Mohawk Industries, Inc.

Good day and welcome to the Mohawk Industries third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to hand the call to James Brunk. Please go ahead.

Thank you, Andrea. 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 Walborn, 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 2024. 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 filing Securities and Exchange Commissions. 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. With that, I'll turn the call over to Jeff. Thanks, Jim.

Good morning, everyone. We delivered a solid third quarter performance in soft market conditions with earnings per share of $2.90, an increase of approximately 7%, which reflects the positive impact of our sales initiatives, productivity and restructuring actions, and lower input costs, partially offset by pricing and mixed pressure. Our net sales for the quarter were $2.7 billion, down approximately 2% compared to last year. Due to our increased earnings and management of working capital, we generated free cash flow of approximately $204 million in the quarter, for a total of approximately $443 million year-to-date. This year, we're investing approximately $450 million in capital projects that are focused on growth, reducing cost, and asset maintenance. In all of our regions, market conditions were slower than anticipated given high interest rates, lingering inflation, and lower consumer confidence. Pricing remained under pressure as industry demand in the third quarter continue to decline through the slowing in both residential and commercial activity. Our sales initiatives delivered volume gains in many product categories offset by pricing pressures and negative mix. Though the commercial channel has lost some momentum as the year progressed, it continued to outperform residential. In our markets, central banks are shifting from a restrictive policy to a more balanced approach to stimulate their economies. which would benefit our industry as consumer and business spending expands. We expect the recent interest rate cuts in US, Europe, and Latin America will strengthen housing markets and increase flooring sales as we progress through next year. In the US, the Fed decreased rates by half a percent in September and appears committed to further rate cuts to reduce restrictions on the economy. In all our markets, residential reconstruction has failed to keep pace with household formations and immigration, and additional units must be built to satisfy growing needs. In the U.S., higher home values have significantly increased equity in homes, which should support increased remodeling projects that were postponed over the past few years. In Europe, some governments have introduced programs to provide financial support for home remodeling to enhance aging housing stock. All of this will support improvements next year in existing home sales, remodeling and and new construction. We remain focused on managing the controllable aspects of our business to enhance our results. With gross margins under pressure from weaker industry demand, all of our businesses are implementing strategies to maximize volume and plant utilization. To increase sales, we're implementing new product launches, marketing initiatives, and promotional activities. We are enhancing productivity and exercising disciplined cost management in all aspects of the business. Our teams are executing the $100 million of restructuring initiatives that we announced last quarter, including idling capacity, rationalizing assets, streamlining distribution, and reducing administrative costs. Our businesses are making additional cost reductions in SG&A, operations, and logistics. These actions will continue throughout next year to achieve our planned savings.