Mohawk Industries, Inc.

Good morning, everyone. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to Mohawk Industries' third quarter 2023 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 on your telephone keypads. To withdraw your questions, you may press star and two. Should anyone need assistance during the conference, you can signal an operator by pressing star and zero. As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, October 27th, 2023. Thank you. I would now like to introduce Mr. James Brunk. Mr. Brunk, you may begin your conference.

Thank you, Jamie. Good morning, everyone. Welcome to Mohawk Industries' quarterly investor conference call. Joining me on today's call are Jeff Lohrbaum, Chairman and Chief Executive Officer, and Chris Wellborn, President and Chief Operating Officer. Today, we'll update you on the company's third quarter performance and provide guidance for the fourth quarter of 2023. 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.

Thanks, Jim. In the third quarter, our net sales were $2.8 billion, down approximately 5.2% as reported, or 8.1% on a constant and legacy basis, in line with our expectations as our industry faced continued pressures across all regions, primarily due to constrained residential investments and tightening of consumer discretionary spending. Our adjusted EPS for the quarter was $2.72, with our margins across the business benefiting from cost reductions productivity initiatives, and lower input costs. Our third quarter performance was seasonally impacted by vacations in Europe, which reduced our sales and earnings versus the prior quarter. Our lower material and energy costs offset the decline in both price and mix. We also faced FX headwinds of approximately $20 million on operating income, or 25 cents on EPS. We are managing our working capital and generated strong free cash flow of $385 million in the quarter and $660 million on the year-to-date basis. During the quarter, central banks around the world continue to raise interest rates to slow down their economies and reduce inflation. Their actions are affecting new construction and remodeling in both residential and commercial channels, postponing spending on new projects. In the U.S., Mortgage rates have climbed to their highest level in more than two decades, which has suppressed the housing market and limited home renovation activity. In Europe, consumers are deferring large purchases such as flooring as a result of higher energy costs, inflation, and uncertainty due to the war in Ukraine. Our industry faces a greater impact from these pressures than other sectors, given that most flooring purchases are deferrable. With the high fixed costs required to produce flooring, competition increases as the industry slows, and participants attempt to increase their sales to maximize absorption. As a result, our average selling prices and mix have declined, with the impact partially offset by lower material and energy costs, restructuring benefits, and process improvements. The expected housing sector recovery continues to be postponed, and we are managing the business to optimize our results and cash flow until it occurs. We're taking actions to increase our volumes while managing margins and operating expenses. We've launched differentiated collections, selectively introduced promotions, and expanded our participation in the new construction channel. To further enhance our competitive position, we will shut down older ceramic production in Italy, and we are converting U.S. rigid LVT production to a direct extrusion process. These restructuring initiatives will result in a non-recurring charge of approximately $55 million, of which $50 million is non-cash. When completed, these initiatives should improve our profitability by $30 million annually by enhancing our productivity, lowering our manufacturing costs, and optimizing our production flexibility. Our European expansions in insulation and porcelain slabs are currently in operation. Our U.S. premium laminate and LVT projects are continuing to start up. Expanded production in European laminate and U.S. quartz countertops should begin in the second half of 24. As the integration of our acquisitions in Mexico and Brazil proceeds, we have consolidated the general management, sales, and administrative functions while enhancing the company's product offering, operational efficiencies, and customer base. While the Mexican and Brazilian markets are experiencing reduced demand and margins, we anticipate gaining additional benefits from our acquisitions as these markets recover. In September, we released our 14th Annual Sustainability Report, and for the first time, we provided Scope 3 emissions. Institutional Shareholder Services has ranked Mohawk as one of the top companies for environmental quality in the durable goods and apparel category. We have significantly exceeded our 25 goals related to decarbonization, waste reduction, and water conservation. We're lowering our carbon footprint by using more recycled content, increasing our green energy production, and expanding our product circularity. We recently received the Susan G. Komen Promise Award for our two decades of partnership in the fight against breast cancer. We've also formalized a board of directors selection policy as part of our ongoing commitment to diversity. To learn more, you can read the report online at mohawksustainability.com. I'll turn the call over to Jim for a view of our third quarter financial performance.