Mohawk Industries, Inc.

Good morning, everyone. My name is Jamie, and I'll be your conference operator today. At this time, I would like to welcome everyone to Mohawk Industries' third quarter 2022 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 and the number one using a telephone keypad. To withdraw your questions, you may press star and two. Should anyone need assistance at any time during this conference, please press star and then zero, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, October 28, 2022. Thank you. At this time, I'd like to introduce Mr. James Brunk. Mr. Brunk, you may begin your conference.

Thank you, Jamie. Good morning, everyone, and welcome to Mohawk Industries' quarterly investor call. Joining me on today's call are Jeff Lowerbaum, Chairman and Chief Executive Officer, and Chris Walborn, President and Chief Operating Officer. Today we'll update you on the company's third quarter and provide guidance for the fourth quarter. 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 reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8K and press release in the Investor section of our website. I'll now turn the call over to Jeff for his opening remarks. Jeff?

Mark, third quarter sales increased to $2.9 billion up 3.6% as reported, or approximately 8.3% on a constant basis, primarily from price increases and strength in the commercial sector. Our sales in the quarter were weaker than we anticipated as sales in the retail channel softened across all regions and product categories. The strengthening dollar also negatively impacted our translated sales for the quarter by 117 million, or 4.1%. Our operating income declined as lower volume resulted in higher unabsorbed cost and material energy and transportation inflation impacted our results. Our global organization responded to the economic challenges with additional actions to optimize cost, productivity, and inventory levels. There are substantial differences in the economic conditions affecting our various global markets and product categories. Our businesses in Europe have been impacted more than others due to the unprecedented energy crisis and high inflation that has slowed the region's economy. Recently, spot gas prices in Europe have fallen drastically, though future prices have not correspondingly declined. Our costs have continued to rise, and our pricing in Europe has not kept up with recent material and energy inflation, which has compressed our margins. The Italian government provided energy subsidies during the third quarter Additional actions from both the European Union and individual countries are being discussed. The high cost of energy has forced European consumers to concentrate on necessities and defer discretionary purchases. Our sales and margins in the market will remain under pressure until the region overcomes these challenges. These postponed purchases will increase demand when the economy rebounds and enhance our results. The US is being more impacted by higher overall inflation and mortgage rates that have risen from below 3% to approximately 7%. The residential market, which is the most significant part of our business, is expected to decline further before we see an inflection point. Remodeling has slowed, and our product mix has been impacted as consumers trade down to options that better fit their budgets. it is estimated that the U.S. has a housing deficit of 5 million units and more than half of U.S. homes are over 50 years old. Remodeling investments are expected to grow long-term as U.S. housing stock ages and families with low mortgages choose to remain in their homes. Up until this point, our other geographies have been less impacted by inflation and higher interest rates. Our selling prices in those regions are better aligned with our costs and their margins remain strong even with their economy slowing. While we manage through the current conditions, we're also investing in our businesses for the long term. We're expanding our capacity and growing product categories, including LVT, laminate, quartz countertops, and premium ceramic and insulation. These projects should satisfy strengthening demand as our markets recover. We have recently completed a number of smaller acquisitions that will enhance our product offering and leverage our existing market positions. In Europe, these include a sheet vinyl business, a mezzanine flooring company, and a wood veneer plant. In the US, we acquired a nonwoven flooring producer and a flooring accessories company. We're awaiting government approval of our Vitramex acquisition, which combined with our legacy business will make us the number two ceramic producer in Mexico. Our strong balance sheet provides us with additional opportunities to enhance our business. We recently published our 13th Annual Environmental, Social, and Governance Report, which highlights how doing what's right for the people and the planet is also benefiting our business. Our sustainable products excite both residential and commercial customers, and our bottom line is enhanced by increasing recycled content, reducing waste, and lowering our water and energy consumption. Now, Jim will review our third quarter financial performance.