Mohawk Industries (MHK) Q1 2023 Earnings Call Transcript

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Mohawk Industries, Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to James Brunk. Please go ahead.

James Brunk

Thank you, Dave. Good morning, everyone. Welcome to Mohawk Industries' quarterly investor call. Joining me on today's call are Jeff Lorberbaum, Chairman, Chief Executive Officer; and Chris Wellborn, President and Chief Operating Officer. Today, we'll update you on the company's first quarter performance and provide guidance for the second 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 a discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release in the Investors section of our website.

I'll now turn the call over to Jeff for opening comments.

Jeffrey Lorberbaum

Thanks, Jim. For the first quarter of 2023, Mohawk's net sales were $2.8 billion, down approximately 6.9% as reported or 5.9% on a constant basis, and our adjusted EPS for the quarter was $1.75. All of our businesses are adapting our strategies to a more challenging environment. We're managing our costs while investing for both short- and long-term growth. We exceeded our earnings expectations with the businesses maintaining higher pricing and mix and Flooring Rest of World outperforming the other segments.

The commercial channel continues to be stronger than residential with home remodeling projects being postponed and new housing construction being impacted by higher mortgage rates. Our balance sheet remains strong, and we generated over $125 million of free cash flow. We strategically invested in new product innovation, enhanced merchandising in 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 remain conservative in their inventory commitments and all of our operations are running at lower utilization levels, creating higher costs from unabsorbed overhead. We see increased competition as industry capacity utilization and input costs decline. In Europe, natural gas prices have dropped dramatically, though they remain at almost double the historical levels. We expect consumer spending to improve as wages rise, inflation slows and energy costs fall.