Mohawk Industries, Inc. (MHK) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Mohawk Industries Second Quarter 2024 Earnings Conference Call [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to James Brunk. Please go ahead.

Thank you, Jamie. Good morning, everyone. Welcome to Mohawk Industries' quarterly investor call. Joining me on today's call are Jeff Lorberbaum, Chairman and Chief Executive Officer; and Chris Wellborn, President and Chief Operating Officer. Today, we'll update you on the company's second quarter performance and provide guidance for the third 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 filings with the Securities and Exchange Commission. This call may include 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. With that, I'll turn the call over to Jeff.

Thanks, Jim. Our second quarter performance reflected our focus on the controllable factors of our business, including sales initiatives, cost containment and restructuring actions. Our net sales for the quarter were $2.8 billion, down 5.1% compared to last year. Our adjusted earnings per share were $3, up 9% year-over-year, as a result of productivity initiatives and restructuring as well as lower energy and material costs, partially offset by market pressures on pricing and mix and foreign exchange headwinds. We generated free cash flow of approximately $142 million during the quarter for a total of $239 million year-to-date. In the quarter, we purchased 755,000 shares or 1.2% of our stock for approximately $90 million. We remain optimistic about the future of our business and confident that, in time, our worldwide markets will recover. Our second quarter results exceeded our expectations despite soft market conditions around the globe. The commercial channel continues to outperform residential, although some softness in the category is occurring. While the long-term demand for our products is strong, residential purchases across our geographies remains weak. During the quarter, the actions we've taken to improve volumes in many product categories helped us, though the gains were offset by consumers trading down and competitive pricing. Residential remodeling is under the greatest pressure as consumers defer large discretionary purchases due to inflation and uncertainties about the future. In addition, flooring remodeling is significantly influenced by housing turnover rates, which remains suppressed due to elevated mortgage rates, high home prices and the locked-in effect on homeowners. To reduce costs and align our business with current conditions, we're initiating additional restructuring actions across all our segments that would generate annualized savings of approximately $100 million, of which $20 million to $25 million will be recognized this year. The cash cost of these actions is about $40 million, with a total cost of approximately $130 million. The execution time line will vary by project, with some extending throughout 2025 and into '26. In our Global Ceramic segment, we will optimize manufacturing by idling some less productive operations and aligning production to increase efficiencies. We'll consolidate regional warehouses, further reduce product complexity and leverage technology to lower administrative costs. We'll rationalize some of our Flooring North America manufacturing to enhance plant utilization, retire less efficient equipment and simplify our offering. In Flooring Rest of the World, we'll lower our administrative and operating costs, streamline our product portfolio and distribution and decommission inefficient assets. These actions will complement our previous restructuring initiatives that will reduce costs by approximately $60 million in 2024. Along with these, our teams are implementing many measures to manage current conditions, including enhancing sales opportunities, increasing productivity and managing our overhead and working capital. Economists had anticipated that the Federal Reserve would lower rates this year to stimulate the U.S. housing sector. While central banks in some of our markets have already begun to reduce rates, the Fed has indicated it intends to wait until inflation and economic activity sufficiently slow before taking actions. After the U.S. Consumer Price Index dropped in June, many are predicting a September rate cut. If the Fed begins to lower rates at that time, we anticipate our industry should benefit next year as pent-up consumer demand increases flooring purchases. In April, USA Today, once again, named Mohawk one of America's climate leaders, given our reduction in greenhouse gas emissions over the past four years. On July 16, we published our 15th Annual Sustainability Report, which can be found online at mohawksustainability.com. Now Jim will review our financial performance for the second quarter.

Thank you, Jeff. Sales for the quarter were just over $2.8 billion. That's a 5.1% decline as reported or 4.5% on an adjusted basis, with Global Ceramic having the strongest quarter versus the prior year. All segments continue to see price and mix pressures, with residential remodeling trailing the new construction and commercial channels in the quarter. Gross margin for the quarter was 25.8% as reported and 27.1% on an adjusted basis versus 25.9% in the prior year, with lower input costs and increased productivity offsetting the weakness in price and mix. SG&A expense was 18.2% as reported and 17.9% on an adjusted basis. This is in line with the prior year. Operating income as reported was $214 million or 7.6%. Nonrecurring charges for the quarter were $43 million, primarily due to restructuring expenses in the period. That gives us an operating income on an adjusted basis of $257 million or 9.2%. That's a 90 basis points improvement versus the prior year as our lower input cost of $83 million and productivity gains of $49 million offset the unfavorable price/mix of $111 million and FX of $11 million. Interest expense for the quarter was $13 million. That's down $10 million from the prior year due to strong overall cash flow and the payoff of the term loans earlier in the year. Our non-GAAP tax rate was 20.9% versus 19.6% in the prior year. We expect Q3's rate to be between 19% and 20% and the full year rate to be between 20% and 21%. That gives us an earnings per share on a reported basis of $2.46 or on an adjusted basis of $3. That's an increase of approximately 9% versus the prior year. Turning to the segments. Global Ceramic had sales of just over $1.1 billion. That's a 3.4% decrease as reported and 2.9% on an adjusted basis. Our industry volume remains constrained and pricing-aggressive. While we are investing in new products to try to improve our mix across our various geographies, residential new construction is outperforming remodeling, and commercial, though slowing, is stronger than residential. Operating income on an adjusted basis was $95 million or 8.5%, which was in line with the prior year, as lower input costs of $17.5 million, an increase in productivity of $14 million, offset the unfavorable price and mix of $25 million, FX of $10 million and the lower overall volume. In Flooring North America, sales were $959 million or a 4.3% decrease as reported, even though our laminate product continues to take share as a waterproof wood alternative and with our LVT product is expanding in the retail and builder channels. In commercial, the hospitality, government and education channels are driving the outperformance versus the residential sector. Operating income on an adjusted basis was $82 million or 8.6%. That's an increase of 260 basis points versus the prior year as lower input costs of $36 million and the strength of our productivity of $19 million offset the weakness in price and mix of $36 million. And in Flooring Rest of the World, net sales were $727 million. That is an 8.3% decrease as reported and 7% decrease on an adjusted basis as market conditions remain slow with weak consumer discretionary spending on larger-ticket home projects. Pricing and mix has also continued under pressure, though sales actions taken by our team, through the introduction of new products and expansion of our customer base, did lead to an increase in unit volume in laminate, LVT and panels. Operating income on an adjusted basis was $91 million. That's a 12.6% operating margin. That's 40 basis points increase versus prior year, led by a reduction in input costs of $30 million, positive impact of increased productivity of $15 million, offset by unfavorable price and mix of $50 million. Corporate and eliminations were $12 million during the quarter, in line with the prior year, with 2024 expected to be approximately $45 million. Now turning to the balance sheet. Cash and cash equivalents were just shy of $500 million, with free cash flow during the period of $142 million, bringing our year-to-date total of almost $240 million. Inventories were just shy of $2.6 billion. That's a year-over-year decrease of approximately $40 million due to reductions in costs and impact of FX as volumes slightly increase. Inventory days increased to 128 versus 120 in the prior year. The current plan, though, is to keep inventory relatively flat versus the prior year by year-end. Property, plant and equipment stands at just under $4.8 billion, with CapEx of $91 million in the quarter compared to D&A of $172 million. The company plans to invest approximately $480 million in the year with D&A at approximately $630 million. And the balance sheet overall and cash flow remained very strong, with net debt of $1.9 billion, leverage at 1.3x and liquidity at approximately $1.3 billion, with the company purchasing approximately $90 million of shares in the quarter. With that, I will turn it over to Chris to review our Q2 operational performance.

Thank you, Jim. In Global Ceramic, our markets remain highly competitive as reduced industry utilization continues to impact pricing and margins. Our mix is weaker given soft residential remodeling activity and consumers trading down to lower price points. In the quarter, the impact of labor and freight inflation was offset by decreases in material and energy costs. In addition to our restructuring initiatives, we are implementing numerous cost reduction projects across the segment, including product reengineering, process improvements and streamlining administrative functions. To improve our mix, we are investing in product differentiation with leading-edge printing, polishing and rectifying technologies. These assets allow us to create floor and wall tile collections with superior visuals and higher-value sizes, styles and formats. On May 10, the U.S. Department of Commerce announced the commencement of antidumping and countervailing duty investigations of ceramic tile imported from India. The U.S. tile trade organization believes this could lead to tariffs between 400% and 800%. Given India's widespread dumping, Mexico has increased import duties, and other markets are currently investigating similar options. In the U.S., our high-end design capabilities, domestic manufacturing and extensive distribution infrastructure are enhancing our participation in the builder and commercial sectors. In Europe, our unit sales exceeded last year as we leveraged our manufacturing and styling advantages to create higher value products. Our porcelain slab expansion has enhanced our offering as demand continues to increase across the flooring, furniture and countertop markets. European energy prices declined from last year, which should help increase consumer discretionary spending. Markets in Latin America remain difficult despite Central Banks initiating interest rate cuts. In Mexico, we have announced price increases to offset inflationary pressures and import duties. In Mexico and Brazil, we are initiating additional sales and operational improvements to maximize the performance of our acquisitions. In both countries, we have restructured the organizations and implemented new product and distribution strategies. In our Flooring Rest of the World segment, market conditions remain slow with constrained consumer discretionary spending. Declining inflation led the European Central Bank to lower key rates on June 6, and additional cuts may follow. In this challenging environment, we focused on actions to drive sales, such as enhancing our product offering, executing promotions and implementing strategic marketing campaigns. As a result of these sales initiatives, our volumes in laminate, LVT and panels improved from prior year low levels. Pricing and mix remained under pressure, partially offset by lower input costs. In addition to our restructuring actions, we are launching many projects to improve productivity, enhance yields and lower labor costs. We are consolidating regional flooring distribution centers and reducing logistics costs to align with present conditions. We are completing the conversion of our residential LVT program from flexible to rigid products, and we're improving our mix in our sheet vinyl category. Our laminate volumes grew as we expanded our customer base and enhanced sales with existing customers. The margins of our insulation and panels businesses have declined as fewer projects are being initiated and industry competition escalates. In Australia and New Zealand, our results were stronger given our actions to improve price and mix through our new products and retail promotions. Increased manufacturing volume and associated productivity gains contributed to margin improvement in our business. In Flooring North America segment, despite challenging market conditions, volumes improved year-over-year in some markets and channels, though partially offset by price and mix dynamics. Our margins benefited from productivity gains, driven by operational improvements, lower input costs, logistics efficiencies and restructuring. This year, we have expanded our relationships with larger U.S. homebuilders who are increasing their share of the market. Residential remains weak, with home sales turnover at the lowest level since 2008 and consumers continuing to delay remodeling projects. Both of our luxury carpet collections and our value-oriented polyester products are accelerating. Sales of our LVT and laminate collections were stronger in the retailer and builder channels. Our recent laminate expansion is ramping up to satisfy higher demand for our waterproof flooring. The commercial sector continues to outperform residential, with hospitality, government and education channels leading, though fewer projects are being initiated. Jeff, I'll return the call to you for closing remarks.

Thank you. we anticipate present conditions continuing in the third quarter, with elevated interest rates, inflation and weak housing sales impacting our markets. In the current environment, we're executing plans to optimize our revenues and costs. We're managing the controllable aspects of our business, including innovative product introductions, reducing overhead and rationalizing less efficient assets. We're streamlining operations by reducing complexity in our processes and product portfolios. Our restructuring initiatives will deliver significant savings and enhance our performance when our markets recover. We continue to benefit from lower energy and raw material costs, partially offset by labor and freight inflation. In the third quarter, we anticipate pricing pressures will continue given low industry volumes, constrained consumer spending on large purchases and consumers trading down. As usual, European summer holidays will seasonally impact our sales and performance. Given these factors, we anticipate our third quarter adjusted EPS to be between $2.80 and $2.90, excluding restructuring or other onetime charges. While we manage the short-term environment, we're preparing to capitalize on the demand that occurs when the industry rebounds. Residential remodeling is our industry's largest category and should lead the recovery as interest rates decline and consumer confidence improves. Across our regions, new home construction is needed to satisfy demand, and aging homes will require remodeling to meet homeowners' needs. In addition, new commercial projects will be initiated as the economy strengthens and our product investments will enhance our participation as the world's largest flooring manufacturer with the products, capabilities and financial strength to optimize our results as the market recovers. We'll now be glad to take your questions.

[Operator Instructions] And our first question today comes from Eric Bosshard from Cleveland Research.

The restructuring or cost-out program, whichever you call it, I'm just curious, you've gone through a couple of these in the last few years. The projects that you've identified here, why were they not included in the last one? Or asked a different way, like why take cost and capacity out now?

Well, when we're looking at the market to where it is now, we think there'll still be some time before we see a significant recovery into next year. And so we're trying to work through how we're going to optimize the profits, both in the short term and the long term. And we believe that taking more costs out will position us better in the second half, and it will also increase our profitability as the market recovers.

Within this, I guess, the second component of this, as you think about solving for the growth scenarios in '25, how much capacity do you have to support growth next year or embedded in that? What is the growth assumption you're considering as you rightsize capacity or optimize capacity?

As we think about next year, we think that we're going to start seeing the cycle move from what the low point it's at. Demand for housing today remains strong, and we think there's pent-up demand in the remodeling markets, but we can't predict the timing of it. The decline of inflation, the change in interest rates will positively impact consumer confidence, housing sales, home remodeling, commercial activity, which all should have a significant impact on our category. As it improves, we think we'll get the leverage in these cost structures and our product mix. On an individual business, we have the -- we put investments in the areas where we thought we would have the most growth rate in the pieces and those -- the businesses that we're putting this stuff in is the laminate business, the countertop business with quartz, the slab business in Europe and the insulation businesses. We believe those have the most opportunities for higher growth, and we have invested in those. So we're ready to take advantage of the next few years as they improve.

Our next question comes from David MacGregor from Longbow Research.

I guess, just thinking -- while we're on the topic of restructuring and the cost reductions, can you just talk about how the anticipated savings, which I think you shared some aggregate numbers on that, how that would fall across the three reporting segments?

As you look at the restructuring savings, first of all, the initial actions that we took last year, we've realized about -- of the $150 million that we announced, about $110 million through the second quarter, and should see approximately about $130 million by year-end. That program was fairly evenly spread across all three of the segments, maybe with Flooring North America a little bit more. With the announcement today of the additional $100 million, as we said, $20 million to $25 million would be recognized this year, a much larger piece into the following year. And then all businesses are continuing to look at reductions in SG&A, operations and logistics. And as you look at that, Flooring North America will have more benefits than the other segments in the recently announced actions.

And just as a follow-up, I wanted to get you to talk a little more about the commercial business, where you're seeing a little more strength than your residential. And you noted some softness, though, is now starting to creep into this business through fewer projects being initiated. Just talk about what you're seeing there. And is there a difference between the Mainstreet Commercial versus institutional business? And what level of growth should we anticipate through the second half in commercial?

You're correct. Commercial is holding up better than residential. We are seeing some slowing in new projects and postponement of it. If you look by channels, the ones that are outperforming for us are hospitality, retail, government and education. We're also taking actions to increase our penetration with large strategic accounts, and we're increasing our participation with them. The good news is that in these categories, pricing is more resilient, given more differentiation in the marketplace. And then just keep in mind, as we come out of this thing, commercial improvement takes longer because, even though the macro things change, the planning and construction times take longer to do so that there's a lag between them.

Okay. And can you talk about what the growth is for the second half, what you think you might see there?

We're projecting it's going to be down somewhat. And it's different by market, by channel, all over the place, but I mean, it is slowing somewhat.

Our next question comes from Susan Maklari from Goldman Sachs.

Jeff, my first question is a bit about how you're driving the business through the products. One of the things that you've mentioned is the product differentiation that you're focused on as well as the cost side of things. Can you talk a bit about what some of those benefits or those features are that you're stressing in those products? And as those gain traction over the coming quarters, how should we think about what they can contribute in either the back half of this year or even into next year in terms of perhaps mix shift? And what that could mean for the business on the top line as well as a profitability perspective?

Sure. In the new products, one is, we've continued to invest in putting them out in the marketplace and bringing new products, and every category is participating. In ceramic, we put in new assets that can make tiles with different color intensity, textures, three-dimensional surfaces, different shapes and sizes. In LVT, we've taken actions that we can actually enhance the coloration and textures. And we've also introduced a different core, we call a renewable polymer core, as another category in laminate, which we've introduced features that will impact both the durability and the sound acoustics with it as we go through. And even in the different countertop businesses, in our quartz countertop, we're introducing higher-value veining technologies in the mid-price points. And every product category has features like this that we're doing as we come out. What's happened is the biggest part of the market that's been affected, the bottom end is doing better, and the high end, the middle part, which goes through retail, is the most affected. And these features and benefits will have a lot of positive impact when the retail business picks up as consumers come back in the marketplace and get more confident.

Okay. That's helpful. And then it was encouraging to see that you did $90 million of share buybacks in the quarter. Can you talk a bit about what drove your decision to do that? And should we take it as a sign perhaps of you having some greater confidence in visibility and the forward trajectory of the business? Is it a sign that maybe we've turned the corner and you're feeling better about things from here?

I think you've probably answered my question for me. We're more confident that we are reaching the end of the cycle. We have taken additional actions to manage the short-term pressures by taking additional costs out. We're confident that the markets are going to recover. We can't predict the moment, but we know they're going to recover. So it's a good time to buy shares.

And does that mean maybe that you'll do more of them in the future?

Well, our balance sheet, as you know, is strong. In past cycles, we've had multiple opportunities coming out of these things as the industry recovers with acquisitions. And we'll continue to evaluate share repurchases as part of our capital allocation strategy.

Our next question comes from Mike Dahl from RBC Capital Markets.

I think the prior question around second half growth, it sounded like that was specific to commercial. Maybe could we zoom out and just -- you've been organically down mid-single digits from a top line standpoint in the first half. Can you talk about what's embedded from a top line standpoint for 3Q and how you're thinking about that into 4Q as well?

Sure. At this point, we don't anticipate anything changing the present conditions in the third quarter, and we've built in just a continuation of weak demand and pressure on pricing and all and continued low industry utilization. We don't see the mix changing with the consumer in the period much from where it is. And so we see the trading down continuing. We see new construction may be softening a little bit but not a lot. And then we still have remodeling that's compressed. And just to remind everybody, the remodeling business is our highest margin business because they tend to buy better-quality products than the other residential channels. In addition, to remind everybody, the third quarter is always seasonally slower. And don't forget European holidays, they take off and it pulls down our third quarter. And then, in general, we're anticipating, compared to last year, we're going to see some improvements from all the different actions we've been taking. If you go into the fourth quarter, we think that the Central Banks will probably start reducing rates, but we expect that the impact on us, we probably won't feel until we go into next year. And then, again, the seasonality of it declines with the holidays where people spend on other things than home and commercial projects. And then, with this, given where we are built into hours, is continued low volume of our industry, which means we're going to have shutdowns and unabsorbed overheads as we maintain the discipline in our inventory levels as we go through. Other than that, I guess, as we get out in that -- further out, we could start seeing cost increases in different pieces. And as those things happen, we'll have to consider, do we need to make any changes and raise prices in the future as the markets change? What else is there? In the fourth quarter, one other comment, we actually have two additional days in the period due to just the way the calendar falls.

Got it. Okay. That's really comprehensive. As a follow-up question, so top line, in the near term, sounds like status quo. I guess your guide then implies that I think the operating margin sequentially is still kind of flattish, which, to your point, you have some normal seasonality. But there's obviously puts and takes around seasonality, but then some of the actions that you're taking. So can you speak to, I guess, the ability to continue to improve margins from here in the back half of the year despite these top line pressures?

Well, I mean, we gave you the expectations for the third quarter is that most of the improvements coming from the internal actions we're taking rather than the marketplace. However, we are seeing some improvements in volume, as we said, and I don't know, it could be as almost maybe half the product categories or different places. But at the same time, there's still huge pressure on pricing and mix. So anything that we're picking up in the volume piece is being offset by the pricing and mix in the marketplace in the second half.

Our next question comes from Keith Hughes from Truist.

In the release, in Flooring North America and in the prepared comments, you called out LVT and laminate. I guess, the question, were those businesses up year-over-year?

LVT and laminate, the volumes have improved. We've improved some of the margins in those businesses as we go through. You have to remember, last year, there was all kinds of also negative pressures in the comparisons. So laminate is gaining share, and we're doing our self-help actions, and LVT is helping those.

Yes. Those were two of the categories, Keith, that Jeff was mentioning that, from a unit volume, was up.

Units were up in both? Okay. Great. And your earlier comment -- it's the last question. I think you said half of your product categories are up in volume. It's a remarkable statement, if I heard it correctly. That feels like share gain. I don't think your markets are that strong. Is that fair to say?

Remember, I'm talking about a worldwide market with a lot of different parts it, with different comparisons. In Europe, I mean, the market is really depressed. And in Europe, a year ago, we were struggling with some cost structures, with high gas prices and pieces. It was more difficult to compete against the imports. So I mean, we've taken actions in different marketplaces to help us. I think that we're increasing our distribution in some. And I mean, it's a tough market, but I think we're executing well.

Our next question comes from Michael Rehaut from JPMorgan.

Question. I'd love to try and get a sense from your perspective of what drove the upside to the second quarter if there were specific areas within, perhaps, for example, North America that maybe came in a little better than expected, either and just more broadly on either the sales or the margin side? And if you see any of these trends perhaps continuing into the third quarter that, that might cause a similar result there if those trends kind of remain in place that, that might ostensibly also drive some upside to the 3Q guide?

The 3Q guide has, as I just said, has got the assumption that the present conditions in the second quarter continue into the third quarter. It had -- don't forget, Europe, I mean, you have to know that when they go on vacation, people quit spending money. And whatever is happening, it takes a huge dip in a different -- the holidays are different in every country. So it pulls down our period. The pressures on pricing and mix, I can't emphasize enough. I mean, the markets, when you have industries with huge capital investments running at low throughputs, everybody is trying to optimize the marketplaces. And our aggressiveness in trying to bring new markets, satisfy people different, expand our distribution are helping this, but it's difficult.

Yes. Then on your question, Mike, on specifically like Flooring North America, I mean, generally, across all three segments, in Jeff's prepared remarks, talking about managing the controllable costs, and the business is really benefiting from those cost reduction and restructuring activities while we're still investing in new products, which should improve our mix and profitability as some of this pent-up demand gets released later in the recovery.

Secondly, just wanted to get your sense in terms of how to think about the top line in the back half of the year. Currently, we're looking for a slight decline on a consolidated sales basis for both 3Q and 4Q. I was wondering if that is similar to how you're thinking about the business, particularly in the fourth quarter, where there is an easier comp? And then, just technically, if I could just throw in an additional technical question. The share count really didn't move that much. The average share count didn't really move that much in 2Q. You had the share buyback, though. Should we expect to see that fully reflected in the share count in 3Q? Or is there any offset share issuance that might still keep the share count around 64 million?

For the last question, it is a weighted average, and so it depends on when, obviously, each of the shares was purchased. So you'll start to see more of the impact as you go into Q3 and then for the full year. So there will be some change as you go out the balance of the year. In terms of the top line, for the back half, as we've said, we are seeing some unit expansion in some of our product categories. But remember, as Jeff just emphasized, you also have price and mix. So even if you're up a little bit on units, it's being basically either offset or partially offset, at the very least, by price and mix.

Our next question comes from Phil Ng from Jefferies.

Congrats on a really strong quarter in a tough environment. So Jeff, if I heard you correctly, you were kind of hinting at maybe you're seeing higher costs, you could consider raising prices. Certainly, ocean freight, shipping containers, depending where it's coming from, I think, like Asia, might be up like 3x to 4x, at least, that's what we're hearing. So it's putting a lot of pressure for some of your competitors that import products in the U.S. like LVT and laminate of that sort. At least we're hearing maybe there's rumblings of price increases in the back half. I'm curious what you're hearing on that front, and what does that mean for Mohawk? Is that a cost headwind? Does that provide a pricing umbrella? And how does that potentially impact your portfolio?

Well, I'll just comment that the increased ocean freight and potential tariffs should improve or should benefit our domestic manufacturing.

And on the other side, the imported products, where we'd have them, will have to pass through the ocean freight changes as everyone else will, as it changes. On the material side of it, we think that the prices have bottomed, and we are seeing some increases now. In this marketplace, it's really hard to determine where they're going to be 6 months from now. So given the low demand, we see it coming. We'll just have to find out if it's going to happen sooner or later. Usually, when you have low demand like we have, there's not much pricing upward movement material, but we'll have to react to whatever happens and manage through it as we go through.