莫霍克工業集團 (MHK) 2013 Q4 法說會逐字稿

Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries fourth-quarter 2014 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, February 21, 2014. I would now like to introduce Frank Boykin, Chief Financial Officer. You may begin.

Thank you. Good morning, everyone and welcome to the Mohawk Industries quarterly investor conference call. We will update you on the Company's progress during the fourth quarter of 2013, review our performance during the last year and provide guidance for the first quarter of 2014.

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. You can refer to our Form 8-K and press release in the investor information section of our website for a reconciliation of any non-GAAP to GAAP amounts. I will now turn the call over to Jeff Lorberbaum, Mohawk's Chairman and Chief Executive Officer. Jeff?

Thank you, Frank. Mohawk is the world's largest flooring manufacturer and 2013 was a pivotal year in the Company's history. We used our strong balance sheet to support a shift from a conservative approach to a more aggressive growth mode. By investing $1.8 billion in acquisitions with significant synergies to our business, we strengthened our US market position and further diversified our exposure to international markets. About 30% of our sales are now generated outside the United States, primarily in Russia and in Europe, which is at a cyclical low.

Our revenue mix also changed significantly with our sales now roughly 40% carpet, 40% ceramic and 20% wood and laminate. Our CapEx was $367 million for 2013, including major investments in carpet, fiber and yarn, ceramic tile capacity and an insulation board plant in Europe, as well as the first phase of a new LVT plant.

In 2014, our capital plan is to invest $500 million more in additional capacity and productivity improvements. These investments will position us for continued growth from pent-up demand for new housing and remodeling in the US, as well as from European improvement and participation in new markets. Today, Mohawk is better positioned for the future than ever before. Each of our businesses have the strongest management ever and all the teams are driving long-term strategies to expand margins, introduce innovative products and improve productivity, quality and service.

2013 was a milestone in our history and reflects how growth through acquisitions have been a core component of the Company's strategy during the past two decades and will continue to be in the future. Since Mohawk went public in 1992 as a niche carpet company, we have successfully integrated almost 30 acquisitions. Our initial focus in carpet and rug acquisitions expanded our production and market share and integrated our fiber, carpet and distribution systems.

Later, we acquired other carpet companies with unique industry positions as bolt-ons to our existing business. Then we used acquisitions to expand into new product categories, including ceramic tile, stone, laminate and wood to become a total flooring provider. Finally, acquisitions provide us with entry into new geographies, including Europe, Russia and Australia.

If you analyze Mohawk's top-line growth over the past 5, 10 or 20 years, you will see a similar impact on sales from acquisitions of about $300 million per year. We have built exceptional knowledge and processes to integrate and run acquisitions that enhances their results. This year illustrates the depth of our acquisition capabilities. We bought three companies in three different product categories with manufacturing in seven different countries and improved them all while still improving our current operations. We are aggressively integrating our recent acquisitions that will continue to evaluate additional business opportunities in the future. We believe that the potential acquisitions that exist in the US and around the world will continue to provide growth opportunities for Mohawk.

Our fourth-quarter results were better than projected, primarily due to higher sales growth in our US ceramic business, a stronger performance from our Pergo acquisition and lower interest expense through an upgrade in our credit rating. For the period, our earnings per share were $1.29 as reported or $1.79 excluding unusual charges, an increase of 77% over adjusted fourth-quarter 2012 results and our sales increased about 34% in the period.

For the full year, we delivered earnings per share of $4.82 as reported, or $6.55 excluding unusual charges, which was a 73% increase over adjusted 2012 results. Sales for the year reached $7.3 billion, a 27% increase over 2012. The strength of our enterprise was recognized during the period with the inclusion of Mohawk in the S&P 500.

During the year, we significantly improved our profitability of our carpet business with adjusted operating income rising 32% over 2012 and margins increasing 170 basis points. Ceramic tile is now the fastest-growing flooring category and for the year, our ceramic sales increased by 66% over 2012. We are the largest participant in the 120 billion square foot global ceramic market with leading positions in the US, Russia, Italy, France and Spain. We only have 2% of the global ceramic market. We see significant opportunities to expand our position.

Our laminate and wood business was up more than 33%, primarily from acquisition and significant growth in the US market. For the year, our overall adjusted operating margins increased to almost 12%, improving 240 basis points over the prior year from improved product mix, productivity enhancements and focused SG&A management. We are well-positioned for both revenue and earnings growth in 2014.

In the US, our future optimism is supported by a number of leading indicators that anticipate continued improvement in new construction and remodeling. The National Association of Homebuilders projects a 31% rise in new family homes in 2014 with total new home construction increasing to 1.2 million units. The National Association of Realtors reports that existing home sales in 2013 rose 9% to their highest level in six years.

In January, the NAHB reported its remodeling index was at the highest level in 10 years. The improvement in remodeling is being driven by an improving economy, higher housing prices, as well as growing sales of existing homes. The Association of Builders and Contractors also projects nonresidential construction will grow in the mid to high single digits in 2014 with healthcare and hospitality being the strongest categories.

In our other markets, the Mexican construction industry is projecting 5.5% growth supported by the Mexican government's budget increasing by almost 10%. The Russian economy's rapid growth has slowed, but significant long-term opportunities remain from years of underinvestment in Russia's housing infrastructure. Some indicators suggest that the economic recovery in the euro zone is gradually strengthening, reinforced by an increased commitment of the European Central Bank to improve growth. There should be considerable pent-up demand in both residential and commercial flooring as the European recovery progresses.

During the quarter, our carpet segment revenues increased 3% compared to the prior year, primarily through a strong performance in our ultra-soft residential products and the expansion of our polyester productline. During the period, adjusted operating margins grew 160 basis points to almost 9% as a result of increased volumes, productivity gains, cost reduction and improved mix. During the economic downturn, we invested significant resources to reposition our carpet business around growing product categories and to reduce our cost structures.

Today, we are the leader in premium fiber categories, including our exclusive SmartStrand offering, as well as our Wear-Dated soft nylon and Continuum polyester collections. Polyester is the fastest-growing carpet fiber and we are revolutionizing the category with our proprietary Continuum technology that creates higher bulk for greater value and extends our industry-leading environmental position without up to 100% recycled content all at competitive prices.

SG&A was improved through cost reductions implemented throughout the past year. The segment's SG&A was lower in total dollars as a percentage -- and as a percentage of sales than last year and we will continue to control costs throughout 2014.

In residential, our premium ultra-soft carpets increased as a percentage of our total sales. During the quarter, our polyester shipments grew substantially as our expanded productline gained traction across all channels. We anticipate continued growth in this category throughout 2014 at all price points. Our national and regional shows introduce retailers to our Continuum polyester collection, generating significant orders for both product and retail displays. We are improving results with the specialization of our residential sales organization into separate teams focused on retailers and new home and multifamily contractors. We are continuing to leverage our customer relationship management platform to drive sales opportunities and improve customer service.

In commercial, our margins expanded as we transitioned to Mohawk manufactured performance fibers, which offer enhanced value position to our customers. We are launching a new commercial broadloom and tile program in the retail channel to expand our mainstreet business. Also, our new Renegade carpet tile collection with unsurpassed versatility and integrated color line and a new commercial LVT program to capitalize on this expanding category. Our commercial corporate sales team continues to collaborate with our ceramic sales team to drive growth in specific commercial products.

Productivity gains are positively impacting our margins. We lowered cost through reduced changeover costs and waste, enhanced manufacturing alignment, quality improvements and material optimization. Our investments in fiber and yarn technology have enhanced our position as the leading innovator in the carpet industry and improved our cost position. We have improved both our customers' experience and our response times during the year. Distribution costs have been reduced with higher fleet utilization and greater productivity from enhanced systems and processes. We implemented a freight increase in February to offset increasing transportation expenses.

Our ceramic segment revenues were up 84% compared to the prior year through strong growth in our legacy business and the impact of the Marazzi acquisition. During the period, adjusted operating margins grew 320 basis points to 10% as a result of higher volumes, efficiency gains and improved mix. Ceramic tile growth is outpacing the US flooring industry and we anticipate that this will continue in 2014.

The consolidated Dal-Tile American Olean and Marazzi business has strengthened our position in the US ceramic market. In the US, we have substantially completed the integration of Dal-Tile and Marazzi. During 2014, we are reorganizing our ceramic manufacturing by product type, which will improve our asset utilization, cost and inventory turns. The realignment of our Marazzi and American Olean brands will improve our total residential offering, as well as expand the scope of our commercial line. Opening combined American Olean and Marazzi service centers will increase our distribution in areas where we are not supported by independent distributors. We are finding additional synergies, enhancing style and design and leveraging technology across the business.

This year, we will integrate the information systems to provide greater flexibility, improve efficiencies and enhance service. Efficiencies gained through distribution and plant utilization in the US will further expand our margins. Marazzi has also strengthened our home center and independent distributor positions and our collective product development capabilities have yielded greater innovations in design and performance. We continue to expand our position in popular ceramic wood planks for both residential and commercial applications with lengths up to four feet long. Our collections capture the natural beauty and texture of wood and are perfect for areas where moisture or scratching prevent the use of wood.

Our Mexican business is increasing distribution and enhancing product mix and improving margins. We are offering an expanded product offering across all price points and focusing on maximizing our distribution in the country's central region. In Russia, the economy has slowed and is expected to grow only 1%. We anticipate increasing our share, but new investments will result in an operating income being about flat on a local basis. We have the number one position in the mid to high-end products supported by our extensive distribution and unique franchise retail shops. We anticipate opening about 10% more Marazzi franchise stores this year while strengthening the awareness of our brand through greater consumer advertising.

Our innovative product collections create a competitive advantage of style leader in the marketplace. To grow our market share in the current environment, we are expanding our participation in new construction and home center channels with unique products and specialized sales organizations. We are implementing best practices to drive manufacturing and logistic efficiencies, improve product lifecycle management and reduce the costs of our materials and operations.

The restructuring of our European ceramic business is well underway. We have reduced our cost structure, executed a geographic realignment of our salesforces, upgraded our product offering and reduced complexity. This year, we are upgrading manufacturing technologies to provide higher styled, larger size ceramic products that will improve both our mix and our product margins. We have reduced our SG&A costs through improving efficiencies of our sales and administrative functions. We are expanding sales outside southern Europe in markets that offer greater growth opportunities.

In January, we exited the European sanitary ware ceramic business so we can focus on our core flooring business. We are leveraging the assets of our global ceramic business by shipping unique commercial products and high-end wood plank from Europe to the United States.

During the period, sales in our laminate and wood segment rose 41% over the prior year with most of that increase from growth in the US and acquisitions of Pergo and Spano. Operating margins, excluding one-time charges, were almost 12%, up 260 basis points over the prior year, due to lower SG&A, higher volume in North America and reduced amortization. We have fully integrated the manufacturing and administrative organizations of Pergo and Unilin, which positively impacted SG&A costs and operational efficiency.

In the US, we have expanded our MDF board production to support our increased laminate sales. Additional investments in 2014 will expand our MDF capacity further. We are also investing in additional equipment to meet the growth of specific laminate products. In the first quarter, we launched a natural wood collection under our Quick-Step brand that combines sophisticated styling, low maintenance and our patented installation system. Our new wood by Quick-Step features a new enhanced finish that shields against stains and wear while illuminating the beauty of the natural wood grain. Our wood business is growing significantly along with new home sales and is positively contributing to our results. US wood costs continue to rise and we announced a price increase for implementation in March.

Sales in our legacy European business were about flat with the prior year on a local basis. Laminate flooring was down slightly offset by growth in wood and luxury vinyl tile. We have completed the closings of the Pergo manufacturing facilities in Sweden and we are now manufacturing all Pergo-branded requirement in Belgium using our existing laminate production. We are presently introducing an updated Pergo laminate offering with industry-leading design and performance features, as well as an improved installation system. The European Pergo product transition will take about six months to fully execute and should enhance our sales and market position.

To expand the Pergo brand in Europe further, we are introducing a high-performance Pergo commercial laminate collection and an innovative Pergo wood collection. Outside Scandinavia, we are selectively using the Pergo brand to enhance our laminate distribution and the retail channel. In Europe, we are implementing continued cost reductions as we enhance the combined Unilin and Pergo businesses. Construction of a new LVT plant in Europe is underway and will commence production by the end of the year. We are actively increasing LVT sales in both Europe and the US to support this facility. Our technical design and installation expertise in laminate is applicable to LVT and we anticipate leveraging our strengths to develop a leading position in this fast-growing category.

In January, we signed an agreement to purchase a small wood flooring manufacturer in the Czech Republic, which will further expand our niche European wood business. Our Malaysian wood manufacturing has been running at capacity and we can now expand our sales in Asia and Australia. The installation business in Europe continues to grow at significant rates. Our new manufacturing facility in France has begun operations in the fourth quarter expanding our geographic reach into new markets. Our board and roof panel business remains under pressure due to slow European new construction and remodeling. We are introducing value-added products, reducing our cost structures and implementing price increases to improve our results.

We closed the Spano manufacturing facility during the fourth quarter and moved the production into other operation. We have combined all of the Spano and Unilin sales, marketing, customer service and other administrative functions. We anticipate integrating the systems by mid-year, which will facilitate additional improvements. Wood costs in Europe continue to escalate and we have announced price increases in many of our productlines to cover the costs.

We are committed to sustainable manufacturing and so far, 14 of our facilities have achieved our goal of zero landfill level by eliminating or recycling the waste stream. We are expanding this program across the business reducing our cost and doing the right things for our communities. We also continue to prove our talent, the talent of our organization in all areas. Earlier this month, Training Magazine ranked Mohawk one of the top five companies in their annual list of leaders in training and developing. We are the only manufacturing company ranked in the top 10 for the fourth time. I will now turn the call over to Frank to review our financial performance.

Thank you, Jeff. Net sales for the quarter were $1.924 billion, which represents an increase of 34%. 28% of the growth came from our three acquisitions that were completed in the first half of 2013. Our legacy business during the quarter grew over 6% as US residential showed strong growth with commercial remaining positive and Europe flat. Our gross profit margin as reported was 26.7%. Excluding restructuring, the margin was 27.5%, up 140 basis points with higher volumes, better mix and productivity improvements driving profitability.

SG&A was $362 million, or 18.8% of sales. Excluding restructuring, SG&A was 17.8% of sales. This is a 120 basis point improvement over last year. In our legacy business, our full-year SG&A dollars were actually down compared to last year as we continue to exercise strong control over spending. Restructuring that was included in operating income was $36 million. This includes $6 million, another $17 million and then $13 million in the carpet, ceramic and laminate segments respectively. We are currently estimating $30 million in additional restructuring charges in 2014 as we continue to integrate our acquisitions.

Operating income, excluding charges, was $187 million with a margin of 9.7%. The margin grew 260 basis points as a result of volume and mix improvement plus good cost control. Interest expense was $22 million. Additional debt of $1.2 billion to finance the acquisitions increased interest expense over last year, which was partially offset by a $1 million retroactive interest rate stepdown after Moody's upgraded us to investment grade in the fourth quarter of last year.

S&P upgraded us to investment grade earlier in the year. With these upgrades, we are currently exploring opportunities to participate in the commercial paper market, which will further reduce our interest rates. We are estimating interest in 2014 of about $86 million. Our income tax rate for the quarter was 20% and we are estimating for 2014 full year the rate to be 22%. However, we are estimating the first-quarter 2014 rate to be 24%.

In loss from discontinued operations in the quarter, we had $16 million that was incurred from the sale of our Italian sanitary ware business, which was completed in the first quarter of 2014. EPS, excluding charges in discontinued ops, was $1.79 per share, up 77% from last year.

If we move to the segments, in our carpet segment, sales were $747 million, an increase of 3% over last year as higher volumes drove carpet sales for the quarter. Operating income, excluding charges, was $66 million with a margin of 8.8%. That is up 160 basis points as our carpet business continues to improve.

In the ceramic segment, sales were $738 million, up 84% over last year. This was primarily from the Marazzi acquisition; however, our legacy business grew 12% as both the US and Mexico continue to grow over last year. Operating income, excluding charges in this segment, were $74 million with a 10% margin, up 320 basis points with both volume and the Marazzi acquisition benefiting our margin.

In the laminate and wood segment, sales were $466 million, up 41% over last year, with most of the growth coming from the two acquisitions. Our legacy business was up 7% as reported or 3% on a constant exchange rate basis with the US business up and Europe flat on a constant exchange rate. Operating income, excluding charges, was $54 million, or a margin of 11.6%, up 260 basis points with improvements from US volumes and productivity gains driving this increase.

In the corporate segment, our operating income loss was $7 million. Next year, we are estimating a full year of operating loss in this segment of $25 million to $30 million, which is in line with this year.

If we jump to the balance sheet, in receivables, we ended up with $1.063 billion. This includes $343 million from acquisitions that was not included in last year's numbers. Our DSOs, days sales outstanding, ended up at 50 days compare to 47 days last year as we unwound our off-balance sheet securitization financing facility in the Marazzi European business so that we could reduce our cost. Inventories were $1.572 billion. This includes $341 million from acquisitions. Inventory days were 112 days, up due to the acquisitions and we are continuing to focus on improvement in this area.

Our fixed assets ended the quarter at $2.702 billion. This includes capital expenditures of $111 million during the quarter with depreciation and amortization of $86 million. We are estimating capital expenditures next year 2014 of $500 million with over 70% of what is committed for capacity expansion as our US economy continues to expand and we assimilate the acquisitions. The largest part of this spend in 2014 will be in the ceramic segment followed by carpet. And a significant portion of this will take over a year to fully execute. In 2014, we are estimating our depreciation and amortization to be $350 million.

If we look at long-term debt, free cash flow for the quarter was $87 million resulting in debt at the end of the quarter of $2.3 billion. Our leverage improved to 2.1 times debt to EBITDA and we are expecting our ratio to improve to 1.7 times by the end of the fourth quarter of this year.

So I'd like to make one final comment about our first-quarter EPS guidance of $1.13 to $1.19. Similar to last year, the consensus modeled seasonality incorrectly. This is not unusual given all the moving parts with our three acquisitions. It can be difficult to model our quarterly results. We gave our view of 2014 based on the historical trend of the first quarter relative to the full year. The 2014 annual consensus of $8.24, which is 26% about last year, is within our implied range. The sequential change from the fourth quarter of 2013 to the first quarter of 2014 will be impacted by a higher tax rate in 2014, as I mentioned earlier. However, nothing has changed versus our expectations for the quarter or for the year. Jeff, I will turn it back over to you.

Thank you, Frank. Through investments in acquisitions and capital expenditures, productivity improvements and product innovation, we have positioned Mohawk for growth and improved profitability in all segments during 2014. We made excellent progress with integrating our acquisitions to maximize their market positions and improve their cost structures. At this point, we believe the US market, which is 70% of our business, represents our greatest opportunity.

In Europe, we continue to lower our cost structure, enhance our productivity and improve our product offerings to position us for future growth as the industry improves from a cyclical bottom. In the US, we are the largest flooring provider with leading brands and more than 40% of the nation's ceramic and laminate markets and significant shares of the carpet, wood, stone, rug and carpet underlay markets. This year, the US economy is projected to grow at a pace on par with pre-recession levels and the flooring industry is expected to outpace GDP growth.

We are well-positioned to improve our results as new construction and remodeling expand in both residential and commercial categories. This year, we anticipate growing both our sales and margins in our legacy business and recent acquisitions. We continue to assess additional acquisition opportunities in flooring products around the world to further expand our business.

With these factors, our guidance for the first-quarter earnings is $1.13 to $1.19 per share, excluding any restructuring charges. Our first-quarter results are seasonally our lowest. In the past four years, it represented 1/7 of our total annual earnings. While the weather in the first half of this quarter has impacted the timing of some of our US shipments and orders, our first-quarter results are anticipated to be in line with normal seasonal patterns. We anticipate orders improving and our backlog declining limiting the impact on the quarter. We are optimistic about the future of the flooring industry and our participation in it. This year, we anticipate increasing capital investments in our businesses to support additional growth, expand our product offering and reduce costs. We will continue driving all aspects of our business to improve profits and increase shareholder value. We will now be glad to take your questions.

(Operator Instructions). Dennis McGill.

I guess the first question, and I'm not sure if this is for Jeff or Frank, but as you look across your domestic portfolio, all the different flooring options you have, and you think about some of the categories that maybe have secular challenges and other secular headwinds or tailwinds, do you think, as you look forward, that you would grow on par with overall square footage growth for the flooring category or would you be plus or minus that?

Our objective in all the businesses is to outperform the marketplace and we think we are positioned to do that in our categories.

Yes, I understand the market share within a category, but as you piece together all those categories, is your expectation that that would be better than market growth for flooring as a whole?

Yes.

Okay. And then, Frank, as far as the 1Q guidance, not knowing where the revenue and margin pieces shake out, it seems to imply that the year-over-year margin improvement would be lowest in the first quarter and improves through the year. Is that the right message as we model it out?

Well, I will say, Dennis, that it will improve year-over-year in each of the four quarters as we move through the year. But I am not prepared to address the margin improvement Q1 versus margin improvement in the other quarters, but it will be up in Q1 versus a year ago.

Okay, all right. I will get back in queue. Thanks, guys.

Eli Hackel, Goldman Sachs.

Thanks, good morning. Can you just talk a little bit more about the Continuum? What percentage of your carpet sales does that make up now? Where do you think it could go and I don't know if you are prepared to address maybe the margin differential between that product and your overall carpet margins?

Well, to start off, polyester is a growing part of the residential carpet business. The estimate is that polyester today in the industry represents somewhere around 50% of the residential carpet to begin with. We believe that we have a unique position with our Continuum technology. We have patented -- it's a group of different things between our recycling technology and our extrusion technology that gives us an advantage. The result of which creates a product that has higher value with more bulk. It gives us the opportunity to market products with up to 100% recycled content and we have lagged behind the industry in our participation in polyester and in the fall, we started introducing products -- we will introduce 40 new products between the fall and now. So we have a broad product offering in all price points to maximize our sales in this category.

Okay, thanks. And then just one on M&A. I don't know if I am reading too much into something, but you seem to -- you had an additional line in the release about looking at flooring opportunities, spent some time in the prepared remarks looking at M&A. Has anything changed there? Are you closer to any other deals or is that just sort of the standard view that you look to continually do deals in the space?

I think the point we are trying to get across is that we made three acquisitions of significance. We are one-on-one with what we are doing. Our capital structure is improving significantly and as always, we are open and looking at all areas that we can find synergies in.

Okay, thank you very much.

Keith Hughes, SunTrust.

Yes, two questions. Back to the polyester carpet. How well -- by the end of the year, how well rolled out is that new initiative and when do you think you will start hitting your run rate on that in terms of sales?

We started in the third quarter introducing stuff. We have been introducing them since then and to get all the products in the marketplace by the end of the first quarter, sometime in mid-second quarter, we will have them all out in the marketplace as we do with all new products. I mean they are well into the market.

Okay. And on the $500 million of CapEx this year, you mentioned ceramic and carpet as being the expansion -- expanding capacity for those from that money. Can you give some examples of where you are spending that within those two segments?

We are continuing -- in the carpet side, most of it is continued investment to support the growing polyester business with large investments in the Continuum processes and to keep expanding those. On the ceramic side, there is additional equipment going into expand our present facility. There is a future investment that we are planning in ceramic that takes us about two years to get the plant up and it could take another year to get the plant up to full capacity as it starts up. So there is a plan in addition for another potential site that hasn't been finalized yet to start.

We are spending in the ceramic side both in the US and in Europe. In Europe, we are upgrading several of their manufacturing plants that they've got over there.

And should be in place by the third quarter I guess.

Final question, on the first-quarter guidance, I know you don't usually talk about revenues, but I know probably been a tough start to the year, does your guidance assume that we see some revenue growth in the quarter or can you directionally help us there?

Yes, there is revenue growth in the quarter, Keith.

Okay, thank you.

Kathryn Thompson, Thompson Research Group.

Hi, thanks for taking my questions today. The first is on pricing specifically and your carpet segment. At this time last year, there had already been an announced price increase in the market and we don't currently have one at least in the US. Will there be a soft flooring price increase this year and digging a little bit further, could you distinguish by category? Would you make a differentiation between say your ultra-soft versus your polyester lines? Thank you.

Historically, the carpet industry increases prices as the raw materials change. The reason there hasn't been any announcement is there hasn't been a significant change in the raw material forcing the industry to change prices to recover the cost. So at this moment, we don't have any. If the circumstances change that require it, we will announce the price increase and pass it through to the customer.

Tiding along that was rising cost, a lot of focus on rising natural gas and also energy derivatives. How much have rising natural gas and other energy derivatives impacted your overall cost structure really in all segments, but particularly in the US and where do you see that as we progress through the year?

The costs will go up proportionate with the prices. We don't hedge our natural gas. We buy it at the current prices. We have built into all our estimates in the future an estimate of what happens in the marketplaces. The biggest -- our ceramic business has probably a higher portion of energy cost in it per unit and if the costs go up significantly enough, we will have to change the pricing structures.

Great. Finally on nonres demand, you talked about growth mid to high single digits, is this driven by new construction or remodel?

Did you say nonresidential, Kathryn?

Yes, I did.

Is nonresidential supported by new growth or remodel? Most of it is coming from remodel right now.

Great. Thank you so much.

David Goldberg, UBS.

Good morning. Great quarter.

Thank you, good morning.

I wanted to ask a little bit of a theoretical question and kind of following up on the prior question on price, but what I'm trying to understand is do you think in this cycle as we kind of look out at the consumer globally, do you think something has changed maybe in the US or maybe globally in the consumer's ability to absorb price increases just given that there has been a deleveraging cycle, home prices may be not going up as quickly in this cycle? Do you think the consumer is going to be able to absorb price increases the same way as you guys look forward to model the business?

The consumer's ability to absorb price increases -- typically what happens is that as price increases go up, if the consumer can't afford it, they trade down to a lower value product or lower price point. And typically as you increase prices, you do see a deterioration in some of the mix as you go through. However, as the market improves in the remodeling business, which is a very large part of our business, the consumer normally desires to have the best product they can afford and to have their homes look as beautiful as possible. So as their incomes get better and as they get more confident in the market price as housing prices rise, we anticipate that the customers who can afford it will actually trade up more than they have in the past few years.

That's really helpful. And then just to frame the opportunity on the M&A side, and I really appreciate, guys, the help on kind of the ceramic tile market and the size of the market globally versus where you guys are as a percent. But can you help us understand how that would kind of break out between current footprint versus new geographies and what you think the addressable market is when you look at the tile business? I mean it is presumably not the full amount of the numbers you quoted, so can you kind of talk about what you think the addressable market is for you and kind of maybe given the current geographic footprint what you think the addressable market is going to be and then given the potential for M&A, where you would like to see it? And I understand it is kind of a general question, but just trying to understand where you could be going.

Let me try to give you a philosophy rather than exact pieces. The philosophy is that in areas where we have an existing business with strong management, we are open to looking at any business that is in the area because we have the management in order to take existing businesses that are fully performing or operating well and integrate them into an existing structure. So in areas where we exist today, it is open to anything. Where we go outside existing markets, we look for businesses because we are buying as much the management as we are the company and we typically will not buy a business that is under stress where we don't have existing management to do that. And that applies to all our carpet -- all our segments within.

We have a philosophy that we will go into different marketplaces. We don't try to overlay a single strategy that we use around the world. We try to make sure that each market's addressable work thought is important, how they go to market and we think it is very important to have local knowledge in doing that and that is why when you see us go into new geographies, we are tending to buy the best companies in the industry when we do that.

That's very helpful. Thank you.

David MacGregor, Longbow Research.

Yes, good morning. Good quarter, Jeff.

Thank you.

I wonder if you just look across your portfolio again, across carpet, ceramics, wood laminate categories, just talk about what you are expecting in terms of industry revenue growth in 2014.

I think that the industry in flooring is supposed to be up about 4% to 5%. I am giving you off the top of my head; I don't have it written down, but I think the industry is around 4% to 5%. I think that carpet is slightly lower, around 4%. The ceramic business is higher; I think it is 6%, 7%, maybe higher; I don't have the numbers in front of me. And laminate is probably on the low end.

Okay. Is that for the US or is that global?

That is the US. Each market is unique.

Okay, I guess it is harder to put numbers around the global picture.

Each one is unique. In Europe, the business is flat to up a little bit. It wouldn't surprise me -- hopefully, it is going to turn and be up a little bit. If you go to Russia, Russia, the economy has slowed down and the ceramic industry could be up a little bit or down a little bit. I don't know exactly as an industry.

Okay. Second question just with respect to the carpet segment. Typically in the fourth quarter, you see your strongest margins of the year. This year, you were down sequentially from 3Q and I am just wondering was that -- well, what was that?

It's just the timing of different pieces and how (inaudible). We tend to look at are the margins decreasing over time. We compare to last year, I think we made a huge amount of progress.

Was there any pressure early in the quarter from the whole government shutdown thing that might have adversely impacted those numbers?

No, there wasn't.

Okay. And then finally from time to time you update us on contribution margins by segment and I was just wondering if I could trouble you for that?

Yes, I would say the long-term margins haven't really changed. Obviously, they are going to vary quarter to quarter, but, as we've said before, carpet is probably around 20% and tile is around 25% and laminate is up around 30%.

Thanks very much.

Ken Zener, Key.

Good morning, gentlemen. Frank, just one last comment on the (inaudible), given I guess the new plant in Europe that you are going to be bringing on, it sounded like that was going to be at the end of 2014 it would be completed, so that would be coming online in 2015 and then the merged operations in the US for Pergo. Could you kind of talk about the initiatives that you have in place today in that segment given the plants that you are bringing online and how that might impact the operating leverage that you just talked about?

There may be some confusion. In Europe, we purchased Pergo, which had two manufacturing plants in Sweden, which were antiquated. At the same time, about a year or so ago, we built a plant in Russia. So we took capacity out of our plant, which created excess available capacity in the other one. Pergo had not invested in their plant in almost 20 years of significance. So we shut the plant down and moved it in. Those are -- the savings in those are all built into our estimates that we have given you.

In addition, the new plant we talked about is going into our new product category, which is called luxury vinyl tile. That new plant will come out of the ground and should be operational towards the end of this year. We are building sales in the US and Europe to support that plant as we (inaudible). It will typically take -- these plants, when they come up, it takes you a year to get the volume up to where you are and the pieces going together to work as you go through. We will start out with shipping some of it to the US marketplace and the goal is to build another one in the US to support the US marketplace when we get the bugs worked out of the first one.

On the US side, the capacity in the US side in laminate and wood -- in laminate, the investments are basically in adjusting the product category. There are some areas that have changed and just putting those in it won't significantly change the overall capacity. We talked about the board business in the US, but with the addition of Pergo, we are fully utilizing more than the plant's capacity. So we've put in some investment already to speed it up and at the right time, we have other investments to speed it up further. It won't change the overall laminate business, but the support of the board business.

I do appreciate that. If we look at the carpet, I mean going back here because of the success you have been having, if you were to look at the margin expansion that we had, obviously part of it is going to be the volume in terms of the contribution. Pricing is pretty -- seems pretty neutral. Can you talk about -- so the volume impact, the mix impact, if there is some there going up to Triexta or nylon, as well as I think in the poly side certainly with your Continuum, it is more about the cost that gives you leverage. So could you kind of help us understand how those three components led to the driving up of margins and/or EBIT dollars? Thank you.

In order to get the margins to improve, we had to pull every lever in the book and it was a combination of everything you talked about. It came from margins improving from the product mix, which, in the last year or two, we have been focused on maximizing our position in the premium ultra-soft categories, what we did with three different raw materials into it and a multiple of options within each one. So that is paying dividends. We have been going through the plants and improving productivity and cost savings through every piece and then this year, our SG&A actually decreased, including inflation and including significant investment. So we have really focused on controlling the SG&A and spending the money that we have on the proper things.

The organization is executing much better than it ever has in the piece. The Continuum is that the polyester business has grown much faster than we thought it would three years ago. And so we got a little behind our participation in the polyester business as it was growing much faster than we thought and we didn't have the raw material structure to support growing faster than we were. Over a year ago, we made a decision to put the assets into do it and those assets have been going in all through this year and will continue going in through 2013 and will continue going in through 2014, which is allowing us to have the share we believe that we deserve in that marketplace.

In addition, the technology that we have put in has given us advantages in the end product, as well as in the marketing of them, which has helped us participate in it further. So we think we are well-positioned in all the pieces.

And I will just kind of tack onto the end of that with the Continuum polyester margins regarding how that compares to other products. The margins in all of our products differ depending upon the uniqueness of the individual products and like the rest of our productlines, we have a mix in polyester of high and low margin, high-end, low-end products and we anticipate the margins here with this PET Continuum to be similar to the rest of our business.

Thank you.

Stephen Kim, Barclays.

Thanks very much, guys. Strong quarter. I wanted to ask you about the American Olean expansion. We had talked about -- or we had heard you talk about an experiment you were undertaking out in Las Vegas with the combined distribution of American Olean and Marazzi. I was curious, on a scale of 1 to 5, how would you say your assessment of how that has gone? Where would you rank that and then also, as you try to expand that out, are there any costs that we should be thinking about that would be relevant in that segment and is maybe some of that hitting in the first quarter to drive somewhat lower guidance? Thanks.

I'm glad you asked.

Good.

Both American Olean and Marazzi brands are basically sold through independent distributors. So the first thing we did by putting them together and bringing them together is that we offered a product offering to the distributors that support us and we are getting increased commitments from those existing distributors to sell both brands. Second is where we lacked independent distributors, we put the products together and we did a test in Las Vegas, I believe it was, for both brands. Presently, we have that one operating. We have three more under construction at the moment. So we have a plan for putting in ten more to cover the other areas that we are not in. And that is the start of where we are for this year's plan.

There was not really any kind of significant cost included in the first quarter related to the start of any of that.

That's very helpful. Great. So it sounds like you are very enthusiastic about that opportunity. I want to follow up on a question that you had gotten earlier about acquisitions and you -- I think it was Dave Goldberg -- you had answered it sort of on a sort of an approach, a general approach that you take towards acquisitions where think you said that if you have got established management and geography, you are more willing to look for expansion. But you wouldn't do any kind of turnaround type opportunity in a new geography.

So I guess the one thing that I wanted to hear you articulate is you've just done two pretty large and important and successful so far acquisitions. Are there -- is it in your view -- is it your view that you have the bandwidth and the ability to expand the role that your existing management team is doing or undertaking or is it that you think that you are more likely to look into these new geographies with strong management teams as we look forward over the next 12 months? Because you've talked about your balance sheet being very strong, but I was curious as to what you thought about the human capital element of your Company, where that stands.

The existing businesses have the strongest management groups that we have ever had. In the last 12 months, they have shown how they can take diverse businesses, integrate them together, reorganize them and quickly in a short period of time go through what many companies have high difficulty doing. At the moment, we have had anywhere from nine months to 12 months with the businesses we have. The basic building blocks are all in place and we are continuing to refine them. I would say that most of them would be capable of taking on additional integration things. Sometime in the mid to end time of this year, we will have most of this stuff fairly laid out and they will be able to take on additional challenges as you go through.

In the new geographies, just to repeat, we want to have the businesses be local. We want them to understand the local needs and then -- so when we go into new geographies, we want to hire local talent that is among the best in the industry to start as a core basis that we can grow from as you have seen us do in the other businesses.

And I would just add to that, Steve, that we had, I guess, maybe six different management teams between US and Europe and laminate and ceramic and boards working on each of these three acquisitions in the different regions. So we have a number of various management teams out there.

What happened is there was a US ceramic team, there was a US laminate team, there was a European board team, there was a European laminate team, there was a European ceramic team and then we use the existing management in the Russian business to manage it. So these things were broken up into a lot of pieces, otherwise it couldn't have happened.

No, that's really interesting and very important. Thanks very much, guys. I really appreciate it.

You are welcome.

Michael Rehaut, JPMorgan.

It's Marcus in for Mike. My first question has to do with the hardwood flooring piece of the laminate and wood business. Can you just talk a little bit about the pricing versus the lumber cost inflation that you saw in North America during the quarter and how that might have impacted the wood margins? And also can you remind us what percentage of the overall laminate and wood segment is hardwood?

Wood prices have still been rising. The wood prices have impacted the margins. We are passing through the pricing. We have not caught up with it. Whatever pricing we put in is still lagging. We are catching up with it. The wood business is positively contributing to our results both in the US and abroad as we speak and then what was the last part?

I think your question was how large is the wood business compared to the total segment. And it is a small piece of the total segment. We do not disclose the number separately.

Okay. And then just in terms of helping us model the first quarter, are you able to provide what Marazzi and Spano sales were in the first quarter of 2013?

I don't think that is our intent at this point in time.

Some of the historical ones. In these business integrations, we have gone into some of the businesses and walked away from pieces that were there completely. In others, we have put them in new businesses. In part of the Pergo business, they used to sell outside people certain things. We exited their sales and some of the numbers, they're not exactly comparable. Operator, any other questions?

Stephen East, ISI Group.

Thank you. Good quarter, guys. If I can just try one other way on the guidance. If I look at Marazzi and Spano that you'll have in your first quarter you didn't have last year, just using round numbers, say $300 million or so of revenues and in the past, you have said Marazzi is running at a 10% margin. If I run through that and also penalize that for added interest, etc., I am looking at maybe $0.25 give or take in the quarter. And if I back that out of your guidance, it implies to me somewhat of a flattish year over year for the rest of your business that you had in the first quarter of 2013. Is that an accurate way to think of that?

No, Stephen, I'll try to go through this again. The first comment I would make is that the margins that we have given on these acquisitions are annual margins and so those differ depending upon which quarter you are in. That is the first thing. And as we have said several times, basically the consensus just modeled the seasonality incorrectly. I know it is difficult, a lot of moving parts, hard to do, but we have tried to help everybody by giving full year -- our view of the full year and based on that, the consensus is kind of right in the middle of what our range is and nothing has really changed in terms of our business, how it is going, our expectations for either the year or the quarter.

If you go back and historically look at any one of the segments, you will see significant margin differences between the first quarter and the other one. You need to go back to the estimate and not apply the same number to every quarter.

Fair enough. Does weather -- as you look with that guidance, does weather impact -- I mean is this a, you think, a nonevent, $0.10, $0.20 impact? I'm just trying to get an understanding of what you all have seen so far coming through because of weather.

It has had an impact in the first half. Our assumptions are that by the time we get to the end that we will pick up a large part of the sales, that the backlogs will come down and it will have an impact, but it will be limited. On the other hand, there still is -- Europe, we have had warmer weather in Europe, so some of the European sales are a little higher helping offset the pieces because just for the -- the opposite happening.

Oh, okay. I appreciate that. And then, Jeff, when you look at -- when you get to call it the end of the road in integrating your ceramic --.

There is no end of the road.

I knew that was a bad phrase to use. When you get through this initial stage of integration on ceramic, is this going to be a business -- when I go back and look at what Dal-Tile did both before and after you all acquired it, the margins that you generated, is this going to be a business that is similar to that higher lower margins? I just don't know how much the business has changed over the years and has changed because of the Marazzi acquisition.

Our assumption at the moment is that the combined businesses will be similar to the historical business.

But we are going to continue to try to drive margins higher.

But it is not high enough to historical.

Okay. And if you looked at it between US and Europe would there be meaningful differences there?

Oh, Europe, a huge difference. Europe, the whole market is screwed up. They are where we were probably four or five years ago in the depth of the thing. The volume in Europe of the ceramic industry could be off 40%, 50% from the peak. So there is huge problems with the marketplace, with the capacity and getting everything worked out. We are working through them and changing them. I think we can do well in it, but all it has to -- the economy has to pick up. We have already cut -- before we bought the business, they had already cut the capacity to get it in line. We are adding more money to get the capacity to be more efficient and to improve the product mix, which will help us whether the business picks up or not and then with a little help, we hope to get it back up to a reasonable number.

On the other hand, the Russian margins are very strong.

Okay, all right, thank you.

(Operator Instructions). Mike Wood, Macquarie.

-- for Mike. Just a quick question on the legacy ceramic business. You saw some nice growth in 4Q. Can you talk about if there were any kind of pulls on demand from promotional timing and also which specific end markets within the US did you see as the strongest?

The ceramic business -- first is we didn't do anything unusual in the period. The ceramic business, as you go through each of the different product categories, each one has different end-use characteristics. So the ceramic business has a larger percent of it in new construction. So the new construction business picked up. It is going to grow -- it's one of the reasons you look at the different products, they grow differently based on the participation in different parts of the business, which is why ceramics grow faster than the average of the industry. So that was there and then I don't think there was anything unusual in the period.

All of the end markets in ceramic grew well, new residential, remodel residential and commercial.

Again, our position in the US market, we have the strongest brands, we have the best distribution, we have a broad productline to take it to the marketplace. We have a lot of advantages. We lead the marketplace in the new printing technology, which we call Reveal. We lead the market in -- there is a new category called long wood like planks that the old equipment can't make without investments and [significant] ones. We have product coming in from our Mexican marketplace, from our Chinese manufacturing, as well as from our European thing, which are all where the imports are coming in from. We have manufacturing, all of them helping us and our position in the marketplace is really strong.

Great, thanks, guys.

Robert Wetenhall, RBC Capital Markets.

This is actually Desi filling in for Bob. Thinking about the growth trajectory of carpet going forward, the shift towards hard surfaces has been going on for quite a while now, but it still seems like consumers prefer carpets in their bedrooms. So how do you think the shift towards hard surfaces will play out going forward? Do you think that trend is pretty mature at this point?

I think the trends that you can see -- I don't see anything that is going to change them in the near term, so I believe that as you look forward, you will see carpet growing, but at a lower rate than the industry. You will see carpet growing at a slower rate than the flooring industry, which means it's still losing some share, but it is still growing relative to itself.

All right. And then we have heard from some other companies that they saw a slowdown in new residential construction volumes towards the end of the quarter given the decline in housing starts over the summer. Did Mohawk experience a slowdown as well or if not, is that something you would expect in the first quarter?

Listen, you sure couldn't see it in our ceramic business.

If you think about starts, the floors go in anywhere from six to nine months after the start, so there is that aspect of it.

All right, thank you.

Michael Dahl, Credit Suisse.

Hi, thanks. I wanted to ask about LVT and just given the square footage growth we are seeing in that part of the industry, I would've thought that -- or would think that that is an area that you may look to bulk up on even more quickly than the planned rollout of the new plant by year-end. So can you talk us through kind of -- will you continue to source some product as well as that plant opens or are you planning to shift all production in-house and maybe what the M&A pipeline looks like, if there are any attractive players that you would look at?

The LVT business has grown. We are participating in it already through importing product. We are participating in it in the US and Europe. In the US, we are participating in both the residential business, as well as the commercial business, we have productlines. We have implemented product in Europe mostly in residential at this point and we are continuing to expand our productlines to participate in it.

The plant we are putting up is a plant with new technology that has never been done before. We think it is going to give us some advantages within the marketplace and so we have to get it up and running and work through all of the things you do to get our new technology going and once we get it up and working, we are ready to build new ones, but I am not going to build them until after the first one is proven. In between, we will use that one to support it, as well as keep importing products to balance out the offer.

Okay, thanks. And then a second question on Marazzi. It seems like some of the new products coming out or at least some that are being showcased are being produced in the legacy Marazzi plants, but under the Dal-Tile brand. Can you talk about just some of those rollouts, how you are thinking about leveraging Marazzi's technologies and what portion of its capacity is going towards your legacy brands?

Let me answer the question a little different than you asked it. The plants are going to be set up to manufacture products, they are going to be set up to manufacture products by type and whichever plant manufactures those products most efficiently and best way, that is where the product will be manufactured. We will use all the assets to manufacture all the requirements that we have. Second from that, we have a brand, product and marketing strategy, which is taking whatever products we make in those plants, designing products that fit different needs. We are positioning Marazzi at the mid to higher end of the marketplace. We are positioning American Olean from the low to upper mid and each of those will have products that combine -- will cover the entire spectrum of the business.

In addition to which Marazzi had a limited position in the commercial business, so that combined line will enhance the commercial option going into it as we go through and in addition, Marazzi did not have a significant part of the wall tile business, which we are a large player in. So as we look through on the marketing side, we are going to expand our offering to the marketplace so that American Olean and Marazzi are a combined offering as strong as the Dal-Tile offering in the marketplace from high to low and then we are going to utilize all the assets, all the technology and all the innovation, but make sure that we have the best products in every category.

Okay, that's helpful. Thanks and good luck.

Eric Bosshard, Cleveland Research.

I'm curious on Russia. You talked about the moderation of the end-market growth or the economy from I think when it previously had been up five or ten to flat and you talked about the category being flattish in 2014. And then your profits also being flat in local currency in 2014. I'm cursed if you could give us an update on how quickly you are growing the stores over there, the company-controlled or company-owned stores over there, how you think you should go relative to the market as a result of that and then if the flat profits -- how that works if that is a function of sourcing issues and if that is a 2014 or sustainable flatter profit profile out of that market as long as the economy is flatter?

First is that the economy has slowed down and the ceramic industry has slowed, and I don't know whether it is going to grow at all, a little bit or be down some in 2014. Either way, we are going to grow our business. Now in order to grow our business, we are investing in new product and new organizations, in new sales forces. In addition to which we are going to expand the Marazzi stores in a market that is probably going to be about flat, the Marazzi franchise structure by about 10% this year in a market that is going to be flat and then within that one, our preference is to put most of that in franchise stores rather than in owned stores.

When you think about the flat profits out of the business this year, is that reflecting what the profits will look like in a normal year of investment in this type of an end market or is this an incremental year of an investment? So in other words, if Russia is flat again in 2015, would you be in a position that you could grow profits?

It's two things. One is that we are investing more heavily this year. At the same time when the business slows to flat, we are anticipating some pressure in pricing in the marketplace in addition to it. SO what we are doing is investing heavily growing our business in a market that is going to be flat and where there is more pressure on pricing because the other competitors are going to have to do something with their capacity. And so we think that we are doing the right thing by investing now and as the business gets better, we think that our margins will expand and we will have a bigger base and larger share.

Great, thank you.

John Baugh, Stifel.

Thank you. Great year, Jeff. I'm sure the executive team and employees will appreciate the large bonuses you are handing out.

(Laughing)

My question -- I have two questions, one on carpet and one on ceramic. The question on carpet would be, as we look at 2014, you have been in a great position, a leadership position in soft. It has obviously expanded your margins. Competition is trying to catch up. I am wondering whether you see any closing of the gap there and any pressure and as well, all the developments on the low end of polyester, whether there is any pressure there or the things you have got going on with Continuum and continuing hammering on SG&A, whatever is going to allow margins there to expand. You had a pretty good margin year in carpet.

So the soft trend has been going on for probably four years or more. I don't know exactly how far back and what is happening is, every year or so, the technology keeps getting softer and the product better. So it is not a new trend that has been happening. Within each one of those trends, we have been the leader in it and have brought it to market first. We have also gone in all the product, all the raw material things from Triexta, nylon and polyester and the last one was polyester in the middle of last year was the first introduction of really soft polyester. So that is moving. The good news is, as the economy improves and as people's home prices goes up and people get more confidence in, more of them are going to trade up. So yes, there is more competition as it goes along, but the markets should be growing much better, which is a good thing. And I forgot the second part of your question.

What about any of the low-end noise?

The low-end piece on -- again, prior to this year, we had capacity limitations on it. So one is we are focusing on it, the second is it didn't allow us to do both at the same time, so we put our efforts more on the (inaudible) [ahead] less than total participation in the polyester piece. Last year, we agreed to put in -- or the year before, we started putting in capacity to do it. In doing so, we like to come to market not only with the same products, but with different technology. So not only did we do it, we brought technology to give us advantages in how the products look and how the customer perceives them, an environmental story. And this year, we took that and put it and combined with a broad product offering from low price point to as high as they go and we think we are really well-positioned in the marketplace.

With that, we are going to get a mix of things. In my old product, I had high and low margin things. We think the average mix of this will get through is not going to be significantly different than the average mix of the other. At the same time, we get the benefits this year, which are going to help the margins, which is we are expecting to go faster than the market with all the investments that we have made. That will give us some overhead absorption positive. We are still improving our productivities and cost structures within the business and we have done a lot of things to improve our cost position in the SG&A, as well as in the manufacturing pieces and combined, we believe we are going to still be able to grow our margin while we are doing all of this.

Great, thanks for that color. And then on ceramic, you threw out your 2% global market share. As we think out 10, 20 years, because I am sure you're going to be working at least that long, if not longer, what is the addressable market to you and what I mean by that is I know ceramics is huge in China. I don't think China has gone really well for you. I am thinking what is the addressable market of good markets that have good margin opportunity that you could expand into or acquire into?

I think the way you have to think about it is we have to be able to go in and compete in the local marketplaces and what happens is we have certain ethics in the way we run the business and in some parts of the country they don't use the same ones. So if they don't, we are going to have to not participate in those until something changes in how the politics and laws work within the country because we don't want to compete and not be able to be on the same level. So that limits some of the places we can go, but there's a lot of places left in this world.

Great. Thank you, good luck.

Sam Darkatsh, Raymond James.

Hello, Jeff, Frank. How are you?

Perfect. How are you?

I am doing well. Thank you. Most of my questions have been asked and answered, just a couple of follow-ups. At what point do you anticipate on your commercial carpet business for you to begin to maintain or improve upon your market share versus that of the industry once the fiber transition is complete?

I expect that to occur during this year.

Sometime during this year?

Yes.

Okay. Second question, you mentioned potentially looking at beachhead acquisitions in markets that you are not in as long as you can find a good management team that is there. Are you a little bit more hesitant based on what we are seeing in some of the emerging markets over the last month, month and a half or so? Are you a little bit more hesitant in doing it in some of those markets?

It comes down to price and value. So what happens is it all depends on what you pay for them and relative to what is going on, which is the hard part about putting acquisitions together. When businesses aren't doing well, they don't want to lower their expectation and we, the buyers, don't want to pay for it. So it just has to work its way out through the process and some come together and some don't.

Last question if I might. You are saying that Q1 is going to be, quote/unquote, normal seasonality from a historical basis. I know there are some moving parts moving around, Frank, but does that suggest then that you are not anticipating accelerating demand trends as the year progresses because the Q1 is looking to be a normal historical seasonal pattern?

I think that it is already built into -- our expectation of growing the business already assumes that things are going to get better. Forget the first quarter. We are assuming from all you have heard me talk about for the last hour is that the economy is getting better, our industry is getting better, our participation is getting better and so it is built into our expectation.

Okay. I was trying to reconcile that with the earlier commentary that you are a 9 to 12-month lag to housing and housing obviously in the tail end of 2013 moderated a bit. So I am trying to reconcile that, Jeff, with your expectations that if things continue to get better. So that is the more prevailing thought is things will accelerate in your guidance as the year progresses?

Yes, but Sam, remember, housing the largest part of our market in the US is remodel; that is over 50%. Commercial is 25%. So housing is a relatively together piece is a relatively small part.

Okay, I got it. Thank you very much. I appreciate it. Have a nice weekend.

Yes, thank you.

I will now turn the call back over to the presenters.

We appreciate everyone being on the call. We are enthusiastic about the market and our position in it and have a good year.

This concludes today's conference call. You may now disconnect.