W. Christopher Wellborn
President of Global Ceramic; President, Chief Operating Officer and Director at Mohawk Industries
Thank you, Jim. Our US ceramic business continues to improve its sales and margins. We are enhancing our product mix and implementing multiple price increases to cover inflation. During the quarter, the residential sector remains strong while the commercial sector gained momentum as businesses initiated new projects and commenced deferred remodeling. Our sales should be positively impacted by providing alternatives to tile imports, which are increasing in price and experiencing shipping delays. We have enhanced our technology tools to make product selection, ordering and pick up the fastest and easiest in the industry. Our courts countertop sales are growing rapidly and to satisfy demand, we have initiated construction to expand capacity at our Tennessee countertop facility.
We see our position in the US ceramic market improving with new construction at high levels and strengthening commercial channels as we provide domestically produced options with outstanding visuals and features
The results of our ceramic business in Mexico and Brazil continue to be strong, even with our sales in the quarter being limited by low inventory levels. Our performance was supported by ongoing strength in residential construction and remodeling, with commercial projects improving. During the past year, we have responded to rising inflation and higher energy cost with multiple price increases, which both markets have accepted.
We will continue to take pricing actions as inflation rises. Near term, we see strength in both markets continuing, though increasing interest rates and inflation may impact future demand. To relieve constraints, we have increased capacity in Mexico, and we are negotiating with government agencies for permits and incentives to construct a new porcelain facility in Brazil.
In our European ceramic business, our management team is taking extraordinary steps to adapt to a uniquely challenging environment. Our sales in the first quarter grew, as consumer demand strengthened and our customers increased inventory levels in anticipation of inflation.
The ceramic industry production in Europe was interrupted when Ukrainian Clay supplies to Western Europe cease. Natural gas prices for the balance of the year have escalated from prior estimates, raising our future cost.
We improved the results by increasing prices more than we expected, and we enhanced our product mix to improve our results. We anticipated the Ukrainian Clay problems and increase to our inventory levels before the invasion to avoid interrupting our production. Our clay inventory should provide sufficient time to reformulate products with alternative materials without disrupting our operations.
There is more market uncertainty in the second half of 2022, with economic growth expected to slow and energy costs higher than earlier estimates. We are prepared to adjust our strategies as necessary based on market conditions.
The Flooring Rest of the World segment delivered solid top line growth, as demand remains strong. Our management team took actions to manage rising energy costs, escalating material inflation and volatile supply chains. Despite multiple price increases, we are lagging rapidly rising cost in Europe and have announced additional price increases in response to continuing inflationary pressures. Our continuous innovation and new features supports our market position and margins.
Due to their unique visuals and water-resistant performance, demand for our premium laminate collections remain strong. Though material supply in the quarter limited production, our laminate sales increased and we expected continued long-term growth, as we expand the premium laminate category with new innovation and design and features.
To maximize our distribution in laminate, we introduced our leading-edge innovations in the specialty channel under our Quick-Step brand and follow them up in other channels with premium features that add value utilizing unique brands. With this market strategy for our laminate, we are expanding our market share and adding new capacity to support in Belgium by the end of 2023.
Sales in our LVT and sheet vinyl business were negatively impacted by material disruptions and low inventory levels. Our margins improved through the period, driven by increased production and prices.
Raw material supply for both categories was especially challenging, but improved as we went through the period. We are continuing to enhance our LVT processes and formulations to improve our sales and margins. Our rigid LVT sales are growing substantially, as the category increases in consumer preference.
Our two bolt-on acquisitions contributed to our top line during the quarter, and the integration of both is proceeding as planned. Our purchase of an insulation manufacturer with plants in Ireland and the UK increased our market share and sales of polyurethane insulation products.
In one of the installation plants we acquired, a new production line with state-of-the-art technology is presently starting up.
Our new French MDF facility has enhanced our product offering and extended the geographic reach of our business. We will enhance the plant's operations by improving processes, expanding capacity and generating energy from waste wood. Despite material constraints, our panel sales grew significantly in the quarter including strong results in our mezzanine business, which is expanding with e-commerce demand. Our new high-pressure laminate line is performing well and extending our manufacturing into a new product category that coordinates with other wood panels.
To deliver more sustainable panel products, we have introduced a new patented technology for reclaiming wood fiber from MDF boards that will reduce carbon emissions and our cost position. Our two energy plants fuel with waste wood lower our carbon emissions and significantly reduce our energy cost.
Our Australian business had robust demand for flooring in the quarter following the loosening of COVID restrictions, while New Zealand remained difficult due to continued COVID restrictions. Price increases have been implemented in both countries in response to rising material and transportation costs.
As in Flooring Rest of World, Flooring North America is managing the greatest inflation we have ever experienced. The strategies we have been implementing during the past two years have improved our sales execution, cost structure and service levels and enabled us to manage a difficult environment. Most of our manufacturing costs are related to oil and gas prices and our supplies continue to increase their margins given supply constraints.
To offset, we have announced new price increases this year in addition to the multiple rounds of increases in 2021. Across the segment, we have indicated initiated many projects to increase productivity, improve efficiencies and upgrade our assets to enhance our results. Mohawk holds a leading share of the North American laminate market and sales of our premium collections continued to grow in the quarter as our new production line ramped up.
We anticipate achieving our targeted production levels as planned during the second quarter, which will expand the sales of our next-generation products. With realistic visuals and superior performance, our laminate has become an appealing, waterproof alternative to both wood and LVT in most channels, including new home construction. Escalating market demand in North America is absorbing our additional production as it comes online, and we are further expanding our US laminate capacity next year to support continued growth.
Our LVT sales continued to grow substantially in the first quarter as we benefited from improved offering across all channels. Our margins were impacted by material disruptions that interrupted manufacturing, delays and source products and higher ocean freight costs. Our legacy LVT operation has significantly improved its processes and is increasing line speeds and capacity.
Our new West Coast LVT facility is initiating production and fine-tuning processes. When fully implemented, our East and West Coast operations will provide logistics and service advantages to our customers. We will continue to strategically utilize sourced LVT to round out our portfolio and maximize our business.
Our sheet vinyl sales also increased, though material shortages stopped our operations and raised our cost in the period. We anticipate material supply for our resilient business normalizing during the second quarter, which will improve our sales and margins. Residential carpet service improved substantially and customers are lowering inventory impacting sales. We are raising prices further to offset escalating material and energy costs.
By reducing complexity, simplifying operations and increasing efficiencies, we are improving costs. We are managing tight labor markets that are impacting staffing and productivity. Our commercial sales continued to rebound led by strength in the government, workplace and healthcare channels. Sales in both our carpet tile and commercial LVT collections are growing as new and deferred projects are being initiated. Commercial design activity continues to strengthen as reflected by the March Architectural Billing Index. This project pipeline will support future specification and sales growth of our commercial products.
Our domestically produced LVT as being more widely specified to its greater dimensional stability, superior performance and preference for more consistent local supply. We are committed to becoming carbon neutral with our commercial flooring products and have introduced a new carpet tile that provides superior acoustics and comfort while achieving the highest level of sustainability certifications with half the carbon footprint
With that, I'll return the call to Jeff.
