Q4 2023 Masco Corp Earnings Call
Operator: Good morning, ladies and gentlemen. Welcome to Masco Corporation's fourth quarter and four-year conference call. My name is Lesser, and I will be your operator for today's conference call. As a reminder, today's conference call is being recorded for replay purposes. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Good morning, ladies and gentlemen, welcome to Masco Corporation's fourth quarter and full year conference call.
Leslie: My name is lesser and I will be your operator for today's conference call.
Leslie: As a reminder, today's conference is being recorded for replay purposes.
Leslie: Following the presentation, we will conduct a question and answer session.
Leslie: If at any time during this call you will require immediate assistance. Please press star zero for operator.
Leslie: I will now turn the call over to Renee Benedict Director Investor Relations and DNA you may begin.
Renee Benedict: I will now turn the call over to Renee Benedict, Director, Investor Relations, and FP&A. You may begin. Thank you, Operator, and good morning. Welcome to Masco Corporation's 2023 fourth quarter and full year conference call. With me today are Keith Allman, President and CEO of Masco, and Rick Westenberg, Masco's Vice President and Chief Financial Officer. Our fourth-quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up.
Renee Benedict: Thank you operator, and good morning, welcome to Masco Corporation's 2023 fourth quarter and full year conference call with me today are Keith Allman, President and CEO of Masco, and Rick Westenburg, Masco, Vice President and Chief Financial Officer.
Renee Benedict: Our fourth quarter earnings release, and the presentation slides are available on our website under Investor Relations.
Renee Benedict: Knowing our remarks, we will open the call for analyst questions.
Renee Benedict: Please limit yourself to one question with one follow up.
Renee Benedict: If we can't take your question now, please call me directly at 313-792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and Form 10-Q that we file with the Securities and Exchange Commission.
Renee Benedict: If we can't take your question now please call me directly at 313 792 by 500.
Renee Benedict: Our statements today will include our views about our future performance, which constitute forward looking statements.
Renee Benedict: These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward looking statements.
Renee Benedict: We've described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and Form 10-Q that we filed with the Securities and Exchange Commission.
Renee Benedict: Our statements also include non-GAAP financial metrics. Our references to operating profits and earnings per share will be as adjusted unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I'll now turn the call over to Keith. Thank you, Renee. Good morning, everyone, and thank you for joining us today.
Renee Benedict: Our statements also include non-GAAP financial metrics.
Our references to operating profit and earnings per share will be as adjusted unless otherwise noted.
Renee Benedict: We reconciled these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under investor relations with that I'll now turn the call over to Keith.
Keith J. Allman: Thank you Renee.
Keith J. Allman: Good morning, everyone and thank you for joining us today.
Keith J. Allman: Before I get started I'd like to share with you that we have appointed Robyn zondervan as our incoming vice president of Investor Relations.
Keith J. Allman: Before I get started, I'd like to share with you that we have appointed Robin Zondervan as our incoming Vice President of Investor Relations. Robin is currently our Controller and Chief Accounting Officer, and we'll be transitioning him to lead investor relations at the end of this month. I have full confidence that with Robin's leadership, we will continue to have a world-class investor relations function at Masco and provide the investment community with the information and transparency you have come to expect from us. Now, on to our results. I'll start this morning with some brief comments on our fourth quarter and full year results. And I'll finish with our view on 2024, as well as our long-term margin expectation. Please turn to slide 5.
Keith J. Allman: Robin is currently our controller and Chief Accounting Officer, and we will be transitioning to lead Investor relations at the end of this month.
Keith J. Allman: I have full confidence that with Robin's leadership, we will continue to have a world class Investor relations function at Moscow and provide the investment community with the information and transparency you have come to expect from us.
Keith J. Allman: Now onto our results.
Speaker Change: I'll start this morning, with some brief comments on our fourth quarter and full year results.
I'll finish with our view on 2024 as well as our long term margin expectations.
Speaker Change: Please turn to slide five.
Keith J. Allman: We delivered a strong finish to another dynamic and successful year. In the fourth quarter, our top line decreased 2%, with volumes down across most categories. Partially offset by favorable pricing, currency, and our acquisition of SANA 360. The smaller decline in volume relative to the first three quarters of the year supports our view that many of our markets appear to be stabilized. Operating profit increased $38 million in the quarter due to a favorable price-commodity relationship as we continue to recover the significant inflation that we have experienced over the past two years and due to our continued efforts to drive efficiencies across our operation. Operating profit margin improved by 230 basis points to 14.5%. With our strong execution, our earnings per share for the quarter increased 28% to $0.83 per share.
Speaker Change: We delivered a strong finish to another dynamic and successful year.
Speaker Change: In the fourth quarter, our topline decreased 2% with volumes down across most categories, partially offset by favorable pricing currency and our acquisition of <unk> 360.
Speaker Change: The smaller decline in volume relative to the first three quarters of the year supports our view that many of our markets appear to be stabilizing.
Speaker Change: Operating profit increased $38 million in the quarter due to a favorable price commodity relationship.
Speaker Change: As we continue to recover the significant inflation that we have experienced over the past two years and due to our continued efforts to drive efficiencies across our operations.
Speaker Change: Operating profit margin improved 230 basis points to 14, 5%.
Speaker Change: With our strong execution, our earnings per share for the quarter increased 28% to 83 per share.
Keith J. Allman: Turning to our segment, plumbing sales were in line with the prior year in local currency, with lower volumes being offset by favorable pricing and our acquisition. Plumbing performance in the corridor was led by Delta Faucet's mid-single-digit sales growth, driven by strong performance in the wholesale channel. International plumbing performed better than expected in the fourth quarter, as demand in Europe and China, while still challenged, appears to be stabilized.
Speaker Change: Turning to our segments plumbing.
Speaker Change: Plumbing sales were in line with the prior year in local currency with lower volumes being offset by favorable pricing and our acquisition.
Speaker Change: Plumbing performance in the quarter was led by Delta Faucet mid single digit sales growth driven by strong performance in the wholesale channel.
Speaker Change: International plumbing performed better than expected in the fourth quarter as demand in Europe, and China, while still challenged appears to be stabilizing.
Speaker Change: Investments in our leading global plumbing brands innovative products and customer service are producing results and we will continue to capitalize on these initiatives.
Keith J. Allman: Investments in our leading global plumbing brands, innovative products, and Customer Service are producing results, and we will continue to capitalize on. Turning to our decorative architectural segment, sales declined 7%, primarily due to a soft DIY paint, with DIY paint sales declining by a high single digit.
Speaker Change: Turning to our decorative architectural segment.
Speaker Change: Sales declined 7%, primarily due to a soft DIY paint market with DIY paint sales declining high single digits.
Speaker Change: While our propane business declined slightly in the quarter. We are very pleased with our three year propane stacked comp of approximately 60%.
Keith J. Allman: While our propane business declined slightly in the quarter, we are very pleased with our three-year propane stacked comp of approximately 60%. This significant growth and share gain demonstrate the strength of our bear brand and the quality of our products, which continue to resonate with propaners. We will continue to invest in this business to expand our services and build upon our successful collaboration with the Home Depot to capitalize on the large opportunity in the propane market. Now, let's review our full year performance. Please turn to slide 6.
Speaker Change: This significant growth and share gain demonstrates the strength of our behr brand and the quality of our products that continue to resonate with pro painters.
Speaker Change: We will continue to invest in this business to expand our services and build upon our successful collaboration with the home depot to capitalize on the large opportunity in the propane market.
Speaker Change: Now, let's review our full year performance, please turn to slide six.
Speaker Change: Masco executed extremely well in 2023 and improved nearly every operating metric for the full year.
Keith J. Allman: Masco executed extremely well in 2023 and improved nearly every operating metric for the full year. Gross margin improved 360 basis points to 35.2%. Operating margin expanded 120 basis points to 16.8 percent, and plumbing margin expanded 210 basis points to 18 percent. Decorative margin expanded 10 basis points to 17.8%.
Gross margin improved 360 basis points to 35, 2%.
Speaker Change: Operating margin expanded 120 basis points to 16, 8%.
Speaker Change: Plumbing margin expanded 210 basis points to 18%.
Speaker Change: Decorative margin expanded 10 basis points to 17, 8%.
Speaker Change: Earnings per share grew 2% to $3 86 per share up from $3 77 per share in 2022.
Keith J. Allman: Earnings per share grew 2% to $3.86 per share, up from $3.77 per share in 2022. We delivered a return on invested capital of 36%, and our free cash flow conversion was approximately 122%, which allowed us to return $610 million to shareholders in the form of dividends and share repurchases in 2023 and to complete the bolt-on acquisition of SANA 360 for approximately $136 million. Importantly, we have achieved compound annual earnings per share growth of 14% from 2019 to 2023, delivering on our commitment of double-digit EPS growth through the cycle and demonstrating the power of our brands, innovation, and portfolio of lower-ticket repair and remodel-oriented products. I want to thank all our employees for their strong execution, focus on the customer, and their continuous improvement mindset that delivered this tremendous performance. Turning to slide 7.
Speaker Change: We delivered a return on invested capital of 36%.
Speaker Change: And our free cash flow conversion was approximately a 122%.
Speaker Change: Which allowed us to return $610 million to shareholders in the form of dividends and share repurchases in 2023 and to complete the bolt on acquisition of sort of $3 60 for approximately $136 million.
Speaker Change: Importantly, we have achieved compound annual earnings per share growth of 14% from 2019 to 2023 deals.
Speaker Change: Delivering on our commitment of double digit EPS growth through cycles, and demonstrating the power of our brands innovation and portfolio of lower ticket repair and remodel oriented products.
Speaker Change: I want to thank all our employees for their strong execution focus on the customer.
Speaker Change: There are continuous improvement mindset that delivered this tremendous performance.
Speaker Change: Turning to slide seven.
Keith J. Allman: As we look to the future, we are well positioned to achieve strong, profitable growth over the next few years through top line growth, market share gains, margin expansion, and disciplined capital deployment. Our current market assumptions for 2024 are as follows for North American Repair and Rebattle March. We expect the market to be flat to down on those things. For our international markets, we expect the markets in aggregate to be down low to mid-single.
Speaker Change: As we look to the future we are well positioned to achieve strong profitable growth over the next few years through top line growth market share gains margin expansion and disciplined capital deployment.
Speaker Change: Our current market assumptions for 2024 are as follows.
Speaker Change: But the north American repair and remodel market.
Speaker Change: We expect the market to be flat to down low single digits.
Speaker Change: For our international markets, we expect the markets in aggregate to be down low to mid single digits.
Speaker Change: For the paint market, we expect the DIY paint market to be down low single digits in the propane market to increase low single digits.
Keith J. Allman: For the paint market, we expect the DIY paint market to be down low single digits and the pro paint market to increase low single digits. We expect to outperform the market and for Masco's overall sales to be approximately flat in 2024. Despite this flat top line assumption.
Speaker Change: We expect to outperform the market and for <unk> overall sales to be approximately flat in 2024.
Speaker Change: Despite this flat top line assumption, we will continue to improve margins through disciplined pricing.
Keith J. Allman: We will continue to improve March. Discipline Pricing, Selective Cost Reductions, Innovative Product Introductions, and Operational Efficiencies Across Our Businesses. However, this margin expansion will not be without its challenges, as freight and shipping costs have recently increased. Other commodity inputs remain elevated, and other costs, such as people-related expenses and insurance, are increasing.
Speaker Change: <unk> cost reductions innovative product introductions at operational efficiencies across our business.
Speaker Change: This margin expansion will not be without its challenges as freight and shipping costs have recently increased other.
Speaker Change: Other commodity inputs remain elevated and other costs such as people related expenses and insurance are increasing.
Speaker Change: We are up for the challenge.
Keith J. Allman: We are up for the challenge and have demonstrated our ability to execute in dynamic times. We expect to deliver increased plumbing margins of approximately 18.5% and decorative margins of approximately 18% in 2024, resulting in a Masco operating margin of approximately 17 percent. Turning to capital allocation, our strategy remains unchanged.
Speaker Change: And have demonstrated our ability to execute and dynamic times.
Speaker Change: We expect to deliver increased plumbing margins of approximately 18, 5%.
And decorative margins of approximately 18% in 2024.
Speaker Change: Resulting in a masco operating margin of approximately 17%.
Speaker Change: Turning to capital allocation our strategy remains unchanged.
Keith J. Allman: Firstly, we will reinvest in our business to maintain and grow our leadership positions and win in the market. This includes continuing to invest in our growth initiatives, such as growing our share in the domestic plumbing wholesale channel.
Speaker Change: Firstly, we will reinvest in our business to maintain and grow our leadership positions and win in the marketplace.
Speaker Change: This includes continuing to invest in our growth initiatives, such as growing our share in the domestic plumbing wholesale channel.
Keith J. Allman: Continuing to expand our international plumbing share and continuing to gain share in propane. It also includes investing in our facility to ensure we have the capacity to support future growth by completing our European faucet and shower facility and our Midwestern Paint Manufacturing and Distribution Center.
Speaker Change: Continuing to expand our international plumbing share and continuing to gain share and propane.
Speaker Change: It also includes investing in our facilities to ensure we have the capacity to support future growth by completing our European faucet and shower facility.
Speaker Change: And our Midwestern paint manufacturing and distribution center.
Speaker Change: Secondly, our.
Keith J. Allman: Our capital allocation strategy is to maintain a strong investment grade balance, with gross debt to EBITDA levels of below 2.5 times. Our balance sheet remains extremely strong, with gross debt to EBITDA of two times at year end. Thirdly, we have a targeted dividend payout ratio of 30%. I'm pleased to share that our board declared a 2% increase in our dividend for 2024, which will bring our annual dividend to $1.16 per share and mark the 11th consecutive annual, We expect a strong free cash flow conversion in 2024 of approximately 90%, and we'll deploy that free cash flow after dividends to share repurchases or acquisitions. Based on our projected free cash flow, we expect to deploy approximately $600 million for share repurchases or acquisitions in 2024. Our M&A strategy has not changed.
Speaker Change: Our capital allocation strategy is to maintain a strong investment grade balance sheet with gross debt to EBITDA levels of below two five times.
Speaker Change: Our balance sheet remains extremely strong with gross debt to EBITDA of two times at year end.
Speaker Change: Thirdly.
Speaker Change: We have a targeted dividend payout ratio of 30%.
Speaker Change: I am pleased to share that our board declared a 2% increase in our dividend for 2024.
Which will bring our annual dividend to $1 16 per share and marks the 11th consecutive annual increase.
Speaker Change: And fourth and finally, we expect strong free cash flow conversion in 2024 of approximately 90% and we will deploy that free cash flow after dividends to share repurchases or acquisitions.
Speaker Change: Based on our projected free cash flow, we expect to deploy approximately $600 million to share repurchases or acquisitions in 2024.
Speaker Change: Our M&A strategy has not changed.
Keith J. Allman: We continue to review and selectively pursue opportunities that have the right strategic fit and the right return for MASC, with the goal of adding 1-3% top line growth through acquisitions annually. Based on our expected operating performance and capital deployment actions, Thank you for watching. We anticipate earnings per share for 2024 to be in the range of $4 to $4.25 per share.
Speaker Change: We continue to review and selectively pursue opportunities that have the right strategic fit and the right return for masco with the goal of adding 1% to 3% top line growth through acquisitions annually.
Speaker Change: Based on our expected operating performance and capital deployment actions, we anticipate earnings per share for 2024 to be in the range of $4 to $4 25 per share.
Keith J. Allman: Now looking out over the next three years, we will continue our strong execution and deliver margin expansion through 2026. For our plumbing segment, with our industry-leading brands, including Delta and Hansgrohe, we expect to expand margins to 20% in 2026, up from 18% in 2023. For our decorative segment, led by our industry-leading bear brand, we expect to achieve margins of 19 to 20% in 2026, up from 17.8% in 2023. This would result in overall Masco operating profit margins of approximately 18.5%. School 2026
Speaker Change: Now looking out over the next three years, we will continue our strong execution and deliver margin expansion through 2026.
Speaker Change: For our plumbing segment with our industry, leading brands, including Delta enhanced growing we expect to expand margins to 20% in 2026 up from 18% in 2023.
Speaker Change: For our decorative segment led by our industry, leading Behr brand, we expect to achieve margins of 19% to 20% in 2026 up from 17, 8% in 2023.
Keith J. Allman: And I would like, as soon as they can, build ESPRINT as best we can. It's something that we are in the middle of. I think, now that we do have maybe one or two or three or four or five or six ESPRINT musicians in the room, then, guys, we need to really concentrate intensely on what they are waiting to hear.
Speaker Change: This would result in overall masco operating profit margins of approximately 18, 5% in 2026.
Keith J. Allman: We know they are looking at our full content to work here on ESPRINT. But we've also got a little bit of space. We believe we can achieve these margins with normalized 3-5% repair and remodel industry growth in 2025 and 2026 through leveraging incremental volume, exercising pricing discipline, and executing operations while 2023 clearly saw a reduction in demand. We believe that our markets will stabilize in 2024 and return to typical growth rates in 2025 and 2026. Structural factors are supportive of increased repair and remodel activity in several ways.
Speaker Change: We believe we can achieve these margins with normalized 3% to 5% repair and remodel industry growth and 25 and 26.
Speaker Change: Through leveraging incremental volume exercising pricing discipline and executing operational improvements.
Speaker Change: While 2023, clearly saw a reduction in demand.
Speaker Change: We believe that our markets will stabilize in 2024 and returned to typical growth rates in 2025 and 2026.
Speaker Change: Structural factors are supportive of increased repair and remodel activity in several ways.
Many homeowners have taken advantage of low mortgage rates and are likely to remain in their homes longer.
Keith J. Allman: Many homeowners have taken advantage of low mortgage rates and are likely to remain in their homes longer. 1.7 million more homes will reach the prime remodeling ages of 20 to 39 years old over the next three years. And home equity levels remain high. All of these structural forces provide tailwinds for our business and increase our confidence in a strong repair and remodel market. We will continue to invest in our brands, capabilities, and people to outperform the competition in both the near and long term. With favorable fundamentals and our continued focus on executing our growth strategy, together with our strong free cash flow and capital deployment, Masco is well positioned to continue to drive shareholder value over the long term. Now I'll turn the call over to Rick to go over our fourth quarter, full year, and 2024 outlook in more detail. Rick
Speaker Change: One 7 million more homes will reach the prime remodeling ages of 20% to 39 years old over the next three years.
Speaker Change: And home equity levels remain high.
Speaker Change: All of these structural forces provide tailwind for our business and increase our confidence for a strong repair and remodel market.
Speaker Change: We will continue to invest in our brands capabilities and people to outperform the competition in both the near and long term.
Speaker Change: With favorable fundamentals and our continued focus on executing our growth strategy together with our strong free cash flow and capital deployment.
Speaker Change: <unk> is well positioned to continue to drive shareholder value over the long term.
Speaker Change: Now I will turn the call over to Rick to go over our fourth quarter full year and 2024 outlook in more detail Rick.
Speaker Change: Rick.
Rick: Thank you, Keith. And good morning, everyone. Thank you for joining us. As many of you know, I joined Masco as its CFO in mid-October. I'm excited to be part of this strong performing company and team, and I'm happy to be sharing our results with you this morning. As Renee mentioned, my comments today will focus on adjusted performance, including the impact of rationalization charges and other one-time items. Turning to slide 9, sales in the quarter decreased 2%, or 3% excluding favorable currency impact. In local currency.
Rick Westenburg: Thank you Keith and good morning, everyone.
Rick Westenburg: For joining.
Rick Westenburg: As many of you know I joined <unk> as CFO in mid October I am excited to be part of this strong performing company and team.
Rick Westenburg: I'm happy to be sharing our results with you this morning.
Speaker Change: As Rene mentioned my comments today will focus on adjusted performance.
Speaker Change: Excluding the impact of rationalization charges.
Speaker Change: And other one time items.
Speaker Change: Turning to slide nine.
Speaker Change: Sales in the quarter decreased 2% or.
Speaker Change: Four 3%, excluding unfavorable currency impact.
Speaker Change: In local currency.
Rick: North American sales decreased 3%, for 4% excluding acquisitions. In local currency, international sales decreased 3%. We continue to drive operational efficiency and Price-Cost Performance in the Quarter, which helped lead to gross margin expansion of 560 basis points to 35.1%. SG&A as a percent of sales was 20.6%, and it was impacted by higher employee-related costs, such as incentive compensation. Our operating profit grew 16% in the quarter, and margin expanded 230 basis points to 14.5%. This strong operating profit and margin performance was due to pricing action. Lower Commodity and Freight Costs and Cost Savings Initiatives, although partially offset by lower volumes and higher employee-related expenses. This resulted in EPS growth of 28% to 83 cents per share.
Speaker Change: North American sales decreased 3%.
Speaker Change: Four 4% excluding acquisition.
Speaker Change: In local currency international sales decreased 3%.
Speaker Change: We continued to drive operational efficiencies and price cost performance in the quarter.
Speaker Change: Which helped lead to gross margin expansion of 560 basis points to 35, 1%.
Speaker Change: SG&A as a percent of sales was 26%.
And was impacted by higher employee related costs, such as incentive compensation.
Speaker Change: Our operating profit grew 16% in the quarter and margin expanded 230 basis points to 14, 5%.
Speaker Change: This strong operating profit and margin performance was.
Speaker Change: It was due to pricing actions lower commodity and freight costs and cost savings initiatives.
Speaker Change: Partially offset by lower volumes and higher employee related expenses.
Speaker Change: This resulted in EPS growth of 28% to 83 per share.
Rick: Turning to the full year 2023, sales decreased 8% over the prior year, slightly better than our expectations. Given sales performance in our plumbing sector, FX and acquisitions did not have a material impact on full year results. In local currency, North American sales decreased 9%, and international sales decreased 6%. SG&A as a percent of sales was 18.4%, in line with more normalized levels. Operating profit for the full year was $1.3 billion.
Speaker Change: Turning to the full year 2023.
Speaker Change: Sales decreased 8% over the prior year slightly.
Speaker Change: Slightly better than our expectation.
Speaker Change: Sales performance in our plumbing segment.
Speaker Change: FX and acquisition did not have a material impact on full year results.
Speaker Change: In local currency, North American sales decreased 9% and.
Speaker Change: And international sales decreased 6%.
Speaker Change: SG&A as a percent of sales was 18, 4% in.
Speaker Change: In line with more normalized levels.
Speaker Change: Operating profit for the full year was $1 3 billion.
And operating margin expanded 120 basis points to 16, 8%.
Rick: An operating margin expanded 120 basis points to 16.8%. Lastly, our EPS increased 2% year-over-year to $3.86. This figure assumes a tax rate of 24.5% versus the previously guided 24%, which unfavorably impacted full-year EPS by 3 cents. Turn the slides, Ted.
Speaker Change: Lastly, our EPS increased 2% year over year to $3 86.
Speaker Change: This figure assumes a tax rate of 24, 5% versus the previously guided 24%, which.
Speaker Change: Which unfavorably impacted full year EPS by <unk> <unk>.
Speaker Change: Turning to slide 10.
Rick: Plumbing sales in the fourth quarter increased 1% and showed signs of stabilization. Lower volume and mix decreased sales by 4%, but this was more than offset by favorable pricing of 2%, the impact of acquisitions of 2%, and FX of 1%. In local currency, North American plumbing sales increased 1%, but they decreased 1% excluding acquisitions. In local currency, international plumbing sales decreased 3% as demand continued to be soft in Europe and in China.
Speaker Change: Plumbing sales in the fourth quarter increased 1% and showed signs of stabilization.
Speaker Change: Lower volume and mix decreased sales by 4%.
Speaker Change: This was more than offset by favorable pricing of 2% the.
Speaker Change: The impact of acquisitions of 2%.
Speaker Change: FX of 1%.
Speaker Change: In local currency North American plumbing sales increased 1%.
Speaker Change: <unk> decreased 1% excluding acquisition.
Speaker Change: In local currency international plumbing sales decreased 3% as demand continued to be soft in Europe and in China.
Rick: Segment operating profit in the fourth quarter was up $50 million or 34% year over year. The operating margin expanded 400 basis points to 16.4%. This operating profit improvement was driven by pricing actions, lower Commodity and Freight Costs, and Cost Savings Initiatives, partially offset by lower volume and higher employee-related expenses. Turning to the full year 2023, plumbing sales decreased 8 percent, slightly better than our expectations.
Speaker Change: Segment operating profit in the fourth quarter was up $50 million or 34% year over year in.
Speaker Change: And operating margin expanded 400 basis points to 16, 4%.
Speaker Change: This operating profit improvement was driven by pricing actions.
Speaker Change: Lower commodity and freight costs and cost savings initiatives.
Speaker Change: Partially offset by lower volume and higher employee related expenses.
Speaker Change: Turning to the full year 2023.
Speaker Change: Plumbing sales decreased 8%.
Speaker Change: Lately better than our expectations.
Rick: Lower volume and mix decreased sales by 12%, partially offset by net pricing, which favorably impacted sales by 4%. Acquisitions had a favorable impact of 1%, and FX was immaterial for the full year. In local currency, North American plumbing sales decreased 8%, net of the 1% impact from the acquisition, and International Plumbing Sales decreased 6%. However, full year operating profits increased 4%, and the margin expanded 210 basis points to 18%. Turning the slide a little bit, decorative architectural sales decreased 7% for the fourth quarter.
Lower volume and mix decreased sales by 12%.
Speaker Change: Partially offset by net pricing, which favorably impacted sales by 4%.
Speaker Change: Acquisitions had a favorable impact of 1% and FX was immaterial for the full year.
Speaker Change: In local currency nor.
Speaker Change: North American plumbing sales decreased 8%.
Speaker Change: Net of the 1% impact from acquisitions.
Speaker Change: And international plumbing sales decreased 6%.
Speaker Change: Full year operating profit increased 4% and margin expanded 210 basis points to 18%.
Speaker Change: Turning to slide 11.
Speaker Change: Secretary architectural sales decreased 7% for the fourth quarter.
Speaker Change: Paint sales declined mid single digits with propane sales down slightly against a mid single digit comp in the fourth quarter of 2022.
Rick: Paint sales declined by mid-seagull digit, with propane sales down slightly against a mid-single-digit comp in the fourth quarter of 2022. Operating profit was $100 million, in line with 2022 performance, and Operating Margin expanded 90 basis points to 14.8%. Operating profit was impacted by lower volumes and price, offset by cost savings initiatives and lower material costs. As expected, we did experience a release in certain pain input costs with modest, low single-digit deflation in the fourth quarter. Turning to the full year 2023, sales decreased 9%, driven by a high single-digit decline in our DIY paint business and a mid-single-digit decline in our propane business.
Speaker Change: Operating profit was $100 million.
Speaker Change: In line with 2022 performance.
Speaker Change: And operating margin expanded 90 basis points to 14, 8%.
Speaker Change: Operating profit was impacted by lower volumes and pricing.
Speaker Change: Offset by cost savings initiatives and lower material costs.
Speaker Change: As expected we did experience relief in certain input costs with modest low single digit deflation in the fourth quarter.
Speaker Change: Turning to the full year 2023.
Speaker Change: Sales decreased 9% driven by a high single digit decline in our DIY paint business.
Speaker Change: And a mid single digit decline in our propane business.
Rick: This performance was aligned with the expectations we set at the beginning of 2023, as we achieved over 25% propane growth in 2022. Additionally, over a three-year period, propane sales have grown by over 60 percent, demonstrating our ability to gain and retain share. Full-year operating income was $557 million in the segment, and operating margin expanded 10 basis points to 17.8%. Turning to slide 12, our year-end balance sheet was strong, with gross debt to EBITDA at two times. We ended the quarter with $1.6 billion of liquidity, including cash and availability under a revolving credit facility.
Speaker Change: This performance was in line with the expected with the expectations. We set at the beginning of 2023 as we cycled over 25% pro paint growth in 2022.
Speaker Change: Additionally, over a three year period.
Speaker Change: Propane sales have grown by over 60%.
Speaker Change: Demonstrating our ability to gain and retain share.
Speaker Change: Full year operating income was $557 million.
Speaker Change: In the segment and operating margin expanded 10 basis points 17, 8%.
Speaker Change: Turning to slide 12, our year end balance sheet was strong with gross debt to EBITDA at two times.
Speaker Change: We ended the quarter with $1 6 billion of liquidity, including cash and availability under our revolving credit facility.
Rick: Working capital improved by 6 days to 59 days for 16% of sales. With this improvement in working capital, our adjusted free cash flow for the year was $1.1 billion, an improvement of over $500 million compared to the prior year, driving our free cash flow conversion to 122%. Given our strong cash performance, we were able to return $610 million to shareholders through dividends and share repurchases, including the repurchase of $227 million of stock in the fourth quarter.
Speaker Change: Working capital improved by six days to 59 days or 16% of sales.
Speaker Change: With this improvement in working capital.
Speaker Change: Our adjusted free cash flow for the year was $1 1 billion.
Speaker Change: An improvement of over $500 million.
Speaker Change: Compared to the prior year.
Speaker Change: Driving our free cash flow conversion to 122%.
Speaker Change: Given our strong cash performance, we were able to returned $610 million to shareholders through dividends and share repurchases.
Speaker Change: Including the repurchase of $227 million.
Speaker Change: Stock in the fourth quarter.
Speaker Change: Now, let's turn to slide 13.
Rick: Now let's turn to slide 13, and Review Our Outlook for 2024. For Masco overall, we expect 2024 sales to be flat, but with operating margin growing to approximately 17%. Currency is projected to have a minimal impact on our 2024 results.
Speaker Change: And review our outlook for 2024.
Speaker Change: For Masco overall, we expect 2024 sales to be flat.
Speaker Change: But with operating margin growing to approximately 17%.
Speaker Change: Currency is projected to have minimal impact.
Speaker Change: 2024 results.
Rick: We will continue to invest in our business for future growth while also maintaining costs. As a result, we expect SG&A as a percent of sales to be in the range of 18 to 18.5% in 2024. As always, we will take appropriate actions to address our costs as the year develops based on market conditions. As we think about the cadence for the year, we expect sales to be down slightly in the first half of the year, with modest growth in the back half of the year. Also, as it relates to operating margins, with a softer sales outlook in the first half of the year. We anticipate Masco margins will be roughly flat in the first half of the year, with expansion expected in the second half.
Speaker Change: We will continue to invest in our business for future growth, while also maintaining cost discipline.
Speaker Change: As a result, we expect SG&A as a percent of sales to be in the range of 18 to 18, 5% in 2024.
Speaker Change: As always we will take appropriate actions to address our costs as the year develops based on market conditions.
Speaker Change: As we think about the cadence for the year, we expect sales to be down slightly in the first half of the year with modest growth in the back half of the year.
Speaker Change: Also as it relates to operating margins with a softer sales outlook in the first half of the year.
Speaker Change: We anticipate <unk> margins will be roughly flat in the first half of the year.
Speaker Change: The expansion expected in the second half.
Rick: In our plumbing segment, we expect 2024 full-year sales to be plus or minus a low single digit. We anticipate the full-year plumbing margin will be approximately 18.5%, up from our 2023 margin of 18 percent. Margin expansion will primarily be driven by pricing discipline, operational efficiency, and continued cost savings initiatives. In our decorative architectural segment... We expect 2024 sales to also be plus or minus low single digits, looking specifically at our paint business in 2024. We anticipate our DIY business to decrease by low single digits, and our pro-paid business to increase by low single digits. We anticipate the full year decorative architectural margin to be negative.
Speaker Change: In our plumbing segment, we expect 2020 for full year sales to be plus or minus low single digits.
Speaker Change: We anticipate the full year plumbing margin will be approximately 18, 5%.
Speaker Change: Up from our 2023 margin of 18%.
Speaker Change: Margin expansion will primarily be driven by pricing discipline.
Speaker Change: Operational efficiency.
Speaker Change: And continued cost savings initiatives.
Speaker Change: In our decorative architectural segment.
Speaker Change: We expect 2020 for sales to also be plus or minus low single digits.
Speaker Change: Looking specifically at our paint business in 2024.
Speaker Change: We anticipate our DIY business to decrease low single digits.
Speaker Change: And our propane business to increase low single digits.
Speaker Change: We anticipate the full year decorative architectural margin.
Rick: To be approximately 18%, To be approximately 18%, up from our 2023 margin of 17.8%. Driven by Cost Savings Initiatives. With regard to capital allocation... We expect to reinvest approximately $200 million through capital expenditures.
Speaker Change: To be approximately 18%.
Speaker Change: Up from our 2023 margin of 17, 8% driven.
Speaker Change: Driven by cost savings initiatives.
Speaker Change: With regards to capital allocation, we expect to reinvest approximately $200 million.
Speaker Change: Through capital expenditures.
Rick: Pay a dividend of $0.29 per share per quarter and deploy approximately $600 million towards share repurchases or acquisitions in 2024. Finally, as Keith mentioned earlier, our 2024 EPS estimate is $4 to $4.25. This assumes a $221 million average diluted share count for the year and a 24.5% effective tax rate, which is consistent with our 2023 effective tax rate.
Speaker Change: Pay a dividend of <unk> 29 per.
Speaker Change: Per share per quarter.
Speaker Change: And deploy approximately $600 million towards share repurchases or acquisitions in 2024.
Speaker Change: Finally, as Keith mentioned earlier, our 2024 EPS estimate is $4 to $4 25.
Speaker Change: This assumes a 221 million average diluted share count for the year.
Speaker Change: A 24, 5% effective tax rate, which is consistent with our 2023 effective tax rate.
Speaker Change: Additional financial assumptions for 2024 can be found on slide 16 of our earnings deck.
Rick: Additional financial assumptions for 2024 can be found on slide 16 of our earnings deck. With that, I'd like to open the call to questions. Operator.
Speaker Change: With that I'd.
Speaker Change: To open the call for questions operator.
Speaker Change: Operator.
Speaker Change: Yes.
Operator: Thank you, ladies and gentlemen. We will now conduct the question and answer session. If you have a question, please press star 1. And if you wish to cancel your request, please press star 2. Please ensure that you leave your handset if you're using a speakerphone before pressing any keys.
Speaker Change: Thank you, ladies and gentlemen, we will now conduct the question and answer session.
Speaker Change: Have a question please press star one.
Operator: If you wish to cancel your request please press star two.
Operator: This insurer to lift your handset if you're <unk>.
Operator: Are you seeing any speaker phone before pressing the keys.
Speaker Change: Your first question comes from.
Keith J. Allman: Your first question comes from John Lovallo. Your line is now open. Good morning, guys. Thank you for taking the time to answer my questions. The first one is, you know, R&R is expected to be flat to slightly down in 2024. It seems like you expect flattish sales for both plumbing and decorative architecture. So, seemingly, you know, basically in line, maybe slightly above the overall market. How are you thinking about Masco's ability to outgrow its markets, you know, in the longer term? John, thanks for the question.
John Lovallo: John Lovallo.
John Lovallo: Your line is now open.
John Lovallo: Good morning, guys. Thank you for taking my questions. The first one is you R&R is expected to be flat to slightly down in 2024. It seems like you expect flattish sales for both both plumbing and decorative architectural so seemingly basically in line maybe slightly above the overall market. How are you thinking about <unk> ability to outgrow it.
John Lovallo: Markets longer term.
John Lovallo: John Thanks for the question.
John Lovallo: I haven't changed my opinion on our ability to gain share.
Keith J. Allman: I haven't changed my opinion on our ability to gain share, which is that we expect, as a company, to both outperform the market and expand margins. And we expect to continue to do so. So we will outperform the market, and that's driven primarily by our brands, which have developed over the years, as you know, to be leaders in their spaces. So there is both consumer pull as well as trade pull, where we're well recognized by plumbers and pipe fitters as a quality brand. Our service proposition as it relates to our channel partners to be able to help them drive profitable growth with minimal inventory positions due to our repeatable delivery and service, and our people and our teams around the globe.
John Lovallo: Which is that we expect as a company to both outperformed the market and to expand margins and we expect to continue to do that so we will outperform the market and that.
John Lovallo: That's driven.
John Lovallo: Primarily by our brands.
John Lovallo: Which have developed over the years as you know.
John Lovallo: To be leaders in their spaces. So there is both.
John Lovallo: Consumer poll as well as trade pulse.
John Lovallo: Where were well recognized by plumbers and pro painters as a quality brand our service proposition as it relates to our channel partners to be able to help them drive profitable growth with minimal.
John Lovallo: Inventory positions due to our repeatable delivery and service and our people and our teams.
John Lovallo: Around the globe, so our expectation is to outperform the market now.
Keith J. Allman: So our expectation is to outperform the market now. You know, in some spaces that we compete with, there will be greater share gains. In other spaces where we already have substantial leading market share, those share gains will be more modest, but we definitely expect to outperform the market going forward. Okay, that's helpful. And then maybe just help us with the cadence of the plan margin expansion across plumbing and decorative architecture to your 2026 targets. I mean, is the improvement expected to be fairly linear in 2025 and 2026? Or how should we think about that?
John Lovallo: Some spaces that we compete with there'll be greater share gains in other spaces, where we already have substantial leading market share of those share gains will be more modest, but we definitely expect to outperform the market going forward.
Speaker Change: Okay. That's helpful and then.
Speaker Change: Maybe just help us with the cadence of the planned margin expansion across plumbing and decorative architectural to your 2026 targets. I mean is the improvement is expected to be fairly linear linear 2025, and 2026 or how should we think about that.
Speaker Change: Well I think if you if your 2024, we believe is going to be.
Keith J. Allman: Well, I think if you, if you, you know, 2024, we believe it is going to be flattish on the top line and probably more modest as it relates to margin improvements. And when you think about our innovation pipeline and our projects that will drive efficiency and cost reductions, which will lead to that margin experience and improvement, those happen more towards the future years and will take some time to settle in and be realized in the P&L. So I would say there's a bit of that margin acceleration in 25 and 26.
Speaker Change: Flattish on the top line and probably more modest as it relates to margin improvements and when you think about.
Speaker Change: When we think about our innovation pipeline and our projects that will drive efficiency and cost reductions, which will lead to that margin experience improvement those happened more towards the out years and will take some time.
Speaker Change: To settle in and to be realized into the P&L. So I would say there is a bit of that margin acceleration in 'twenty five 'twenty six primarily when you think about it John the biggest drivers.
Keith J. Allman: Primarily, when you think about it, John, the biggest driver will be the drop down in incremental revenue. And we have a very strong, let's call it 25, you know, plumbing, it's knocking on 30% down on the incremental volume. And in our plan, as we've said, it is our belief that it will be relatively flat in 24. And then, in 25 and 26, when we think about the health of the consumer, when we see what's happening and believe what will continue to happen with regard to stabilization as it relates to rates, etc., we're expecting more of a typical growth rate in 25 to 26, call it, that 3 to 5% growth in R&R. We look at the same analytics, and we listen to a lot of the same people as it relates to R&R. Analytics around expectations, and a lot are calling for significantly more than that. We're not.
Speaker Change: It will be the dropdown on incremental revenue and we have very strong let's call. It 25 plumbing, it's not going on 30% dropdown on the incremental volume.
Speaker Change: And our plan as we said is to our belief is that will be relatively flat in 'twenty four and then in.
Speaker Change: And 25% and 26, when we think about.
Speaker Change: The health of the consumer when we see what's happening and we believe will continue to happen with regards to stable stabilization as it relates to rates et cetera that we're expecting more of a typical.
Speaker Change: Growth rates in 25% to 26 call it in that 3% to 5% growth in R&R now theirs.
Speaker Change: We look at the same analytics and we listened to a lot of the same people as it relates to.
Speaker Change: Analytics around expectations.
Speaker Change: And a lot are calling for significantly more than that we're not we're just basing our 25% and 26% more of our historical 3% to 5% R&R growth rate so that will be.
Keith J. Allman: We're just basing our 25 and 26 on more of a historical 3 to 5 percent R&R growth rate. So that will be a significant contributor to margin expansion. Thanks, Keith. Your next question comes from Matthew Bouley from Barclays. Your line is now open. Good morning, everyone.
Speaker Change: A significant contributor to margin expansion as well.
Speaker Change: Thanks Keith.
Speaker Change: Your next question comes from Matthew Bouley from Barclays. Your line is now open.
Matthew Bouley: Good morning, everyone. Thank you for taking the questions.
Keith J. Allman: Thank you for taking the questions. On that margin cadence into 24, you know, looking at the past three quarters, your year over year margins have expanded, right, and can actually kind of improve in the past three quarters. And it sounded like you were saying that that kind of margin expansion will flatten in the first half and then go back to expanding in the second half. So I'm just curious if you could kind of touch on that a little bit, sort of why wouldn't the recent improvements in margins kind of continue to flow through on a year over year basis into the first half of this year. Thank you. Hey Matt, good morning.
Matthew Bouley: On the on that margin cadence into 'twenty four.
Matthew Bouley: Looking at the past three quarters your year over year margins have expanded right.
Matthew Bouley: <unk> kind of improve the past three quarters and it sounded like you are saying that.
Matthew Bouley: That that kind of margin expansion will flatten in the first half and then go back to expanding in the second half. So I'm. Just curious if you can kind of touch on that a little bit sort of why wouldn't the recent improvements in margins kind of continue to flow through on a year over year basis into the first half of 'twenty four thank you.
Hey, Matt Good morning, I think when we.
Keith J. Allman: I think, you know, when you think about the improvement rate that we've seen this year, we had some pricing catch-up that we had to do against, as you know, fairly significant cost inflation. So that was a component of it.
Matt: You think about the improvement rate that we've seen this year.
Matthew Bouley: Had.
Matt: Some some pricing catch up that we had to do against some.
Matt: Fairly significant.
Matt: Cost inflation, so that was a component of it when we think about 'twenty four we have operational improvements that we're going to continue to drive.
Keith J. Allman: When we think about 24, we have operational improvements that we're going to continue to drive, probably when we think about the benefit of pricing, we'll see, I would say, a little bit of a headwind in our paint business. We've talked consistently about our relationship with our channel partner as it relates to price, where we keep our operating income dollars whole and match commodities with price, but that affects margin, and it affects it both ways, where you go up or go down. So a little bit of flight, uh... headwind in pricing in our decorative business and probably a slight tailwind in our plumbing business. So, to your direct question in terms of the rate of margin improvement, I think it really points to, really answers your question as it relates to pricing and where we will see margin improvement, despite calling for a flat top line in 24s and efficiency improvements that we're going to continue to drive with our projects that we have in flight.
Matt: Probably when we think about the.
Matt: The benefit of pricing.
Speaker Change: We'll see.
Speaker Change: I would say a little bit of a headwind in our paint business we've talked.
Speaker Change: Consistently about our relationship with our channel partner as it relates to price, where we keep our operating income dollars whole unmatched commodities with price, but that affects margin effects of both ways, where you can go up or go down so there'll be a slight.
Headwind in pricing in <unk>.
Decorative business and probably a slight tailwind in.
Speaker Change: Our plumbing business. So to your direct question in terms of the rate of margin improvement I think it really that really points to really answers. Your question as it relates to pricing and where we will see margin improvement.
Speaker Change: Despite.
Speaker Change: Calling for a flat top line in 'twenty four is in the efficiency improvements that we're going to continue to drive with the projects that we have in flight.
Keith J. Allman: And Matt, the only thing I would add is, from a timing perspective, our margin performance is going to be aligned, in terms of the expansion, aligned with our sales growth, and as we indicated, we expect a bit of softer in the first half of 2024, as growth starts to pick up, we believe in the second half of the year, we'll get that drop down that Keith referred to, and then as we roll into 2025 and 2026, as growth returns to more normalized levels, that drop down impact, in terms of margin, We'll see that manifest itself more... Got it. Really helpful. Thanks for that.
Speaker Change: And that's the only thing I would add is from a timing perspective.
Speaker Change: Our margin performance is going to be aligned in terms of the expansion in line with our sales growth and as we indicated we expect a bit softer in the first half of 2024.
Speaker Change: As growth starts to pick up we believe in the second half of the year, we will get that dropdown that Keith referred to and then as we roll into 'twenty five 'twenty six as growth returns to more normalized levels that dropdown impact in terms of margin expansion, we'll see that manifest itself more prominently.
Speaker Change: Got it really helpful. Thanks for that and then second one just actually kind of.
Keith J. Allman: And then second one, just actually kind of coming off that last point there, Rick, the cadence to the top line in 24. Obviously, there's been a lot of volatility in R&D and markets probably more recently, year to date, maybe some noise around weather and all that. Can you just kind of put a finer point around that, you know, early 2024 expectation? You know, how is demand tracking year to date? Any kind of color on some of the volatility or improvement as you get into Q2 and beyond? Thank you.
Speaker Change: Coming off that last point there Rick.
Speaker Change: <unk> to the top line in 'twenty four.
Speaker Change: Obviously theres been a lot of volatility in R&R.
Speaker Change: End markets, probably more recently year to date, maybe some noise around weather and all of that.
Rick Westenburg: Can you just kind of put a finer point.
Rick Westenburg: That early 2024 expectation.
Rick Westenburg: How are how is demand tracking year to date.
Rick Westenburg: And any kind of color on some of the volatility or improvement as you get into into Q2 and beyond thank you.
Rick Westenburg: Matt in terms of year to date demand or the current demand I'd characterize it as stabilizing.
Keith J. Allman: Matt, in terms of year-to-date demand, or current demand, I'd characterize it as stabilizing. You know, we've, I would say, in terms of what was favorable to our expectation in 23 was a combination of both our execution, the timing and impact of our cost reduction projects, or solid pricing, etc. And then also a little bit better demand than we anticipated. Certainly, there is some volatility out there, but we're seeing signs of stabilization, and Wholesale Plumbing as it relates to top-line demand, while still challenged in Europe, we have seen some stabilization and are starting to see some positive signs coming out of China as well. So that's how I'd characterize the demand. Yeah, and I would say it's in line with what our guide is. So there's nothing left...
Rick Westenburg: We've.
Matt: I would say.
Matt: In terms of what was favorable to our expectation in 'twenty three was a combination of both our execution and the timing and impact of our cost reduction projects are solid pricing et cetera, and then also a little bit better.
Matt: Demand than we than we anticipated.
Matt: Certainly some volatility.
Matt: Out there, but we're seeing signs of stabilization had a nice.
Matt: Quarter in wholesale plumbing as it relates to topline demand.
Matt: While still challenged certainly in.
Matt: Europe, we have seen some stabilization and starting to see some positive signs coming out of China as well. So that's how I would characterize the demand in general Yes, I would say is in line with what our guidance is indicating so theres nothing inconsistent with that which is we do expect some stabilization as Keith mentioned a bit softer so.
Keith J. Allman: We do expect some stabilization, as Keith mentioned, but a bit softer, so down slightly in the first half of the year. That's kind of what we're expecting. All right. Thanks, Rick. Thanks, Keith. Good luck, guys. Your next question comes from Stephen King from Evercore ISI. Your line is now open.
Matt: Down slightly in the first half of the year, that's kind of what we're seeing in the market today, but we are seeing some stabilization globally.
Speaker Change: Alright, Thanks, Rick Thanks, Keith Good luck guys. Thank.
Okay.
Speaker Change: Your next question comes from Stephen Kim.
Stephen Kim: From Evercore ISI. Your line is now open.
Keith J. Allman: Yeah, thanks very much guys. Appreciate all the info here. Could you talk a little bit more about the trends you're seeing in hardware and lighting within the DECARC business, and you know how that figures into your fiscal 24 guide and maybe also your long-term margin target for DECARC? These businesses were impacted by market softness in 2023, no question about it. We've talked consistently about it. Both businesses, and I'm talking about our lighting and hardware business, Kitchener Liberty, took pricing and cost actions to offset the inflation they experienced. ,,, partially offset the volume loss in 23. In 24, I'd expect these businesses to perform more in line with how we're seeing the overall R&R market, which is flat to down. Did you have a second question there, Stephen? Yeah, well, within the hardware and lighting, that was pretty much what I was looking for.
Stephen Kim: Yes, thanks, very much guys I appreciate all the all the info here could.
Stephen Kim: Could you talk a little bit more about the trends youre seeing in hardware and lighting within the Dec arc business and.
Stephen Kim: How that figures into your.
Stephen Kim: Fiscal 'twenty.
Stephen Kim: <unk> 24 guide and maybe also your long term margin targets for Dec arc.
Speaker Change: These these businesses were impacted by market softness in 2023, no no question about it we've talked consistently about it.
Speaker Change: Both businesses and I'm talking about.
Speaker Change: Our lighting and hardware business keeps on Liberty took.
Speaker Change: Took pricing and cost actions to offset the inflation that you experienced.
Speaker Change: Partially offset the volume loss in 'twenty three 'twenty four I would expect these businesses to perform more in line with how we're seeing the overall R&R market.
Speaker Change: Which is flat to down low single digits.
Did you have a second question there Steven.
Steven: Yeah, well within the within the hardware and lighting that was that was pretty much what I was what I was looking for.
Keith J. Allman: And then, as I think more broadly about your guide for next year, I think Matt touched on it, but I just wanted to take a finer point. Are you saying that we could see sales and margins on a year-over-year basis be down in one category, or is that not what you're envisioning? I think they could be.
Steven: And then as I.
Steven: I think more broadly about your guide for next year, I think Matt touched on it but I just wanted to ask.
Steven: Take a finer point or are you, saying could we see sales and margins on a year over year basis be down in <unk>.
Steven: Or is that not what youre envisioning.
Steven: They could be I'm thinking more kind of flat to maybe slightly down in <unk> first half and then better performance both in sales and margin in the second half.
Keith J. Allman: I'm thinking more kind of flat to maybe slightly down in 1Q first half and then better performance both in sales and margin in the second half. Okay, that's very helpful. Yeah, I appreciate it. Thanks very much.
Speaker Change: Okay. That's that's very helpful. I appreciate it thanks very much.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Michael <unk> from JP Morgan. Your line is now open.
Keith J. Allman: Your next question comes from Michael Ruth from JP Morgan. Your line is now open. Thanks. Good morning. It's Mike Rehart.
Speaker Change: Yes.
Michael: Thanks, Good morning, it's Mike Rehaut.
Keith J. Allman: I wanted to kind of... First, ask about the 26 targets. I appreciate the kind of laying some of those out. And, you know, thinking about the margins, it, you know, I think he kind of laid out a framework for that. You know, in 25 and 26, getting to those targets, kind of thinking about a, you know, sales growth backdrop of three to 5%. I just want to make sure that I'm understanding that the margin expansion off of 24, how much of that would be driven by volume leverage or incremental margins off of volume leverage? You know, as opposed to perhaps other initiatives around either productivity or discrete cost efficiency measures around manufacturing or SG&A, et cetera.
Michael: I wanted to.
Michael Jason Rehaut: Kind of.
Michael: First ask about the 26 targets appreciate the.
Michael: Laying some of those out.
Michael: Thinking about the margins.
Michael:
Michael: I think Keith you kind of laid out a framework.
Michael: In 25, and 26 getting to those targets.
Michael: Thinking about a.
Michael: Sales growth backdrop of 3% to 5%.
Speaker Change: Just wanted to make sure that I'm understanding that.
Speaker Change: Margin expansion north of 24.
Speaker Change: How much of that would be driven by.
Speaker Change: Volume leverage or incremental margins off of the volume leverage.
Speaker Change: As opposed to perhaps other initiatives around either productivity or.
Michael: Discrete.
Michael: Cost efficiency measures around manufacturing or SG&A et cetera.
Michael: Yeah.
Keith J. Allman: Our margin improvement expectations, and, frankly, the history of it, have been driven by a basket of initiatives that we drive. Certainly, there's the incremental margin improvement that comes from incremental volume, so that drops down to, call it, 25 to 30 percent. That's certainly above our fleet average at the company, so that's a significant driver of our margin expansion. But it's also part of the benefits of our continued investment in innovation. So we have an innovation pipeline and an expectation over those years to be launching margin-accretive products and products that both contribute to our market outperformance on the top line as well as margin improvements. We're very excited about the momentum we have in terms of the Masco operating system and what that's been able to produce in terms of leverage in our factories, in terms of variable overhead, in addition to the new product launches and our brand building, in addition to the benefit of the top line. That gives us also pricing power.
Michael: Our margin improvement expectations and frankly, the history of it has been driven by a basket of initiatives that we drive certainly there is incremental.
Michael: <unk> improvement that comes from incremental volume, so that drops down call it 25% to 30% that's certainly above our fleet average of the company. So thats.
Michael: The significant driver in our margin expansion, but it's also.
Michael: Part of the benefits of our continued investments in innovation. So we have an innovation pipeline and an expectation over those years to be launching.
Michael: Margin accretive products and products that both contribute to our market outperformance on the top line as well as margin improvements.
Michael: Very excited about the momentum we have in terms of the masco operating system and what that's been able to produce in terms of leverage.
Michael: Our factories in terms of variable overhead.
Michael: In addition.
Michael: And to the.
Michael: New product launches and our brand building.
Michael: In addition to the benefit of top line that gives US also pricing power and we're confident in that and being able to have that be a contributor to margin expansion as well so.
Keith J. Allman: And we're confident in that, in being able to have that be a contributor to margin expansion as well. So the big driver would be the drop in incremental volumes, but we also have a pipeline and defined initiatives around labor productivity, variable cost productivity, et cetera, to drive margin expansion. Yeah, and Mike, the only thing I would add to that is, as Keith mentioned, the big driver is the drop in volume, but as we're growing, as we're introducing new products and getting the price for that from an, http://www.larryweaver.com, So although pricing and cost initiatives may not be as significant of a contributor, they will contribute both directly as well as indirectly. www.larryweaver. I appreciate it.
Michael: The big driver would be the dropdown on the incremental volumes, but we also have a pipeline and defined initiatives around labor productivity variable cost productivity.
Michael: Et cetera to drive the margin expansion.
Michael: Yes.
Speaker Change: And Mike the only thing I would add to that is as Keith mentioned the big driver is the dropdown on the volume, but as we're growing as we're introducing new products and getting the price for that for from innovation.
Speaker Change: We continue to stay disciplined on pricing discipline on costs. So as we grow we do see that 25% to 30% dropdown, so although although pricing and cost initiatives may not be as significant of a contributor they will contribute both directly as well as indirectly in terms of continuing to leverage that.
Speaker Change: Incremental dropdown.
Speaker Change: Okay.
Speaker Change: That's helpful color I appreciate it.
Keith J. Allman: I guess maybe secondly, kind of staying on this topic for a moment. You know, the decorative margins on average between 2015 and 2021 were 19.5 to 19.4%. So it kind of seems like you're getting back to that midpoint, whereas maybe, you know, plumbing, you're getting a little bit above that, which kind of speaks, I think, to the volume leverage. So.
Speaker Change: I guess, maybe secondly, kind of staying on this topic for a moment.
Speaker Change: You look at.
Speaker Change: Either the decorative margins on average between 2015 and 2021.
Speaker Change: Segment averaged 19 519.
Speaker Change: 4%, so it kind of seems like youre getting back to that to that mid point, whereas maybe.
Speaker Change:
Speaker Change: Plumbing, youre getting a little bit above that which kind of more speaks I think to the volume leverage so.
Speaker Change: Just wanted to.
Keith J. Allman: I just wanted to kind of make sure I'm thinking about this right in that, you know, is the right way to think about this is that the operating leverage, the incremental margins, much more so comes through on the plumbing side over the next couple of years, whereas decorative, it kind of seems like kind of getting back to that historical gross margin, and maybe there's some, perhaps even deflation that is a margin benefit over the next couple of years, You know, kind of returning to that historical average and what's assumed in decorative, because if I'm thinking about this right, it does seem like the incremental margins on sales leverage more so apply to plumbing than decorative. And I'd love any thoughts on that if I'm not thinking about it the way you are. No, I think, simply said, you got it.
Speaker Change: I want to make sure I'm thinking about this right in that.
Speaker Change: Is it the right way to think about this is that the operating leverage the incremental margins.
Speaker Change: Much more so it comes through on the plumbing side over the next couple of years, whereas decorative but can it seems like.
Speaker Change: Kind of getting back to that historical gross margin and maybe do some perhaps even deflation that has a margin benefit.
Speaker Change: Over the next couple of years as you know.
Speaker Change: More recently when you had an inflationary environment that was margin dilutive I'm just trying to think about.
Speaker Change: Kind of returning to that historical average and what's assumed in decorative because if I'm thinking about this right.
Speaker Change: Does seem like the incremental margins.
Speaker Change: Margins on <unk>.
Speaker Change: Sales leverage more so apply to plumbing.
Speaker Change: Decorative and love any thoughts on that if I'm not thinking about it the way you are.
Speaker Change: I think so.
Speaker Change: Simply said you got it.
Keith J. Allman: I think that's right. We have a higher drop-down on incremental margins in plumbing, a little bit lower, call it a 25% range. And in DECO, specifically in DECO, thinking about paint, we have a different pricing dynamic, which we've talked about, I won't get into the details on that. But no, I think you've got it right, Mike.
Speaker Change: That's right we have.
Speaker Change: Higher drop down on incremental margins in plumbing.
Speaker Change: Little bit lower call it in the 25% range.
Speaker Change: And Deco and Deco, specifically thinking about paint we have different pricing dynamics, we've talked about it won't get into the details on that but no I think you've got it right Mike.
Keith J. Allman: All right. Perfect. Thanks so much.
Michael Jason Rehaut: Alright, perfect. Thanks, so much I appreciate it.
Keith J. Allman: Appreciate it. Your next question comes from Anthony Pitinari from Citi. Your line is now open. Good morning.
Speaker Change: Your next question comes from Anthony Pettinari from Citi.
Anthony Pettinari: Your line is now open.
Anthony Pettinari: Good morning.
Rick: Can you discuss price-cost spread in plumbing and VA in 4Q and maybe any updated expectations around brass carryover and then just thinking about COGS maybe more holistically, you know, what level of cost is in place, all your guidance. Yeah, Tony, thanks for the question. So from a Q4 perspective, we saw... We did see some favorable pricing, kind of low single digits in the... both for the quarter and for the calendar year. For DAP, it was a lot more muted, and as we look into 2024, we're expecting, in the plumbing segment, kind of low single-digit pricing as a tailwind, but for the decorative architectural products, we're expecting a bit of a head And then this is maybe just a minor point, but in terms of the DA margin target in 26 being a range versus the plumbing and company targets, single points.
Anthony Pettinari: Can you discuss price cost spread in plumbing and VA in four Q and maybe any updated expectations around brass carryover and then just thinking about Cogs, maybe more holistically what level of cost inflation.
Anthony Pettinari: Full year guidance contemplate.
Speaker Change: Yes, Toni Thanks for the question so from a Q4 perspective, we saw.
Speaker Change: We did see some favorable pricing kind of low single digits in the plumbing, both for the quarter and for the calendar year.
Speaker Change: For <unk> it was a lot more muted.
Speaker Change: And as we look into 2024, we're expecting in the plumbing segment kind of low single digit pricing as a tailwind.
Speaker Change: But for the decorative architectural products, we're expecting a bit of a headwind from a pricing perspective kind of modest price give backs.
Speaker Change: Okay. Okay. That's very helpful. And then this is maybe just a minor point, but in terms of the da margin target in 2006, being a range versus plumbing and company targets.
Speaker Change: Single points.
Rick: Is that the pricing mechanism you discussed or not? Yeah, I think just, you know, we will give point estimates and range estimates in terms of our guidance, and this we felt was a little more appropriate just given some of the. As I think, you know, Mike articulated, we've got, you know, a little bit more of a drop-down dynamic in terms of the volume dropping down to margins on plumbing. We felt pretty confident with regard to our 20 percent margin target in 2026. On Decorative, we just have a range of 19... As Mike pointed out, it's more consistent with kind of where we range. Okay, that's helpful. I'll turn it over to you.
Speaker Change: Is that the pricing mechanism you discussed or just any background there.
Speaker Change: Yes.
Speaker Change: We'll give point estimates and range estimates in terms of our guidance and this we felt little more appropriate just given some of the uncertainty.
Speaker Change: As I think Mike articulated we've got.
Speaker Change: A little bit more of a dropdown dynamic in terms of the volume dropping down to margins on plumbing and so we felt pretty confident with regards to our 20% margin target in 2026 on decorative we just have a range of 19 to 20 and as Mike pointed out it's more consistent with kind of where we range historically.
Speaker Change: Okay. That's helpful I'll turn it over.
Speaker Change: Your next question comes from Susan <unk>.
Rick: Your next question comes from Susan Maklari from Goldman Sachs. Your line is now open. Thank you. Good morning, everyone.
Susan: From Goldman Sachs. Your line is now open.
Susan: Thank you good morning, everyone.
Susan: Good morning, Mike.
Keith J. Allman: My first question is thinking about the macro and what that could imply for business this year. There's increasingly an expectation that rates will move down as we get later into spring and summer. And as we think about that, perhaps driving existing home sales coming back, how should we think about the timing of those events relative to how you could start to see that coming through in the business, and what are the segments that could be most benefited by that? Susan, good morning.
Susan: My question is thinking about.
Susan: The macro and what that could imply for the business. This year. It was increasingly an expectation that rates will move down as we get later into the spring and the summer and as we think about that perhaps driving that existing home sales coming back how should we think about the timing of those events relative to how you could start to see that coming through in the business and what are the.
Susan: The segments that could be most benefited by that.
Speaker Change: Susan good morning.
Keith J. Allman: I, you know, when you think about the correlation to our top-line driver, existing home sales are certainly an important factor, but not nearly as important as how the consumer feels and how their consumer confidence is developing. That confidence is driven by the amount of equity in their home, for example. So if you think about Let's say the existing home turnover, pick a number, say it's, Let's call it 5 million. So if we have 5 million units of turnover, that's on a 130 million unit base, uh... so roughly what is that uh... three percent, and we know where we put you know we we we have to make. A newly purchased home in that year will spend approximately 30% more on home
Susan: When you think about the correlation to our top line drivers.
Susan: Existing home sales.
Susan: Certainly.
Susan: An important factor.
Susan: But not nearly as important as really how the consumer feels and how the.
Susan: Consumer confidence is developing that confidence driven by the amount of equity in their home. For example, so if you think about.
Susan: Let's say the existing home turnover pick a number say it's.
Susan: Let's call it $5 million. So if we have 5 million units turnover, that's on a 130 million unit base.
Susan: So roughly what is that 3% and we know where we estimate that a.
Susan: Newly purchased home in that year, we will spend approximately 30% more on home improvement. So if you take 3% ish spending 30% more you start to see how that minimizes the impact of that or said differently. If we for every million dollars of.
Keith J. Allman: So if you take 3%-ish spending 30% more, you start to see how that minimizes the impact of that. Or said differently, for every million dollars of existing home turnover increase, it only drives a couple tenths of a percent of overall top-line volume in the market. So a 25% increase in existing home turnover drives two tenths of a percent in the overall market, roughly. So it's important to us. And particularly when you look at something like DIY paint, that tends to be a little bit more sensitive to existing home sales.
Susan: Existing home turnover increase it only drives a couple tenths of a percent of overall top line volume in the in the market. So a 25% increase in existing home turnover drive two tenths of a percent of the overall market roughly so.
Susan: It is important to us.
Susan: And particularly when you look at something like DIY paint that tends to be a little bit more sensitive to existing home sales.
Keith J. Allman: But more important, I think, is the correlation to R&R spend as it relates to home price appreciation and consumer confidence. So as rates decrease and the consumer becomes more confident, that's really a driver of what we think will really be driving the R&R market. Okay, that's helpful.
Susan: But but more important I think when you.
Susan: Is the the correlation to R&R spend as it relates to home price appreciation and consumer confidence so as rates decrease and the consumer.
Susan: Becomes more confident that's really a driver of what we think will really be pushing the R&R market.
Susan: Okay.
Speaker Change: Helpful and then shifting to the working capital you made a lot of really impressive progress there over the last year as you think about 'twenty four and just to go forward, what's the ability to continue to drive benefits from that and anything you would highlight there.
Rick: And then, shifting to working capital, you made a lot of really impressive progress there over the last year. As you think about 24 and just to go forward, what's the ability to continue to drive benefits from that, and anything you'd highlight there? Yes, it's Rick.
Speaker Change: Yes, sure it's Rick good morning.
Rick: Good morning. Yeah, so I appreciate the question. As you noted, we did, as a business unit, and really across the business, drive working capital efficiencies and improvement. We brought it back down to 16% of sales in 2023, which is more in line with the historical levels, and it really was a big contributor to our cash flow. 3 contributed over $200 million. www.youtube.com.uk I think going forward, we plan to really hold working capital in a disciplined manner, make sure we've got enough inventory to keep up our service levels, which are important from our customer perspective, but to stay disciplined on that. And our guidance for 2024 is that we'd have working capital as a percent of sales of 16.5, so a modest increase, but we'll calibrate that Thanks. Your next question comes from Adam Baumgarten from Zellman. Your line is now open. Hey, good morning, everyone.
Speaker Change: Yes, so I appreciate the question.
Rick Westenburg: As you noted we did as a business unit really across the business drive working capital efficiencies and improvement we brought it back down to 16% of sales in 2023, which is more aligned with this historical levels.
Rick Westenburg: It was a big contributor to our cash flow in 2023 generated over contributed over $200 million in terms of cash flow in terms of our free cash flow number which was very beneficial I think going forward. We plan to really hold working capital in a disciplined manner make sure. We've got enough inventory to keep up our service levels, which are important from our customer.
Rick Westenburg: <unk>, but to stay disciplined on that in our guidance for 2024 is that we have working capital as a percent of sales of $16. Five so a modest increase but will calibrate that based off of the the timing of when the market comes back and starts to grow.
Rick Westenburg: It was a business day discipline now that we've got the working capital kind of back to where we'd like it to be.
Speaker Change: Okay. Thank you and good luck with everything.
Speaker Change: Thank you.
Speaker Change: Your next question comes from.
Adam Baumgarten: Adam Baumgarten from Zelman.
Adam Baumgarten: Your line is now open.
Adam Baumgarten: Hey, good morning, everyone.
Keith J. Allman: I believe you mentioned on the call that paint pricing is lower in 23. I have a couple of questions. One, when did that occur throughout the year?
Adam Baumgarten: I believe you mentioned on the call that paint pricing is lower in 'twenty three I guess a couple of questions. One when did that occur throughout the year and is the outlook for 'twenty for that you mentioned down based on just the carryover maybe from some of the movements in 'twenty three or do you expect incremental pricing pressure beyond kind of what you can maybe recently saw.
Keith J. Allman: And is the outlook for 24 that you mentioned down based on just the carryover, maybe from some of the movements in 23? Or do you expect incremental pricing pressure beyond kind of what you maybe recently saw? Yeah, Adam, maybe just to clarify, for the calendar year 2023, we saw a very modest price increase. It actually corresponded with commodities.
Speaker Change: Yes, maybe just to clarify for the calendar year 2023, we saw very modest price increase it actually a corresponded with commodities. So we saw material costs down in Q4, and the paint sector, but for the full year, we saw appreciation overall and so we saw a slight price increase in terms of the 2023 number.
Keith J. Allman: So we saw material costs down in Q4 in the paint sector, but for the full year, we saw appreciation overall. And so we saw a slight price drop in 2020. As we look into 2024, as I indicated, as we indicated, we do see some... Price decreases in 2024. And that's really a reflection of what we expect. We're kind of keeping that price/cost. To your point, Adam, there would be some carryover, obviously, with it being a little bit...
Speaker Change: It.
Speaker Change: As we look into 2024 as I indicated as we indicated we do see some some.
Adam Baumgarten: Some price downs in 2024.
Adam Baumgarten: And that's really a reflection of what we expect to see which is kind of modest low single digit deflation in the inputs, so kind of keeping that price cost relationship in check.
Adam Baumgarten: To your point, Adam there would be some carryover, obviously with it being a little bit.
Rick: The place to give back a little bit later. Okay, got it. That's helpful. And then, I guess, for you, Rick, now that you've been at Masco for, I believe, almost four months now, where do you see the biggest opportunities for Masco from a cost side going forward? Yeah, no, there's a question.
Adam Baumgarten: The price give back a little bit later in 'twenty three.
Adam Baumgarten: Okay got it that's helpful. And then I guess for you Rick now that you've been at Masco curve I believe it's almost four months now where do you see the biggest opportunities for masco from a cost side.
Rick Westenburg: Going forward.
Rick Westenburg: Yes, so if there's any question in.
Rick: And yeah, as I mentioned, first of all, I mentioned in my opening comments, I'm really excited to be part of the Masco team and the strong business, operations, and portfolio that we have. I'm really excited about the portfolio of brands and products in the business. I've had the opportunity... uh... to really get out and meet all the business unit leaders, and I've been to many of the business units. I was actually in Germany at Hansgrohe last summer and was really impressed.
Rick Westenburg: As I mentioned first of all as I mentioned in my opening comments really excited to be part of the masco team and a strong business and operations and portfolio that we have.
Rick Westenburg: We're really excited about the portfolio of brands and products and the business I've had the opportunity.
Rick Westenburg: To really get out and meet all of the business unit leaders and I've been out to many of the business units that was actually in Germany Hungary.
Rick Westenburg: Last week really impressed with the team I've been really impressed with the mindset in terms of the masco operating system and the mindset of continuous improvement operational efficiency and cost reduction. So I think we need to continue to.
Rick: I've been really impressed with the mindset in terms of Masco Corp. http://TheBusinessProfessor.com I think we need to continue to act, I think with regard to opportunities, it's really leveraging the mindset that we have here at Masco and across the business. As well as leveraging our scales, we continue to grow the business. The Bulletproof Executive 2013, really across all of our businesses. Great, thanks.
Rick Westenburg: Can exercise ourselves in that regard.
Rick Westenburg: With regards to opportunities it's really.
Rick Westenburg: Leveraging the mindset that we have here at masco and across the business units as well as leveraging our scale as we continue to grow the business and drive that productivity in that efficiency really across all of our business, but particularly on the plumbing side as we look at our global business.
Keith J. Allman: Best of luck. Good. Thank you, Adam. Your next question comes from Mike Dahl from RBC Capital Markets. Your line is now open.
Speaker Change: Great. Thanks best of luck.
Speaker Change: Great. Thank you Adam.
Speaker Change: Your next question comes from Mike Dahl from RBC capital markets.
Mike Dahl: Your line is now open.
Mike Dahl: Alright, thanks for taking my questions.
Rick: Hi, thanks for taking my questions. I wanted to ask, again, about costs. I think the question was asked earlier around the price-cost spread, and I heard the comments around price. However, I didn't hear specifically your expectations for input costs for both segments that are embedded within the 24 guide, so could you address that, please? Sure, Mike. I'm happy to do that.
Mike Dahl: Wanted to ask again about costs I think the question was asked earlier around price cost spread and I heard the comments around price I didn't hear specifically.
Mike Dahl: Your expectations for.
Mike Dahl: For input costs for both segments that are embedded within the 24 guidance. So could you address that please.
Speaker Change: Sure, Mike I'm happy to do that.
Rick: So as it pertains to 2024, we're expecting for input costs not to be a material impact, not to be significant. In 2024, obviously, we'll see how the year plays out. In plumbing specifically, we will see, we expect to see some modest..., www.kenhub.com of its investors. We're thinking, Mike, specifically, we're thinking in plumbing, relatively flat commodities, sort of staying where they are now, and for paint inputs, while they've moderated sequentially when you look at resin, um... we are seeing a little bit of deflation in those input costs, but other costs, including Copper Zinc I got it.
Speaker Change: So as it pertains to 2024.
Mike: We're expecting.
Mike: For input costs not to be a material impact ought to be significant in 2024, obviously, we'll see how the year plays out.
Speaker Change: In plumbing, specifically, we will see we expect to see some modest.
Speaker Change: Decline in input costs, but offset with some freight and some other inflation. Obviously is I think we all know given the dynamics in the Red Sea freight cost is a little bit volatile and there's a bit of a headwind in the first half that's baked into our outlook.
Speaker Change: As a contributor to our expectations in the first half of the year.
Speaker Change: But that's a little bit of the dynamic.
Speaker Change: In terms of.
Speaker Change: Decorative architectural products I think we mentioned a couple of times, we expect relatively modest.
Speaker Change: Input costs to increase in 2024.
Speaker Change: We're thinking Mike we're thinking specifically we're thinking.
Speaker Change: And plumbing relatively flat commodities sort of staying where they are now.
Speaker Change: For paint inputs, while they've moderated sequentially when you look at resins.
Speaker Change: We are seeing a little bit of deflation in those input costs, but other costs.
Speaker Change: Including copper zinc tio too.
Speaker Change: Sure.
Speaker Change: Moderated excuse me they've moderated more they will moderate a little bit more.
Speaker Change: But not significant benefit.
Rick: Okay. Thanks. And then my second question, just back on the free cash flow, you know, the conversion rate, obviously 90% still. Thank you all so much for joining us today.
Speaker Change: Got it okay. Thanks, and then my second question just back on the free cash flow.
Speaker Change: The conversion rate, obviously, 90% still still high and I think your business typically targets, 100% conversion.
Speaker Change: Net income when I look at the moving pieces it doesn't seem like working cap is that much of the.
Rick: Thank you all so much for joining us today. Um, non-working Kaplan items or any other moving pieces there, Mike, those are the two really. So working capital is, I think Sue had asked in terms of that dynamic. We do expect a little bit of a build in working capital in 2024. We'll watch that, obviously.
Speaker Change: Incremental usage and then you've got Capex, I think down year on year or so.
Speaker Change: At this time.
Speaker Change: And any other drivers in terms of things, we should be thinking about.
Speaker Change: Level of investments or.
Speaker Change: Non working cap line items.
Speaker Change: Any other moving pieces there.
Speaker Change: Those are the two really so working capital is I think Sue had asked in terms of that dynamics, we do expect a little bit of a build in working capital in 2024, we'll watch that obviously, but we've got it down to a pretty pretty balanced level right now so as the market returns we expect some build in working capital.
Rick: But we've got it down to a pretty, pretty balanced level right now. So as the market returns, we expect some build-in working capital. Capital expenditures, as you noted, will be down year over year from 23 to 24, but it's still higher than our depreciation amortization. So our CapEx guidance for 2024 is $200 million. Our DNA is $100 million; that CapEx versus DNA is another contributor. The Bulletproof Executive 2013, Okay, that's helpful, thanks. Your next question comes from Truman Patterson from Wolf Research. Your line is now open.
Speaker Change: Capital expenditures as you noted will be down year over year from 23 to 24, but it's still higher than our depreciation and amortization. So our capex guidance for 2024 is 200 million. Our DNA is $160 million to that capex versus the DNA is another contributor to the 90%.
Speaker Change: Guide.
Speaker Change: Okay. That's helpful. Thanks sure.
Speaker Change: Yes.
Speaker Change: Your next question comes from Truman Patterson from Wolfe Research. Your line is now open.
Keith J. Allman: Hey, good morning, guys. Rick, I'm looking forward to working with you going forward. First question for me, in your plumbing segment, your supply chains heavily rely on shipping products to the US and Europe. I'm hoping you can give an update on some of the Red Sea shipping issues currently, any supply chain issues or incremental costs embedded in your 24 guide. We are seeing, as you might expect, Truman. Elevated costs for containers that normally would be routed to the Red Sea that now have to go around, and you're exactly right; it's primarily for our European business.
Truman Patterson: Hey, good morning, guys.
Truman Patterson: Rick looking forward to working with you going forward.
Truman Patterson: First question for me.
Truman Patterson: In your plumbing segment your supply chains.
Truman Patterson: Heavily relying on shipping products to the U S and Europe.
Truman Patterson: Hoping you can give an update on some of the Red Sea shipping issues currently.
Truman Patterson: Supply chain issues or incremental costs embedded in your 2000 and for guidance.
Speaker Change: We are seeing as you might expect Truman.
Speaker Change: Elevated cost for the containers that normally would be routed to the red Sea that now have to go around.
Speaker Change: Exactly right, it's primarily for our European business. So those container costs have increased and we have.
Keith J. Allman: So those container costs have increased, and we've contemplated that in our guide. That's all part and parcel of how we think next year is going to shake out, but we are seeing an increase. Truman to your other question.
Speaker Change: Contemplated that in our guide.
Truman Patterson: Sure.
Truman Patterson: That's all part and parcel of how we think next year is going to shake out, but we are seeing an increase in those costs.
Speaker Change: Yeah Truman to your other question.
Keith J. Allman: We're, although we're seeing elevated costs, so far, service levels have been able to cope. And so we're not having disruptions, per se, but we're watching. Okay, gotcha.
Speaker Change: We're although we're seeing elevated cost so far our service levels have been able to be retained and so we're not having disruptions per se, but we're watching obviously the dynamics closely.
Speaker Change: Okay Gotcha.
Keith J. Allman: And just thinking through your 24 revenue guidance of flatish versus a flat to down low single-digit R&R market. First, are you all expecting your smaller ticket portfolio to outperform big ticket? And then second, you all mentioned some incremental market share gains this year, specifically; could you just elaborate on that a little bit more on product categories, geographies, channels, etc., of some of these kind of near-term gains? We do think that how we have repositioned our portfolio, Truman, to be the lower priced, lower ticket repair and remodel focus is more resilient than the higher-priced, higher-ticket items that are oftentimes So when you compare our type of project that a consumer would execute with paint, plumbing, lighting, hardware, et cetera, those tend to be more resilient than the bigger tickets, say, Cabinets and Windows, which I'm very familiar with.
Speaker Change: Just thinking through your 24 revenue guidance of flattish versus a flat to down low single digit R&R market.
Speaker Change: First are you will expecting kind of your smaller ticket portfolio to outperform big ticket and then second.
Truman Patterson: You all mentioned some incremental market share gains this year, specifically could you just elaborate on that a little bit product categories geographies channels et cetera. Some of these kind of near term gains.
Truman Patterson: We do think that how we have repositioned our portfolio of <unk> to be the.
Truman Patterson: The lower priced lower ticket repair and remodel focus is more resilient than the higher priced higher ticket.
Truman Patterson: Items that are oftentimes more associated with new construction, so when you compare.
Truman Patterson: Our.
Truman Patterson: Type of projects that a consumer would execute with paint plumbing lighting hardware et cetera, those tend to be more resilient than the bigger tickets.
Truman Patterson: Cabinets, and Windows, which I'm very familiar with so yes, we think that is that bodes well and that fits in.
Keith J. Allman: So yeah, we think that bodes well, and that fits in with the strategy and how we aim to be attractive and who we aim to be attractive to as it relates to investors, as it relates to a higher margin, more resilient, less cyclical portfolio. And that's really important to us. And we've demonstrated, as we said, the ability to meet our commitment of double-digit EPS growth through cycles. When you look at 14% EPS kegger from 19 through to where we are today, so 2023.
Truman Patterson: With the strategy and how we aimed to be attractive and who we aimed to be attractive to as it relates to investors as it relates to a higher margin more resilient and less cyclical portfolio and that's really important to us and.
Truman Patterson: We've demonstrated as we said the ability to meet our commitment of double digit.
Truman Patterson: S growth through cycles, when you look at 14%.
Truman Patterson: EPS CAGR from 19 through through to where we are today. So 2023, so we're ah.
Truman Patterson: Very pleased with that and we think that is part of partly driven.
Keith J. Allman: So we're very pleased with that. And we think that is partly driven, more than partly driven by the reconfiguration of our portfolio. So that's a significant part of it. Reminding me of your second question, Truman, the second part of that.
Truman Patterson: More than partly driven by the reconfiguration.
Truman Patterson: Of our portfolio so that's.
Truman Patterson: A significant part of it reminded me of your second question Truman second into that.
Keith J. Allman: Yeah, just the near-term kind of market share gains that's embedded in your guidance. I was just hoping you could elaborate on the kind of product categories, geographies, channels, etc. Sure, we're going to continue to invest in our share gains and continue to help perform the market as we have up to 2023. To highlight a few of those, we're particularly focused on the showroom channel and, in plumbing, and that involves our channel relationships with and our programs to drive growth. Our innovation pipeline is certainly a part of that. Brand and the pull that we have, as I mentioned before, both from the trade and the consumers, is part of that. We've invested extensively in involving showroom associates and creating advocacy in the showroom market. So it's not just about products; it's also about capturing the hearts and minds of the folks in the showroom that sell our products as it relates to involving them in the literally design of our products. And we treat that as an operational type of exercise for us to create advocacy. We measure it, and we drive it.
Speaker Change: Yes, just the near term kind of market share gains. So that's embedded in your guidance just hoping you could elaborate on kind of product categories geographies channels et cetera.
Speaker Change: Sure.
Truman Patterson: Going to continue to invest in our share gains and continued to outperform the market as we have up to 2023 to highlight a few of those were particularly focused on the showroom channel and.
Truman Patterson: In plumbing.
Truman Patterson: And that involves our channel relationships with and our programs to drive growth.
Truman Patterson: Innovation.
Truman Patterson: Pipeline is certainly a part of that brand and the pull that we have as I mentioned before both from the trade and to consumers as part of that.
Truman Patterson: We've invested extensively and.
Truman Patterson: Involving.
Truman Patterson: Showroom associates and creating advocacy in the showroom market. So it's not just about products. It's also about capturing the hearts and minds of the folks in the show them that sell our products as it relates to involving them in literally in the design of our products.
Truman Patterson: And we treat that as an operational type of exercise for us to create advocacy and we measure it and we drive it.
Keith J. Allman: Certainly propane, when you look at our propane, Truman, and on a stacked basis over the last three years, we've driven 60% growth, 6-0. And I know a year, a year and a half ago, there were a lot of questions about the stickiness of that demand. And we've proven that we're not only able to maintain those share gains but also intend to grow those share gains. And that's through service, through having the right product in the can, obviously, but through our overall competitiveness as it relates to applied costs and jobs. Look at the net promoter scores that we're clocking on our new and existing propane customers, and it's industry leading. So we feel really good about that. So there's a couple areas there, plumbing, wholesale, propane, but we're really driving across the board an expectation of market outperformance in March. Great, thank you, and good luck in 24. Your next question comes from Greg Schmoyes from Loop Capital. Your line is now open. Oh, hi. Thanks for... squeezing me in.
Truman Patterson: Certainly propane when you look at our pro paint.
Truman Patterson: True.
Truman Patterson: Stacked basis over the last three years, we've driven 60% growth six zero.
Truman Patterson: And I know.
Truman Patterson: Youre and a half ago, there was a lot of questions on the stickiness of that demand and we've proven that.
Truman Patterson: That we're not only able to maintain those share gains, but also intend to grow those share gains and that's through.
Truman Patterson: Through service through having the right product in the can't obviously, but through our overall competitiveness as it relates to as applied cost in jobs. We look at our net promoter scores that were clock in an hour.
Truman Patterson: New and.
Truman Patterson: And existing propane customers and its industry, leading so we feel really good about that so there's a couple areas there plumbing wholesale propane, but we're really driving across the board and expectation of market outperformance and margin expansion.
Speaker Change: Great. Thank you and good luck in 24 thank.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Grant Moise from Italy from Loop capital. Your line is now open.
Grant Moise: Hello, Hi, Thanks for.
Grant Moise: Squeezing me in.
Keith J. Allman: My first question is just on the 2026 margin targets. I was wondering if you could speak to maybe some of the levers you can pull more on the cost side if the remodeling market doesn't, say, recover to that 3 to 5% expected. Variable cost productivity, making sure that we're matching our shifts in our operating plan to the volume that we've had, very hard to do. We've gotten very good at that for obvious reasons in the last couple years with the volatility we've seen.
Grant Moise: First question is just on the 2026 margin targets I was wondering if you could speak to maybe some of the levers you can pull more on the cost side. If you were remodeling market doesn't recover to that 3% to 5% expected range.
Grant Moise: Variable cost productivity, making sure that we're matching our shifts.
Grant Moise: Our operating plan to the volume that we've had very hard to do.
Speaker Change: We've gotten very good at that for obvious reasons in the last couple years with the volatility we've seen.
Keith J. Allman: Depending on where the overall market goes, there's fixed cost productivity that we can drive. We continue, as Rick mentioned, to be disciplined in both price as well as our ability to manage costs and to make sure that we are continuing to invest in those key areas that drive growth and nothing more. Cost maintenance, variable cost productivity, direct labor productivity, matching our fixed footprint to actual demand, all those sorts of things are part of our Masco operating system, and they're what we're measured on and what our teams across the company are compensated on in terms of the ultimate metric of how we perform is our ability to do that. So it's about all those disciplines working together.
Speaker Change: Depending on where the overall market goes there is fixed cost.
Speaker Change: Productivity that we would drive.
Speaker Change: We continue as Rick mentioned to be discipline in both price.
Speaker Change: As.
Speaker Change: Excuse me discipline in terms of both price as well as our ability to manage costs and to make sure that we are continuing to invest in those key areas that drive growth and nothing more so cost maintenance variable cost productivity.
Speaker Change: Direct labor productivity matching our fixed footprint to actual demand all those sorts of things are part of our.
Speaker Change: Masco operating system and its what were measured on and what our teams across the company are compensated on in terms of the.
Speaker Change: The ultimate metric of how we perform as our ability to do that so it's about all of those disciplines together, there's no one silver bullet, but we will hit those margin commitments in 2026, and just like we have hit our double digit earnings per growth commitment through.
Keith J. Allman: There's no one silver bullet, but we will hit those margin commitments in 2026. And just like we have hit our double-digit earnings per growth commitment through – And I believe that's something I value, and we as a company value very much, the hard-earned credibility that we've developed with the investment community and our high say-do ratio.
Speaker Change: <unk>.
Speaker Change: Through cycles, and we've I believe we've.
Speaker Change: Something I value and we as a company value very much is the law. The hard earned credibility that we've developed with the investment community and our high say do ratio.
Speaker Change: Understood. Thanks, Thanks for that.
Keith J. Allman: Thanks. Thanks for that. I'm wanting to follow up just on one of the bigger ticket items, the big businesses that you offer. You cited that bigger ticket items are likely to remain more volatile or perhaps underperformed smaller ticket items. And I was just wondering about the spa business and what you're assuming for that in 2024. Maybe if we exclude this on a 360 deal, you know what you're expecting on it. I like our spa business. It's a It's one of, on a percentage basis, one of our more global businesses. I like the tailwinds behind it as it relates to the overlay of an aging population and the importance placed on mental and physical health, and we have a tremendous team there.
Speaker Change: Wanted to follow up.
Speaker Change: On the.
Speaker Change: The bigger ticket.
Speaker Change: Our big businesses that you offer.
Speaker Change: Bigger ticket is likely to remain.
Speaker Change: The more volatile or perhaps underperformed smaller ticket and I'm just wondering about the small business.
Speaker Change: Assuming for for that in 2024.
Speaker Change: Maybe if we just sold the 360 deal what are you expecting on an organic basis.
Speaker Change: Yeah, I like our spot business, it's a strong business with a global market share. It's one of a percentage of one of our more global businesses.
Speaker Change: I like the tailwind behind it as it relates to.
Speaker Change: The overlay with an aging population and the importance placed on.
Speaker Change: Mental and physical health and we have a <unk>.
Speaker Change: Tremendous team there.
Keith J. Allman: We're going to continue to drive market share, and the business is growing and doing a fine job. I'm not going to get into the specifics of how we parse out within the segment where it is, but I like that business, and we're going to continue to invest in it. We have a great product offering that's recently launched that's performing well for us. We have industry-leading technology that that makes those devices very easy to use and monitor and interface with, and as I said, it's an outstanding team out there, so that business is going to continue to perform very well for us in 24 and beyond.
Speaker Change: We're going to continue to drive market share and the business is growing and doing a fine job of I'm not going to get into specifics of how we parse out within the segment, where it's where it's growing but I like that business and.
Speaker Change: We're going to continue to invest in it we have a great product offering Thats recently launched that's performing well for us we have.
Speaker Change: Industry, leading technology that that make.
Keith Allman: Those devices very easy to use and monitor and interface with.
Keith J. Allman: And.
Speaker Change: As I said its outstanding outstanding team out there so that business is going to continue to perform very well for us in 'twenty for them yet.
Keith J. Allman: Sounds good. Thanks again. Best of luck. We'd like to thank you all for joining us on the call this morning and for your interest in Masco. That concludes today's call. Thank you. 2013 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services. Ladies and gentlemen, this concludes today's conference. Thank you for joining us. You may now disconnect.
Speaker Change: Sounds good thanks, guys best of luck.
Speaker Change: We'd like to thank you all for joining us on the call. This morning and for your interest in Masco that concludes today's call. Thank you.
Keith J. Allman: Yes.
Speaker Change: Ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.