W. Christopher Wellborn
President and Chief Operating Officer and President - Global Ceramic at Mohawk Industries
Thank you, Jim. Our Global Ceramic segment's result improved from the first quarter with increased sales, higher production and lower energy costs. Around the globe, high interest rates and inflation are reducing housing sales and remodeling investments to varying degrees based on local conditions. We believe that most of our customers have now aligned their inventory levels with market conditions. Our asset utilization remained low with compressed demand, and we further reduced our inventory and working capital. Our P&L benefited from lower materials and energy flowing through the inventory. This reduction was partially offset by greater market competition and lower mix, which impacted our selling prices.
While energy costs around the world have substantially decreased, they continue to be highly volatile. In our acquisitions in Brazil and Mexico, we are realigning the organization's defining new sales and product strategies and executing cost reductions. Our US ceramic business benefited from a greater participation in the commercial and new construction channels, enhanced styling and more consistent service. As energy and freight cost decline and industry volumes weaken, the market is becoming more competitive. We are introducing higher-style products to improve our mix and are focusing on stronger sales channels. We've expanded our customer base, which is helping to offset the weakness in residential remodeling.
In the quarter, we further reduced our inventory while maintaining high service levels. The decline in energy prices will improve our cost as it flows through our inventory. We have taken cost reduction actions in response to increased competition and other inflation. As we prepare for the start of the additional countertop capacity, we are enhancing our product portfolio and expanding our kitchen and bath channel with complementary tile and countertop selections.
Our ceramic business in Europe remains under pressure as residential remodeling remains slow. Our volumes in the quarter improved sequentially, and our results benefited from sales of premium residential collections, commercial products and exports. Competition is becoming more intense in all channels due to low industry volume and declining energy costs. We are adjusting to the changing environment and using promotional activities to deliver additional volume. To utilize our new porcelain slab capacity, we are broadening our portfolio with innovative visuals and will manufacture products we have been outsourcing. We continue to focus on cost containment, including overhead reductions, productivity projects and alternative formulations.
As with our other regions, our Latin American ceramic businesses are also being pressured by higher interest rates, which have compressed residential remodeling. We are making progress integrating our existing businesses and new acquisitions, and we have begun to leverage sales of our total product portfolio to expand our distribution. The combined synergies we are realizing are partially offsetting the weakening market conditions. By the end of the year, we should complete the migration of our acquisitions onto our existing information systems, which will facilitate further sales and cost opportunities.
Of the two regions, Mexico is performing better due to the economy and lower interest rates, while Brazilian ceramic industry is now being more impacted by economic conditions after holding up longer. We are taking additional sales and operational actions to manage the softening environment. The Brazilian government has recently announced that it will subsidize low interest rate mortgages to support new home construction and help the economy.
Our Flooring Rest of World segment continues to successfully manage a difficult environment. Consumer spending has not improved as we expected. Confidence remaining low given inflation, higher interest rates in the war in Ukraine. Sequentially, our sales volume and production rates improved from the first period. With low manufacturing utilization and declining input costs, industry pricing and mix continues under pressure. During the quarter, energy and raw material costs decline, partially offsetting weakening conditions. To manage lower volumes, we're pursuing additional sales, reducing cost and aligning production with demand. The segment's third quarter is seasonally impacted by extended vacations, which will reduce our sales and earnings in the period.
Though our flooring sales are under pressure, our sheet vinyl collections are outperforming as consumers trade down to lower price alternatives to minimize project costs. To meet rising demand across our regions, we are increasing our sheet vinyl production. The integration of our Eastern European sheet vinyl acquisition has significantly progressed. We have enhanced its offering with higher performance products, sped up its operations and added another manufacturing shift to support growing volume.
We are managing production of laminate and LVT to align with present demand and are introducing new products, merchandising and specific promotions to expand sales volumes. We have begun to transition our residential LVT offering from flexible, rigid cores and are executing the previously announced restructuring to support this conversion.
In our panels business, fewer projects are being initiated and industrial use has decreased due to slower market conditions. We are increasing sales of our higher-margin decorative HPL products as we expand our customer base. Our plant utilization remains low, and our selling prices are declining, partially offset by lower material costs, improved productivity and our green energy production. We have made considerable progress integrating our small board and mezzanine acquisitions, including enhancing their operations, aligning sales strategies and combining administrative functions.
Long-term prospects for our insulation business remains strong, supported by increasing energy conservation and government regulations. Presently, demand is declining as residential and commercial investments are being deferred and new industry capacity is increasing competition in some of our markets. Industry pricing is declining as input costs fall and we are reducing expenses to adjust market conditions.
Similar to our other regions, the Australia and New Zealand housing markets have softened due to inflation and higher interest rates. Our results for the quarter were impacted by lower volumes and mix in our residential channels, and we are introducing new products and selective promotions to increase sales volume. Our commercial sales in New Zealand were stronger, and we are leveraging our innovative collections to capture larger projects.
Our Flooring North America segment has faced the same challenging conditions as inflation, high interest rates and more conservative lending practices have impacted the US housing market and our industry. As we anticipated, the segment's margin sequentially expanded in the quarter due to seasonality and lower costs flowing through the inventory. To control costs, we have enhanced productivity, streamlined administrative functions and initiated restructuring actions. With weak residential remodeling and softer mix, retailers continue to tightly manage their inventory level, further impacting demand in the quarter.
With energy and raw material costs declining, market competition is increasing. New single-family home starts have begun to increase with some builders subsidizing interest rates to attract buyers. In retail, we are providing new product options to trade up consumers and value alternatives for those with budget constraints. To increase sales, we're initiating selective promotional activity, enhancing our product offering and introducing more consumer-friendly displays.
The US commercial sector has proven more resilient as businesses continue to invest in new construction and remodeling projects. The July Architectural Billing Index reflected a stable environment for new projects. We are experiencing some mix pressure in commercial as customers seek to maintain budgets. The Hospitality and Main Street channels performed best in the quarter and we are expecting our participation in the health care channels.
Our unique products, which are certified carbon neutral are growing as they deliver superior performance with a negative carbon footprint. Our commercial accessories acquisition is performing well as we leverage our relationships to enhance its product sales. Mohawk is the leading producer of premium laminate due to our more realistic visuals and waterproof performance. We continue to see a broader adoption of our Redwood products in both retail and builder channels. We have increased our offering of our revolutionary signature technology, which enhances the richness of our Pergo and Karastan collections. We are aligning production with current conditions, implementing cost reductions and managing pricing and mix to optimize our results.
In Residential carpet, we've seen a sequential improvement in sales and production, along with the decline in input costs, which improved our margins from the first quarter. We have enhanced our luxury Karastan and Godfrey Hirst collections and are providing retailer incentives to grow volumes. Our expanded solution-dyed polyester carpet portfolio is increasing our position with multifamily developers and single home builders negatively impacting our product mix. We have integrated our recent non-woven acquisition and are improving its sales and operations.
With the decline in ocean freight costs, market pressure for LVT are increasing and the US Forced Labor Protection Act is impacting some shipments. Higher cost inventory reduced our margins as we adapted to the changing market. Our new rigid LVT introductions with updated visuals, WetProtect and antimicrobial technologies differentiate us in the market and our sheet vinyl sales rose as consumers selected more affordable options. Our West Coast LVT plant will continue to ramp up throughout the rest of the year.
With that, I'll return the call to Jeff.
