Global flooring manufacturer sees Q1 sales slip

Global flooring manufacturer Mohawk has reported a decline in first quarter sales as it continues to implement restructuring actions, which remain on track.

According to its latest Q1 2023 trading update, sales were down 6.9% to $2.8bn from $3bn. Net earnings resulted at $112m, down from $246m.

Commenting on Mohawk Industries’ first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated: “All of our businesses are adapting our strategies to a more challenging environment. We are managing our costs while investing in both our short and long-term growth. We exceeded our earnings expectations with the business maintaining higher pricing and stronger mix, and Flooring Rest of the World outperforming the other segments. The commercial channel continued to be stronger than residential with home remodelling projects being postponed and new housing construction being impacted by higher mortgage rates. Our balance sheet remains strong, and we generated $129 million of free cash flow in the quarter.

“We strategically invested in new product innovation, enhanced merchandising and customer trade shows to improve sales. We are continuing to reduce costs across the enterprise by enhancing productivity, streamlining processes and controlling administrative expenses. Our customers remained conservative with their inventory commitments, and our operations are running at lower utilization levels, creating higher costs from unabsorbed overhead. In Flooring North America and Flooring Rest of the World, our restructuring actions are on track and should improve the results of our business.

“During the first quarter, our Flooring Rest of the World Segment’s net sales decreased by 9.7% as reported or 5.5% on a constant currency and days basis. The Segment’s operating margin was 9.5% as reported, or 12.6% on an adjusted basis, as a result of favourable pricing and product mix offset by inflation, lower volumes and temporary shutdowns. Our European businesses have been compressed as high energy prices and inflation impacted consumer budgets. Compared to the prior quarter, the Segment’s business improved as we increased promotions to strengthen sales, had fewer shutdowns, lowered costs and expanded product options for more constrained consumer budgets.

“As input costs decline, we expect competitive pressures to increase in the market. Both laminate and LVT volumes were lower in the quarter, and we are controlling our costs and production levels in response. We have begun the conversion of our residential LVT from flexible to rigid and are preparing to restructure the operations. Our sheet vinyl volume increased as consumers sought options to lower remodelling costs. In our new Eastern European sheet vinyl acquisition, we are improving the product offering and enhancing the facility’s production and efficiencies.

“Our panels business has slowed with the market and inventory reductions in the channel. Our margins were higher than anticipated due to stronger pricing, lower input costs and benefits from our biomass energy production. We are making progress on achieving planned synergies in our French panels and German mezzanine flooring acquisitions.

“Our insulation category performed the best in the Segment as energy efficiency has become a greater priority, and our polyurethane products provide the greatest heat resistant properties. We have integrated our insulation acquisition in Ireland and the UK, and our new facility is ramping up production ahead of schedule. In Australia and New Zealand, our results were reduced by higher interest rates and lower volumes. We are selectively introducing promotions to drive sales and have raised prices to offset cost inflation.

“In the first quarter, our Flooring North America Segment sales decreased 11.1%. The Segment had a negative operating margin of 0.2% as reported, or positive 0.5% on an adjusted basis, as a result of favourable pricing and product mix along with productivity gains, offset by inflation, reduced volumes, temporary shutdowns and incremental marketing investments. The Segment has been challenged by significant inflation, higher interest rates and more restrictive lending, which have weakened the housing market and our industry.

“As a result, our customers are more tightly managing their inventory levels, and we are aligning production with demand. Our margins should expand in the second quarter as our input costs improve and plant utilization increases. Our restructuring actions are on track and will lower our cost in the residential and commercial soft surface categories.”

“Our industry is operating in a completely different environment than a year ago. Around the world, central banks are raising interest rates to slow their economies and reduce inflation. These actions lower our industry volume as new home sales and residential remodelling are postponed. The commercial sector has remained stronger than residential, though higher interest rates and tighter lending requirements could affect business investments as the year progresses.

“We are maximizing our sales and distribution by focusing on better performing channels, introducing differentiated products and providing enhanced service and value. We are proactively managing our spending and cost structures to optimize our results. We anticipate that industry volume and pricing will remain under pressure across our markets. We expect seasonal improvement in demand along with reduced energy and material costs to improve our future results. Given these factors, we anticipate our second quarter adjusted EPS to be between $2.56 and $2.66, excluding any restructuring, acquisition and other charges.”

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