Jeff Lorberbaum: The restructuring initiatives we have done, we are still in a 75%, 80% range. It should – it also depends which period and quarter you are in. So, as you go through the year, though, I think it’s going to – it should move up. And the question really is, when does the market get back and really change the dynamics. We tend to try to flatten our production out over the year to even it out to level it out as best we can. We haven’t done anything that’s going to dramatically change it the capacity utilization without the marketplace improvement.
James Brunk: And as we said on CapEx, really, our focus is more on the cost reduction and product innovation as we just complete the growth investments that we had talked about before.
Laura Champine: I know that it flexes back and forth, but do you find yourself becoming more or less vertically integrated, meaning are you extruding your own yarn? Are you doing less so with this cost inflation that you are seeing?
Chris Wellborn: It hasn’t changed.
Laura Champine: Okay. Thank you.
Chris Wellborn: Thank you.
Operator: Our next question comes from Stephen Kim from Evercore. Please go ahead with your question.
Stephen Kim: Yes. Thanks very much guys. Earlier in the call, I think you talked about the fact that you are obviously targeting to get to a 10% operating margin and then look to take it further. But that 10% number just kind of was – I just wanted to explore that a little bit. I was curious what kind of volume growth do you think is needed to reach that target on an annualized basis relative to kind of like where we are from where we are here? Is it – we are talking about getting like maybe 10% kind of volume growth from here, or just to kind of get some order of magnitude in your estimation?
Jeff Lorberbaum: I am not sure I have the number to give you. We have our models out for the next 3 years and we see ourselves reaching that with the different models we have done, and I don’t recall the volume changes that are built into it. The timing, like you know, it’s impossible to define the moment in time it changes, we think we are going to see some of it this fall, and we should see significantly more next year as we come out of this.
Chris Wellborn: And Stephen, given how underutilized we are, as that volume moves up, we get a substantial benefit as it moves.
Stephen Kim: Yes. I mean clearly, I mean that’s the one thing, obviously, that’s outside of your control. I mean it sounds like you are doing everything you can certainly on the cost side and even on the product side. But at the end of the day, that’s the part that the market is going to determine for you. And so – but it sounds like you are looking for something fairly material. I mean it’s not like I mean I threw a 10% type growth number out there that I didn’t think that, that was unreasonable. Is that kind of in the ballpark of the kind of expansion off the bottom that you would see at a minimum?
James Brunk: Yes. Stephen, the numbers that you are talking about are not unusual as you come out of a downturn, even if you go back to the last one, that first year, you get in kind of accelerated pop in the sales as remodeling starts to come back, new home construction is stronger. So, it’s not unusual to get a multiyear benefit from the rebound before you get more back into a normal growth, which in Flooring could be GDP plus type numbers.
Stephen Kim: Yes, exactly. Okay. Well, that will be fun to watch. Second question relates to Flooring Rest of World. Specifically, I am looking at the margins there. And in each of the past 3 years, your margins have declined from the first quarter, which was the highest actually to the second quarter to the third quarter to the fourth quarter, it was actually kind of a steady decline. And then going even further back, typically, the margins are stronger in the – certainly in the front half than they are in the back half. Just wondering, are there any structural factors that you can call out maybe the vacations as part of that. And is there any reason to think that 2024 would track differently from that recent trend where we have seen just sequential declines in margins?
Jeff Lorberbaum: Listen, in Europe, you are correct. When you come out of the – you tend to ship a little more going into the third quarter because of the vacations, both us and our customers, the vacations last two weeks, three weeks, which in many cases, we shutdown the entire factories then you hit the fourth quarter, which you have the Christmas vacations in addition to which, so both of those things caused the second quarter to be a peak.
Stephen Kim: Got it. Alright. Thanks very much guys. Appreciate it.
Operator: Our next question comes from Sam Reid from Wells Fargo. Please go ahead with your question.
Sam Reid: Awesome. Thanks so much, guys. I wanted to dig a bit deeper on pricing, particularly in the U.S., but perhaps ask it from a slightly different vantage point. So, can you walk through some of the differences that you might be seeing by channel. So, for instance, are there any deviations in price dynamics that you have been seeing more recently, say, between the independent retailers versus the home centers?
Jeff Lorberbaum: In general, the retail business is under a lot of pressure. You have the home centers that in general, have a lower income level buying on average from our specialty retailers. So, they have been impacted more than the other channel at this point.
Chris Wellborn: And I would say, overall, like particularly in ceramic, the one that’s been off the most has been the remodeling, which not only affects the home centers like Jeff said, but it’s also one of our higher margin businesses that’s been under pressure.
Sam Reid: No, that makes sense. And then maybe switching gears, just quickly talking tile here, your delta business had a pretty impressive display at the kitchen and bath show this year, I was impressed by it and that was in Vegas, obviously. I wanted to see though, any wins that you have gotten from that event or kind of any feedback? Just sort of curious kind of what the outcome was there. Thanks.
Chris Wellborn: I think we had a really good show. And if you just talk about U.S. ceramic, the new construction and commercial improved as we expanded our distribution. Our price and mix have been negatively impacted, but we have done a lot on new innovative and higher margin products that are gaining traction and partially offsetting these price declines. So, there has been a lot of work in our ceramic business in the U.S., particularly to improve our product mix, and I think it’s paid off. And we have taken some market share from the high-end Europeans with a cost higher and we have also been able to expand in some of the builder channels as our service levels were better than the imported products coming in.
Sam Reid: Absolutely guys, helpful and thanks so much.
Operator: Our next question comes from Eric Bosshard from Cleveland Research. Please go ahead with your question.
Eric Bosshard: Yes. Two things, if I could. First of all, what was better than expected in the quarter? I think the earnings were a little bit better and even the 2Q guy is a little bit better than consensus. I know that’s not your number. But what’s better than expected?
Jeff Lorberbaum: So, the first quarter results were better because we had greater benefits from restructuring and productivity. We had declines in input costs that you went through a minute ago, offset the lower pricing and mix. The weaker sales did result in more unabsorbed overhead, which we had expected. Floor North America improved the most, but it had the most easier comps from the group. And then the rest of the world piece we keep reviewing that the panel business really did the margin step change from last year and it has the industry volume declined. And anything else you want to add, Jim?
James Brunk: No. The commercial channel, again, keeps outperforming residential at this point. But as Jeff said, probably the biggest gains for the quarter were around the productivity that the segments threw out.
Eric Bosshard: Okay. And then secondly, the optimism going into the second half, what are you seeing in the business now? You talked about North America price mix, I guess eroding a bit incrementally into 2Q. What are you seeing within your business now, the results March or even April that is improving and kind of informs that second half optimism?
Jeff Lorberbaum: And we are seeing the normal seasonality improvements through the first quarter and going into the second quarter that we would expect. And we don’t have any definitive information that you don’t have.
James Brunk: Yes. And we will continue to watch certain signs. We look at indicators like consumer confidence. Obviously, we have talked about interest rates, but also discretionary spending and continued monitoring the housing starts as well as new build has been stronger through this cycle along with commercial. Most people are anticipating the remodeling business coming off the bottom. It’s been so low with people postponing it, and we are assuming we are going to see some benefits from that also. So, we anticipate volumes really across the business to start to pick up at least in the low-single digit area.
Jeff Lorberbaum: One other thing, last year, we reduced inventory substantially. We don’t have to do that again.
Eric Bosshard: Thank you.
