recent U.S. stimulus actions as well as proposed infrastructure spending should further expand economic growth and employment levels. Though government investments are lower than in the U.S., other countries are beginning to see their economies expand, which should support ongoing demand in our product categories. We continue to implement our restructuring plans, which have achieved $75 million of our anticipated $100 to $110 million in savings. The balance of the savings will be spread over the next three quarters as specific projects are completed. In the first quarter, we purchased 123 million of our stock at an average price of $179 for a total of $686 million since we initiated our purchasing program. Our balance sheet remains strong with net debt less short-term investments of $1.3 billion. Our leverage is now below one-time adjusted EBITDA. Given our higher sales and operating levels, we are reviewing additional investment opportunities to expand our business and capacity.