Q1 2024 Masco Corp Earnings Call
Good morning, ladies and gentlemen, welcome to Masco Corporation's first quarter 2024 Conference call. My name is Judy and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes.
Operator: Good morning, ladies and gentlemen. Welcome to Masco Corporation's first quarter 2024 conference call. My name is Ludi, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. To ask a question, please press the star, then the number one on your telephone keypad. To withdraw your question, please press the star, followed by the number two. I will now turn the call over to Robin Sundervan. You may begin.
Robyn: Ask a question. Please press the Star then the number one on your telephone keypad to withdraw your question. Please press. The star followed by then a breakthrough I will now turn the call over to Robyn Thunder event, you may begin.
Robin Sundervan: Thank you, Operator, and good morning, everyone. Welcome to Masco Corporation's 2024 first quarter conference call. With me today are Keith Allman, President and CEO of Masco, and Rick Westenberg, Masco's Vice President and Chief Financial Officer.
Robyn Thunder: Thank you operator, and good morning, everyone.
Robyn Thunder: Welcome to Masco Corporation's 2024 first quarter conference call.
Robyn Thunder: With me today are Keith Allman, President and CEO of Masco, and Rick Westenburg, Nascar's, Vice President and Chief Financial Officer.
Robyn Thunder: Our first quarter earnings release, and the presentation slides are available on our website under Investor Relations.
Robyn Thunder: Following our remarks, we will open the call for analyst questions.
Robyn Thunder: Please limit yourself to one question with one follow up.
Robyn Thunder: If we can't take your question now please call me directly at 313792.
5500.
Robyn Thunder: Our statements today will include our views about our future performance, which constitute forward looking statements.
Robyn Thunder: These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward looking statements.
Robyn Thunder: We.
Robyn Thunder: These risks and uncertainties in our risk factors and other disclosures in our Form 10-K, and our Form 10-Q that we filed with the Securities and Exchange Commission.
Robyn Thunder: Our statements will also include non-GAAP financial metrics.
Robyn Thunder: Our references to operating profit and earnings per share will be as adjusted unless otherwise noted.
Robyn Thunder: We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides.
Robyn Thunder: Which are available on our website under Investor Relations.
Robyn Thunder: With that I will now turn the call over to Keith.
Keith J. Allman: Thank you Robyn.
Keith J. Allman: Good morning, everyone and thank you for joining us today. Please.
Keith J. Allman: Please turn to slide five.
Keith J. Allman: I am very pleased with our strong start to the year as we reported another quarter of operating profit margin expansion and EPS growth compared to the prior year.
Keith J. Allman: Our results were driven by improved operational efficiencies solid execution, and the strength of our repair and remodel products portfolio.
Keith J. Allman: We remain focused on growing our market share by engaging with our customers launching innovative new products and building on the value of our brands.
Keith J. Allman: Turning to our overall company performance.
Keith J. Allman: Our top line decreased 3% in the quarter, which was in line with our expectations.
Volume was down 4%, partially offset by pricing actions of 1% and the impact of our recent acquisition of <unk> hundred 60, which we finalized in the third quarter of the prior year.
Keith J. Allman: Operating profit improved in the quarter by $10 million to $322 million.
Keith J. Allman: And operating margin grew 90 basis points to 16, 7%.
The improvement in our operational performance was primarily driven by cost savings initiatives and a favorable price cost relationship partially offset by lower volume.
Our earnings per share grew 8% to 93 per share.
Keith J. Allman: Turning to our segments plumbing sales declined 2% overall and 4% excluding acquisitions.
Keith J. Allman: In local currency North American plumbing sales decreased 1%.
Keith J. Allman: Including the favorable impact of acquisitions and.
Keith J. Allman: And international plumbing sales decreased 5%.
Keith J. Allman: Operating profit for the segment was up $26 million to $228 million and operating margin was up 260 basis points to 19, 1%.
Keith J. Allman: In addition to our focus on operational excellence and continuous improvement.
Keith J. Allman: Both our North American and international plumbing businesses remain focused on developing new and innovative products that serve the needs of our customers.
Keith J. Allman: And North American plumbing for example.
Keith J. Allman: Delta Faucet showcase several new and award winning products at the kitchen and Bath industry show held in February.
Keith J. Allman: Including a multi level the offering of steam showers headlined by the brazeau mystic steam shower system.
Keith J. Allman: Tankless reverse osmosis water filtration system.
Keith J. Allman: And several crouse expansions in brick and mortar retail and then the bathing category online.
Keith J. Allman: All of which are launching later this year.
Keith J. Allman: And our Spa business Watkins wellness launched freshwater IQ.
Keith J. Allman: A smart monitoring system that automatically test the water in your spa and communicates recommendations when adjustments are needed to maintain clean natural feeling water.
Keith J. Allman: This breakthrough technology provides our customers with a superior ownership experience and continues the legacy of innovation that makes Watkins wellness and industry leader in the spot market.
Keith J. Allman: And our international plumbing business has you always XR brand recently presented a variety of new products at the Milan furniture fair.
Keith J. Allman: Including the Cherry Oc bathroom collection.
Keith J. Allman: Customization options with Axa signature service and the Axa or a shower select IV temperature control technology.
Keith J. Allman: These products continue to demonstrate <unk> innovative bathroom solutions.
Which offer premium design, while simultaneously saving energy and water.
Keith J. Allman: With our strong brands global presence, an innovative products. Our plumbing segment is well positioned to continue to gain global market share.
Keith J. Allman: Turning next to our decorative architectural segment sales declined 3% propane and DIY paint sales were both relatively flat year over year.
Keith J. Allman: Operating profit for the segment declined by $8 million to $125 million and operating margin declined 60 basis points to 17%.
Keith J. Allman: And our paint business, we remain focused on working closely with our partner the home depot to drive further share gains with both pro and DIY paint customers.
Keith J. Allman: During the quarter bear continued to invest in services focused on meeting the needs of the pro painter.
Keith J. Allman: This included expanding the pro sales force into additional markets across the United States.
Keith J. Allman: Increasing job site delivery availability and providing exceptional brand loyalty programs.
Keith J. Allman: Additionally, in a recent third party quality study there was rated number one in interior paint number one in exterior paint and number one in exterior stain demonstrating the strength and exceptional quality of our leading behr brand.
Keith J. Allman: Moving to capital allocation our.
Keith J. Allman: Our strategy remains unchanged.
Keith J. Allman: During the quarter, we returned $212 million to shareholders through the repurchase of $2 1 million shares for $148 million and a dividend payment of <unk> $64 million.
Keith J. Allman: Now turning to our outlook for the remainder of 2024.
Keith J. Allman: With the year, beginning largely as expected we continue to anticipate that 2024 adjusted earnings per share will be in the range of $4 to $4 25 per share.
Keith J. Allman: While we expect a relatively flat top line for the year, our focus on cost savings initiatives disciplined pricing and operational efficiencies will help us continue to drive operating margin improvement and earnings per share growth in 2024.
Keith J. Allman: For the remainder of the year, we remain cautiously optimistic as we continue to monitor inflation data.
Keith J. Allman: The likelihood of current year interest rate cuts and changes in consumer confidence levels.
Keith J. Allman: However, we continue to believe the fundamentals of our repair and remodel markets are strong.
Keith J. Allman: That structural factors such as the age of housing stock consumers staying in their homes longer and higher home equity levels will drive increased repair and remodel activity over the mid to long term.
Keith J. Allman: We believe these favorable fundamentals.
Keith J. Allman: Our portfolio of low ticket repair and remodel products.
Keith J. Allman: Our focus on operational excellence and our disciplined capital allocation strategy.
We will continue to drive shareholder value creation.
Keith J. Allman: Now.
Keith J. Allman: I will turn the call over to Rick to go through our first quarter results and the 2024 outlook in more detail.
Keith J. Allman: Rick.
Thank you Keith and good morning, everyone. Thank you for joining.
Richard Westenberg: As Robin mentioned my comments today will focus on adjusted performance.
Richard Westenberg: Excluding the impact of rationalization charges and.
Richard Westenberg: And other one time items.
Richard Westenberg: Turning to slide seven sales in the quarter decreased 3% year over year or decreased 4%, excluding the favorable impact of our <unk> hundred 60 acquisition in the third quarter of last year.
FX had a minimal impact on our first quarter results.
Richard Westenberg: In local currency North American sales decreased 2%.
Richard Westenberg: Or 3% excluding acquisitions.
Richard Westenberg: In local currency international sales decreased 5%.
Richard Westenberg: Despite lower sales our continued efforts to drive operational efficiencies.
Richard Westenberg: Well as our price cost performance in the quarter helped lead to gross margin expansion of 210 basis points.
Richard Westenberg: The 35, 7%.
Richard Westenberg: SG&A as a percent of sales was 19, 1%.
Richard Westenberg: And was impacted by higher employee related costs, including incentive compensation.
Richard Westenberg: Overall, our operating profit grew 3% in the quarter.
Richard Westenberg: Margin expanded 90 basis points to 16, 7%.
Richard Westenberg: This strong operating profit and margin performance was due primarily to cost savings initiatives.
Richard Westenberg: And a favorable price cost relationship.
Richard Westenberg: Partially offset by lower volumes.
Richard Westenberg: We also grew EPS during the quarter by 8% to 93 per share.
Richard Westenberg: Turning to slide eight plumbing sales decreased 2% in the quarter in.
Richard Westenberg: In line with our expectation.
Richard Westenberg: Lower volume and mix reduced sales by 7%.
Richard Westenberg: This was partially offset by favorable pricing of 3%.
Richard Westenberg: And the positive impact of acquisitions of 2%.
Richard Westenberg: North American plumbing sales decreased 1%, however decreased 4% excluding acquisitions.
Richard Westenberg: Delta Faucet had another solid quarter, achieving low single digit revenue growth driven.
Driven by continued strength in the wholesale channel.
Richard Westenberg: In local currency international plumbing sales decreased 5%.
Richard Westenberg: Driven by soft demand in our key markets of Europe and China.
Richard Westenberg: Segment operating profit in the first quarter was up $26 million.
Richard Westenberg: Or 13% year over year.
Richard Westenberg: And operating margin expanded 260 basis points to 19, 1%.
Richard Westenberg: This operating profit improvement was driven by cost savings initiatives.
Richard Westenberg: And a favorable price cost relationship.
Richard Westenberg: Partially offset by lower volume and mix.
Richard Westenberg: Turning to slide nine.
Richard Westenberg: Decorative architectural sales decreased 3% for the first quarter.
Richard Westenberg: Net sales were relatively flat year over year.
Richard Westenberg: With sales in both DIY and propane in line with last year.
Richard Westenberg: This performance was consistent with our expectation and.
Richard Westenberg: And we continue to anticipate our full year DIY paint business to decrease low single digits.
And our propane business to increase low single digits.
Richard Westenberg: Operating profit was $125 million and.
Richard Westenberg: And operating margin was 17%.
Richard Westenberg: Down 60 basis points year over year, primarily due to lower pricing.
Richard Westenberg: Partially offset by cost savings initiatives.
Richard Westenberg: Turning to slide 10.
Richard Westenberg: Our balance sheet remained strong with gross debt to EBITDA at two times at quarter end.
Richard Westenberg: We ended the quarter with $1 3 billion of liquidity, including cash and availability under our revolving credit facility.
Working capital as a percentage of sales declined 50 basis points to 18, 6% as.
Richard Westenberg: As we continue to stay disciplined on our working capital levels.
Richard Westenberg: During the first quarter, we repurchased $2 1 million shares for $148 million and paid a dividend of $64 million to shareholders.
Richard Westenberg: As we discussed on our February earnings call. We continue to anticipate deploying approximately $600 million during the year toward share repurchases or acquisitions.
Richard Westenberg: Now, let's turn to slide 11, and review our outlook for 2024.
Richard Westenberg: The year has started largely as expected and as a result, we are maintaining our full year outlook, which is as follows.
Richard Westenberg: For Masco overall, we expect 2024 sales to be roughly flat with operating margin growing to approximately 17%.
Richard Westenberg: Currency is projected to have minimal impact on our results.
Richard Westenberg: We expect sales to be down slightly in the first half of the year with.
Richard Westenberg: With modest growth in the back half of the year.
Richard Westenberg: Additionally, we expect operating margin to be roughly flat in the first half of the year.
Richard Westenberg: With expansion expected in the second half.
Richard Westenberg: In our plumbing segment, we expect 2020 for full year sales to be plus or minus low single digits versus 2023.
Richard Westenberg: And our operating margin to expand to approximately 18, 5%.
Up from our prior year margin of 18%.
Richard Westenberg: Margin expansion will be primarily driven by pricing discipline.
Richard Westenberg: Operational efficiency.
Richard Westenberg: And continued cost savings initiatives.
Richard Westenberg: In our decorative architectural segment we.
Richard Westenberg: We expect 2020 for sales to also be plus or minus low single digits versus 2023.
Richard Westenberg: And operating margin to be approximately 18%.
Richard Westenberg: Up from our prior year margin of 17, 8%.
Richard Westenberg: Driven by cost savings initiatives.
Richard Westenberg: Finally, as Keith mentioned earlier, we are maintaining our 2024 EPS estimate of $4 to $4 25 per share.
Richard Westenberg: This assumes a 221 million average diluted share count for the year and.
Richard Westenberg: And a 24, 5% effective tax rate.
Richard Westenberg: Additional financial assumptions for 2024 can be found on slide 14 of our earnings deck with.
Speaker Change: With that I'd like to open up the call for questions operator.
Speaker Change: Thank you we will now begin the question and answer session in order to ensure that everyone has a chance to participate we would like to request that you limit yourself to asking one question and one follow up during the Q&A session to ask a question. Please press. The Star then the number one on your telephone keypad did withdraw your question. Please press <unk>.
<unk> followed by the re queue one moment. Please for your first question.
Speaker Change: Your first question comes from the line of Anthony Pettinari from Citi. Your line is open.
Anthony James Pettinari: Good morning.
DIY paint accelerated pretty meaningfully from <unk> to <unk> and I'm. Just wondering if you could talk a little bit about whether that acceleration was related more towards improving demand or maybe the timing of comps and how should we think about maybe pathway to restoring price cost and da.
Anthony James Pettinari: Given volumes are improving.
Speaker Change: I'm not quite tracking with you Anthony in terms of volumes.
Speaker Change: Improving.
Speaker Change: I mean, what you mean by that.
Speaker Change: I guess the move from DIY paint from <unk>, if you could just talk about that.
Speaker Change: The trends Youre seeing there.
Anthony James Pettinari: Well I would tell you that.
Anthony James Pettinari: <unk>.
Anthony James Pettinari: When we look at the rate of volume decline that we're seeing across our business.
Anthony James Pettinari: Specifically.
Anthony James Pettinari: Specifically in DIY paint.
Anthony James Pettinari: We continue to see that the market is down a little bit we havent really seen.
Anthony James Pettinari: A restoration of volumes I don't know if youre, implying sequentially, if youre looking at year.
Anthony James Pettinari: Year over year.
Speaker Change: Yes year over year.
Speaker Change: Yeah, Anthony the only thing I would add is there is nothing really noteworthy in terms of trends I think it's more seasonality.
Speaker Change: In terms of our our DIY performance as well as our volume our sales performance. It was roughly flat year over year on a Q1 to Q1 basis.
Speaker Change: And as we indicated in terms of the calendar year outlook, which is probably more meaningful.
Speaker Change: Cylinder basis, we do expect DIY to be down low single digits.
Speaker Change: The pro to be up low single digits. If that provides some context in terms of what we're expecting this year.
Speaker Change: Okay. Okay. That's very helpful. That's very helpful. And then just one.
Speaker Change: Vol mix, I think decelerated from down, 4% and <unk> to down 7% in <unk>. Despite what looked like an easier comp I'm. Just wondering if you could talk about.
Speaker Change: If that if you view that as a deceleration if theres anything in.
Speaker Change: Weaker channels that you'd flag.
Speaker Change: Maybe just more broadly about trends that youre seeing in kitchen, and Bath remodel that.
Speaker Change: That you would identify as maybe tracking better or worse than expected for masco.
Speaker Change: Yes, I think in terms of what youre seeing on a sequential basis on a year over year, but sequential basis as you articulated I think thats driven largely by the geographic performance. So.
It wasn't really until Q2 of last year, where we saw more of a slowdown in our international markets.
Speaker Change: As we look on a year over year basis, our North America plumbing was down one or 2%, but our internationally I mean, it was down about 5% on a currency adjusted basis. So I think thats, perhaps explaining the dynamics that youre seeing.
Speaker Change: I guess I'll, let maybe Keith comment in terms of the trends as we see going forward in terms of the plumbing.
Keith J. Allman: And kitchen and Bath.
Keith J. Allman: When we look at our.
Rate of decline in plumbing.
Keith J. Allman: It really shows a moderation in terms of what I would call stabilization, probably a better word.
Keith J. Allman: Particularly in North America.
Keith J. Allman: The slowdown last year happened as Rick said, a couple of quarters later.
Keith J. Allman: In our international business, So are in North America.
Keith J. Allman: Trade business is doing quite well and overall in North America is stable, we feel it's safe to say that we're we've hit hit the bottom in North America, a little bit different story.
Keith J. Allman: Internationally.
More stability in Germany, certainly, but there is still some.
Keith J. Allman: Variability in China, So, it's maybe a little bit too early to call to say that.
Keith J. Allman: Seeing that hit bottom and in North America. So we're expecting our international sales to be down a little bit more.
Keith J. Allman: In terms of the total market this year than we would in North America.
Speaker Change: Okay. That's very helpful I'll turn it over.
Speaker Change: Thank you. Your next question comes from the line of Jonathan <unk> from UBS. Your line is open.
Good morning, guys. Thank you for taking my questions here as well, maybe starting at a high level and just talk to your thinking about your outlook for repair and remodel sort of flat to down low single digits, but we've had a move in rates here and perhaps a little bit more pressure on existing home sales. So just curious of your.
Speaker Change: Kind of leaning more towards upside or downside there if anything has changed in your overall thought process.
Speaker Change: Hey, good morning, John really really no change.
Speaker Change: <unk>.
Speaker Change: <unk> this quarter as expected.
Speaker Change: We're holding our guidance and believe that we will start to see an uptick in the second half in the overall market.
Speaker Change: But.
Speaker Change: No real changes.
Speaker Change: As we see it in terms of how.
Speaker Change: The consumer is behaving certainly there's volatility left.
Speaker Change: And that we're calling for.
Speaker Change: Flat plus or minus low single digits.
Speaker Change: Our market is driven primarily by consumer confidence so we're watching carefully.
Speaker Change: <unk>.
Speaker Change: Where the rates go.
Speaker Change: What happens geopolitically, there's a lot of dynamics here, but fundamentally how we view the market has not changed in.
Speaker Change: By and large first quarter. It came in right, where we expected to come in.
Speaker Change: Okay, that's encouraging and then.
Speaker Change: <unk> that DIY and propane were both sort of flattish on a sales basis year over year that would seem to imply that kitchell or in the hardware business for down maybe closer to 15% I mean are we thinking about that right and if so what's sort of driving that and how are you thinking about these businesses as we move through the year.
Speaker Change: Yes, I know I follow your math, John it wasn't quite as significant but kisler and liberty were down a bit more.
Speaker Change: Than our overall portfolio and some of that is driven based off of decisions that are made for example, Kessler has done a really nice job had taken some restructuring actions with regards to cost and price, but also our portfolio exiting some lines of business that weren't as profitable so thats driving a little bit of the year over year comp.
Speaker Change: And as we look for the rest of the year I think what we will expect to see in terms of.
Speaker Change: Those business lines is more in line with the R&R industry is there kind of lap some of the comps.
Speaker Change: Great. Thank you guys.
Speaker Change: Your next question comes from the line of Matthew Bouley from Barclays. Your line is open.
Matthew Bouley: Good morning, everyone. Thank you for taking the questions a.
Matthew Bouley: Couple of questions on the margins I think you again spoke to total company operating margins being sort of flat year over year in the first half obviously Q1 was was quite.
Matthew Bouley: It was up year over year.
Matthew Bouley: Yes. My question is for the second quarter does that imply margins really needs to be down soon.
As soon as the second quarter here kind of any finer point on how should we think about that margin here in the second quarter. Thank you.
Speaker Change: Yes, no Matt I appreciate the question.
Speaker Change: We are pleased with our performance it was a strong performance in Q1.
Speaker Change: And we've as you indicated we've reiterated our guidance for the year as well as our first half and second half performance I think it is important to note that we do still expect to see overall margin expansion.
Speaker Change: In each of our segments and for Masco overall for the calendar year, but when you look at our quarterly performance. In this particular case, it's really Q2 is really a comparison to a strong comp last year. So 2023 Q2, we had very strong margin performance for Masco overall, I think we had 19% margins. So it is really a strong comp.
Speaker Change: Year over year comp that we're looking at so yes, it's fair to say that we do expect.
Speaker Change: Some margin reduction year over year in Q2, but we're expecting flattish margin in the first half of the year.
Speaker Change: Asian expansion overall, but we still expect to see a solid Q2 and sequential increase in margins from Q1 to Q2 as well.
Speaker Change: Okay got it thank you for that and second one.
Just zooming into the plumbing margins specifically.
Speaker Change: $19, 1% margin in the first quarter you kept the full year guide unchanged.
Speaker Change: I guess it would be helpful. If you can kind of outline how price cost is playing into that you had the benefit in Q1, and maybe we're seeing copper prices increase here. So just how is price cost playing into that and was there anything else kind of beneficial in Q1 that that's sort of not continuing for the year.
Speaker Change: So, yes, just kind of what the reasoning behind holding that guide unchanged. Thank you.
Yes.
Speaker Change: Not a real big impact in price cost and plumbing in the quarter.
Speaker Change: As Rick said, we're pleased with the margin performance the team has done.
Speaker Change: The real phenomenal job of lining up the.
Speaker Change: Pipeline of productivity initiatives and this is something thats been going on for several quarters now and.
Speaker Change: Part of the reason why we have the confidence of the overall margin increase year over year.
Speaker Change: So it's really not a question of what's not going to continue.
Speaker Change: Moving forward well.
Speaker Change: Holding our guide the business performed well.
Speaker Change: Not a whole lot of impact.
Speaker Change: Either way.
Speaker Change: The price cost relationship is just good solid execution and we expect that to continue.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, Keith Thanks, Rick and good luck guys.
Speaker Change: Thanks, Matt.
Speaker Change: Your next question comes from the line of Mike Dahl from RBC capital markets. Your line is open.
Michael Dahl: Good morning, Thanks for taking my questions.
Michael Dahl: Steve just a follow up on that it does seem like the progression in plumbing has.
Michael Dahl: It's driven by some sustainable things that you expect to continue you have articulated a medium term guide.
Michael Dahl: Yes that is higher than the 18, 5% and that's basically.
Michael Dahl: Youre approaching that with your one or two so.
Michael Dahl: When we look forward.
Are there specific things that you can point to for the balance of the year that would end up coming in and being incremental headwinds.
Michael Dahl: <unk> business, whether it's mix or other things like.
Michael Dahl: That would bring the margin down from what Youre, what youre experiencing here.
Speaker Change: Well I think.
Speaker Change: Mike demonstrated an ability to manage.
Speaker Change: Commodity changes, who knows where they will go we're seeing a little bit of variability, we're watching crude oil theres. Some freight components in terms of incremental cost as we shipped around the red Sea, there's a pending labor negotiations in the east coast. So those are the types of things that we watch we watch and are uncertain.
Speaker Change: Where those may go in if they would result in headwinds, but I think we've demonstrated the ability to manage those with their pipeline of productivity initiatives and cost out as well as the strength of our brands and innovation and ability to get price where we.
Speaker Change: We need to I think.
Speaker Change: <unk>.
Speaker Change: What's out there that could materially drive margin and what we're really looking at is the overall volume our plan is to convert volume at that 30% to 35% range and plumbing, so that could be an upside if volume goes in the positive direction and then we were going to have to manage very tightly on the decremental should it go the other way.
Speaker Change: Really.
Speaker Change: Don't have in mind any significant.
Speaker Change:
Speaker Change: Negative headwinds in our plumbing business.
Speaker Change: We're anticipating going forward, we're just ready to manage the volatility I think that's the that's the key.
Speaker Change: Yes that makes sense okay.
Speaker Change: And then just shifting gears to the overall kind of capital allocation environment, we've seen a decent number building products businesses trade hands or announce.
<unk> actions.
Speaker Change: Verizon is kind of yes.
Speaker Change: While there in terms of small to large can you just update us on kind of what you're seeing.
Speaker Change: You are seeing out there how youre thinking about the.
Speaker Change: The environment in.
It's on holding the other day.
Speaker Change: Sure.
Speaker Change: The important.
Speaker Change: The most important view that we have is that our capital allocation strategy has not changed.
We are anticipating in the range of $600 million this year of availability for acquisition at some cash available for acquisitions or buyback and we see those as fungible and we're not going to hoard cash and we're going to manage that very consistently with how we have in the past and that's resulted in.
Speaker Change: Good shareholder value creation, so no change in our strategy in terms of acquisitions focused on bolt ons in our paint and plumbing business, we think thats the right place to be.
Speaker Change: Given the relative pricing of deals that we're seeing out there I would say that the deal flow is up a little bit but not necessarily materially.
Speaker Change: We continue to drive cultivation work in our.
Speaker Change: Looking at.
Speaker Change: Several options, but no change in our capital allocation strategy with regards to some <unk>.
Speaker Change: Specific announcements that are out there.
Speaker Change: Particularly.
In the paint in our paint business.
Speaker Change: Assets of that size, it's somewhat rare that <unk>.
Speaker Change: They come up and.
Speaker Change: It is safe to conclude that we're looking at those at that opportunity and we'll see if there is a form of.
Speaker Change: Any variety of a deal that could add value to us so.
Speaker Change: Too early to talk about it we're not going to get into detail here, but.
Speaker Change: The things that we're looking at are consistent with our capital allocation strategy. It's a strategy that has worked for a period of years for us to generate shareholder value and we're going to continue to drive that strategy.
Speaker Change: I appreciate that thanks, Steve.
Speaker Change: Your next question comes from the line of Susan Mcclary from Goldman Sachs. Your line is open.
Susan Maklari: Thank you good morning.
Susan Maklari: Going back to some of the company specific initiatives that you've got coming through it seems like youre really starting to gain some momentum with them.
Susan Maklari: Even with the backdrop still being fairly tepid in there given the progress that you're seeing is there any change in the timeline or perhaps the sort of progress or the things that we should be thinking about that could come through over the course of this year or next year.
Speaker Change: Hey, good morning, So no not really we are pleased with the first first quarter performance as I said in my prepared remarks, but it's a plan that's what we.
Speaker Change: Anticipated, we're one quarter into the year.
Speaker Change: We're one quarter in.
Speaker Change: Margin.
Speaker Change: Towards our 2026 margin guidance. So we're not we're not.
Speaker Change: We're not really no change at this point things are going well, we're executing well we realized that we're in a volatile environment in that.
Speaker Change: Flexibility and reactivity is.
Speaker Change: Important and we're continuing to drive that with our leadership team. So I would say good start to the year good start marching towards our 2006 targets no change.
Speaker Change: We're continuing to.
Speaker Change: Focus our leadership teams and making sure that we're very mindful of our growth spend in our SG&A spend to make sure that we're getting the productivity from those were driving our pipeline of efficiency improvements through our standardized operating systems that we've had for over a decade now.
Speaker Change: And things are moving along nicely, we're pleased but no change in our.
Speaker Change: 2026 outlook or how we feel about the year, we think we're going to have a.
Speaker Change: As planned and as our guidance.
Speaker Change: Okay, Okay that sounds great and then you also had some really nice improvements on the working capital side does that go to some of these efforts that are coming in and can you just talk about what drove that and any thoughts on how that could trend over the next couple of quarters.
Speaker Change: I assume it's Rick.
Richard Westenberg: Yeah from a working capital perspective, we continue to be disciplined on working capital.
Richard Westenberg: Well documented we had a bit elevated working capital in 2022, we brought that back in line in 2023.
Richard Westenberg: Our expectation is that we will continue to keep working capital at a at a normalized or in line basis as we work through the course of the year. So there'll be seasonality. It's higher in Q1, just from a seasonality perspective, as we and our channel partners prepare for the seasonally stronger Q2, and Q3 selling season.
Richard Westenberg: But in terms of working capital will follow more of a traditional seasonality trend and as we look towards the end of the year.
Richard Westenberg: We're projecting that we would and working capital as a percent of sales around 16, 5%, which is relatively in line with where we finished 2023.
Speaker Change: Okay, alright, thanks for the color and good luck.
Speaker Change: Thank you Sue.
Speaker Change: Your next question comes from the line of Adam Baumgarten from Goldman Your line is open.
Adam Baumgarten: Hey, good morning, everyone just in plumbing, how should we think about the magnitude of the price cost tailwind on a go forward basis do you think that <unk> may be the peak for that relationship or do you expect talent throughout the balance of the year.
Adam Baumgarten: Yeah, Adam what I would say is.
Again, we're pleased with Q1 performance as it pertains to the rest of the year I would say for plumbing price, we're expecting a low single digit tailwind or favorability for the year overall and commodities to be relatively neutral as Keith mentioned there is some obviously as we all recognize variability in the commodity markets and then in the freight market. So thats a little.
Adam Baumgarten: TBD as the year plays out, but at least from a price perspective low single digit favorability.
Speaker Change: Okay got it and then just on the mix side in plumbing did you see any headwinds in the quarter and if so is that really due to international are you seeing some trade down maybe just some more color on the mix side of it.
Speaker Change: Yes, it was pretty minimal during the quarter.
Speaker Change: A slight headwind in our international business, just really as Keith mentioned before China is still pretty volatile and that tends to be a more profitable market. So if that is down which it was.
Speaker Change: It is geographic mix, but it wasn't very meaningful for the for the overall business.
Speaker Change: Okay, great. Thanks.
Speaker Change: Your next question comes from the line of Timothy <unk> from Jefferies. Your line is open.
Timothy: Hey, guys Keith I appreciate your comments about the consumer and how the year shaping up.
Timothy: Largely language you thought coming into the year.
Timothy: But was just curious have you seen any noticeable trends intra quarter and going into April have your channel partners change any behavior in terms of how they are managing inventory, but just curious if theres any inter quarter improvements or just been kind of bouncing along the bottom at this point.
Speaker Change: It's really as we expected.
Speaker Change: Don't don't comment so much on inter quarter as there's obviously.
Speaker Change: A lot of variability with regards to.
Speaker Change: Current year quarter prior year quarter system sale for new product launches and all those sorts of things, but I would say it's as expected.
Speaker Change: Really no comment beyond that in terms of what's happening inside the quarter.
Speaker Change: Okay. That's helpful and then as you kind of alluded earlier.
Speaker Change: One of the larger.
Speaker Change: Paint assets are put on strategic review, it's something by definition you have to take a harder look at.
Speaker Change: Your partner on the retail side, obviously on pain has made a huge investment in reaching the complex pro so.
Speaker Change: Is this something youre, putting hard consideration and particularly on the store side, which is a little different from what you guys have done operationally on the business side would you look at it holistically or in parts just any more color in terms of how youre thinking about it.
Speaker Change: Sure, Yes that there was certainly a <unk>.
Speaker Change: Significant acquisition for home depot, and I think that.
Speaker Change: Really.
Speaker Change: Illustrates their focus which we have been keenly.
Speaker Change: Keenly working with them on that.
Speaker Change: On the paint side with regards to the pro but they continue to be focused on the pro and that's consistent with our strategy and we continue to.
Speaker Change: Worked very closely with them.
Speaker Change: Particularly in our paint business to go after that problem.
Speaker Change: Look at our.
Speaker Change: Stat stacked comp over the last several years of some 60% in pro paint.
Speaker Change: Indicative of not only the capability of our.
Speaker Change: Bear brand and our service proposition et cetera, but absolutely of our relationships and their focus on that process.
Speaker Change: With regards to the paint asset that we're looking at that could take any form.
Speaker Change: It's too early for us to get into.
Speaker Change: To get to know the process has just started but.
Speaker Change: We're going to look at all aspects of it and we.
Speaker Change: We'll be consistent with our capital allocation and our M&A strategy and.
Speaker Change: That may or may not involve various parts of the assets that are under review and we're taking a look at it it's too early to get into any of the specifics around the individual components of a potential deal that may or may not happen.
Speaker Change: Okay, that's great color really appreciate Keith.
Speaker Change: And your next question comes from the line of Garik <unk> from loop capital. Your line is open.
Garik: Oh, hi, thanks.
Garik: Just wondering how youre thinking about international plumbing.
Garik: The year progresses.
Garik: Absolutely easier comparisons throughout the year, just wondering if you're expecting that.
Garik: That part of the business to show growth over the next several quarters.
Speaker Change: Well in terms of the overall international market as I said, Gary It is.
Speaker Change: Lagging a little bit in terms of finding the trough if you will versus North America. So we're expecting the international market to be downloaded mid single digits. Hans is growing and that team. There has done a phenomenal job and there is no question wallets.
Speaker Change: Certainly difficult to.
Pin down in <unk>.
Particular quarter the size of the market when youre in well over 100 countries, but clearly we're outperforming our major competition in Europe and continuing to gain share.
Speaker Change: We expect that.
Speaker Change: To continue to happen.
Speaker Change: Business is performing very well.
Speaker Change: There is.
A little bit more signs of stability in Germany, and central Europe, and we're seeing in China. So we think China's.
Speaker Change: Lagging a little bit.
Speaker Change: But we expect to continue to gain market share against a backdrop of international markets that will be down low to mid single digits.
Speaker Change: Okay. That's helpful. And then just with respect to commodity volatility just wondering how youre thinking about pricing over the the remainder of the year youre thinking about or announced additional price increases to offset.
Speaker Change: Yes, we've had.
Speaker Change: Some.
Speaker Change: Some price that we took last year that I would say kind of targeted pricing this year.
Speaker Change: In plumbing I am talking specifically.
Speaker Change: It's been a mixed bag as it relates to commodities and plumbing.
Speaker Change: Container costs decreased slightly.
Speaker Change: But are certainly elevated.
Speaker Change: Ongoing risks as I talked about.
Speaker Change: In the East Coast East Coast Port negotiations, the Red Sea, a number of other areas as it relates to freight.
Speaker Change: At quarter end, I think copper was up about 3% from where it ended last year and is currently above $4 again zinc prices are starting to come up so there's volatility there I would remind you of that.
Speaker Change: In plumbing.
Speaker Change: Due to the.
Speaker Change: Nature of products coming across the ocean and that the time it takes there than going through our.
Speaker Change: Inventory it takes about six months for a.
Speaker Change:
Speaker Change: The impact to be seen in our.
P&L so for plumbing, we expect let's call it roughly flat commodities in 2020 for Paul.
Speaker Change: Operator.
Speaker Change: Your next question comes from the line of Keith Hughes from Jefferies. Your line is open.
Keith Hughes: Thank you a similar question to the last one but on the paint business, what's the outlook for inputs.
Keith Hughes: A couple of quarters there.
Keith Hughes: Yeah, Hey, good morning, Keith it's Rick so.
Richard Westenberg: With regards to our on the on the on the paint side of the equation from a commodity standpoint.
We saw some favorability in Q1 year over year is pretty modest, but really sequentially flat and really for the year for the calendar year, we don't see a significant impact as of today with regards to commodities on a year over year basis in the coatings business.
Richard Westenberg: As I think it was mentioned we've seen some increase in oil prices, which obviously impacts resin and there was some pressure in the tio too so good start to the year, but.
Richard Westenberg: It really stability and some potential upward pressures, but we're monitoring it very closely.
Richard Westenberg: Any upward pressure would they be later out in the year. It sounds like that's a little more of a speculative.
Yes, there is a delay obviously as Keith alluded to because it's not an immediate impact and.
So we're again, we're monitoring it but it's not something that we currently in terms of our expectations for the year, we're not baking in any significant significant benefit or.
Richard Westenberg: Headwind with regards to commodities for the for the year.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Sam <unk> from Wells Fargo. Your line is open.
Sam: Awesome. Thanks, so much guys for taking my question I actually wanted to drill down a little bit more to start with on plumbing, specifically plumbing pricing can you talk.
Sam: The pricing strategy by channel and any differentials that you might be seeing whether it's been showrooms versus home centers versus distribution and wholesale I was just kind of want to understand any pricing dynamics in those channels that we should be aware of.
Sam: The way, we view pricing is really a function of the.
Sam: The strength of our brands and where commodities go as it relates to our ability to drive cost improvement.
Sam: And there is.
Sam: Really no difference in pricing as we think about that strategy as it relates to various channels and we're going to stay consistent with that.
Sam: Beyond that I'm, not going to get into specific.
Sam: Customer discussions or the like as it relates to pricing, but fundamentally we look at the.
Sam: Our capabilities to drive productivity.
Sam: The strength of our brands innovation and over time, we've demonstrated the ability to.
Sam: Get.
Sam: <unk> pricing.
Sam: Over cycles, and when you look at.
Sam: Where we are today in the plumbing business and the ability to continue to drive margin improvements.
Sam: In the face of some challenging volume I think that really speaks well to our continuous improvement culture and the tools that we have to continue to drive productivity. So theres a lot that goes into pricing.
Sam: Including the desire to gain share of course.
Sam: And that's been consistent really how we've approached it over a number of years.
Speaker Change: Awesome and then switching gears to plumbing last year, you guys were gaining some shelf space on the paint side.
Speaker Change: In a few different kind of sub category, just curious kind of how those conversations with home depot are coming this year and whether there's any opportunity to kind of continue to gain share in paint.
Speaker Change: We thought of your initiatives, yes, Sam we think there is opportunity to continue to gain share.
Speaker Change: Our relationship with the.
Speaker Change: Home depot is outstanding.
Speaker Change: Focused on DIY paint, we're focused on pro and obviously are our plumbing businesses depot, who is a big customer for us in plumbing and we're looking at ways to continue to drive solutions for the consumer that result in share gains both in terms of shelf in an overall volume so.
Speaker Change: That's something we always work out and we'll continue to do.
Speaker Change: Awesome. Thanks, so much.
Speaker Change: Your next question comes from the line of Stephen Kim Your line is open.
Okay.
Stephen Kim: Stephen you might be on mute.
Stephen Kim: Can you.
Stephen Kim: Got it here you can you hear me, yes, we.
Stephen Kim: Got you, Okay, alright, sorry about that I'm not sure what happened.
Stephen Kim: It seems like.
Stephen Kim: North American plumbing margins might have been up like 350 basis points or so.
Stephen Kim: It seems like international margins were down.
Stephen Kim: Due to the volume.
Speaker Change: I didn't hear you talk about any specific cost saving programs kind of a general efforts in input costs and things of that nature, but could you talk about any specific cost saving.
Speaker Change: Programs that you've got going on in North America plumbing.
Speaker Change: And give us a sense for how far along they are.
Speaker Change: How much more maybe we could expect an and and things of that nature.
Speaker Change: Yes, good question Stephen.
Speaker Change: The.
Speaker Change: Specific initiatives.
Speaker Change: Has it changed just because the team is doing such a good job across multiple fronts and it's not just in North North America. It's also international with Hans growing I know costs are plumbing.
Speaker Change: Platform, but there's a bucket of initiatives in our pipeline around.
Speaker Change: Purchasing and how we buy and who we buy from and how we can coordinate and consolidate our buy and Thats certainly been beneficial.
Speaker Change: Value engineering, where we're looking at our designs and our engineering teams in terms of.
Speaker Change: How we can communize component sets, where the where the consumer where it doesn't affect the consumer interface and how we can.
Speaker Change: Consolidated volumes and have a better a bigger.
Speaker Change: Purchasing capability enhance get lower price operating system.
Speaker Change: Begins and ends with a mindset of continuous improvement so driving variable cost productivity and gross margin as it relates to how efficiently.
Speaker Change: Leverage our fixed assets I E, taking shifts off or adding shifts and being as efficient as we can in that regard and then of course direct labor efficiencies and how we drive scrap rates and and and how we drive direct labor and indirect labor productivity, so purchasing overhead absorption and doing better.
Speaker Change: With that value engineering initiatives that we've kicked off and then managing our new assets that we're bringing online with with regards to our Serbian plant and our new.
Speaker Change: A paint plant to be as efficient as we can as we bring those up so it's all part of the.
Speaker Change: Masco operating system that were.
Speaker Change: More than a decade into and I think earlier Susan used the word momentum that's really what it's about it's about momentum that our leadership teams really getting in the groove of managing pipelines of continuous improvement and cost out projects across the full continuum of our.
Speaker Change: <unk> of our cost drivers in terms of what we can expect going forward you can expect margin enhancements.
Speaker Change: In plumbing.
Speaker Change: We're talking about and guiding to 18, 5% margins.
N a.
Speaker Change: Flat to down kind of year in that.
Speaker Change: That shows good productivity initiatives, so I think thats.
Speaker Change: Our expectations are baked into our guidance and we're confident in hitting it.
Speaker Change: Yes, that's really helpful. One thing I forgot to ask with respect to this.
Speaker Change: Reframing your remarks is.
Speaker Change: To what degree is this.
Speaker Change: Really just managing the human capital that you have.
Speaker Change: Better or worse or well versus any technological improvements.
Speaker Change: Youre seeing introduced into your into your systems or your processes.
Speaker Change: It's a mix.
Speaker Change: Certainly.
Speaker Change: Having efficient direct and indirect labor and that human capital side as part of it certainly.
Speaker Change: Providing leadership and expectations in coordination with the technical or the human capital on the engineering side is a big.
Speaker Change: A component of it and technology is a piece.
Speaker Change: We're a leader, particularly in plumbing.
Speaker Change: The online and the e-commerce space and we've seen a significant change at all.
Speaker Change: Products are flowing through that channel and we need to look at how we handle distribution and logistics and the technology that's behind that.
Speaker Change: Certainly driving technology changes into the component sets in our components that strategy with regards to how we can have galvanized components as I mentioned, where the customer doesn't see it and then we can have unit volume that can lead to price down. So it's a combination of.
Speaker Change: Human management of technology.
Speaker Change: And of of how we reward and incentivize people and how we lead and that's again to go back to our operating system and the momentum that's been created from a decade of applying that.
Speaker Change: Yes, that's really great I appreciate it I appreciate all the color. Thanks.
Speaker Change: Yeah.
Eric Boss: Your next question comes from the line of Eric Boss hard from Cleveland Research. Your line is open.
Eric Bosshard: Hi, Thanks, two things if I could Keith.
Eric Bosshard: Keith I appreciate the strategic thinking on pricing.
Eric Boss: And getting value for your brands I'm curious, what you're observing with the consumer regarding price elasticity in an environment, where the consumer seems like it's a bit more disciplined.
Eric Boss: Yeah.
Eric Boss: It's really it's really hard to.
Eric Boss: To get a handle on that frankly, when you look at a.
Eric Boss: A year or two years ago, when we have such significant.
Eric Boss: Inflation.
Eric Boss: The elasticity data really didn't apply and it wasn't nearly as consistent.
Eric Boss: And it varies.
Eric Boss: By technology it varies by.
Eric Boss: Price point and it certainly varies by.
Eric Boss: In some cases the countries. So for example.
Eric Boss: Little bit more price elasticity that we're seeing in China, a little bit more sensitivity is that.
Eric Boss: A little bit more volatile.
Eric Boss: In other areas with <unk>.
Eric Boss: New products and new designs that we launched that are particularly attractive to the consumer we have a little bit more price elasticity at some price points.
Eric Boss: <unk>.
Eric Boss: In the lower price point part of our plumbing assortment for.
Eric Boss: For example, we are seeing a little bit more elasticity in a little more challenging.
Eric Boss: Not atypical.
Eric Boss: In environments like this.
Eric Boss:
Eric Boss: But we've worked hard to reduce the gap of our margins between the higher end of the assortment and the lower into the assortment.
Eric Boss: We have geographic diversity in terms of where we sell so all in when you when you when you.
Eric Boss: Look at how the consumers is.
Eric Boss: Performing are behaving rather relative to price elasticity and you look at our mix as Rick mentioned earlier mix really hasnt been so much of a material impact on our star do we expect it to be.
Eric Boss: As we look forward and that's I think indicative of our portfolio and our ability to manage those pricing dynamics, but specifically to your question.
Eric Boss: [noise] elasticity, it's been tough to to really understand that particularly given some of the dramatic and rapid inflationary.
Eric Boss: Behaviors that we saw for the last couple of years.
Speaker Change: Okay, and then secondly, you called out was also growing.
Speaker Change: Two or 3% and in what looks like a down market.
Speaker Change: Is that sustainable for that business to continue to grow and grow in the market that is down and is there anything that was <unk> specific the contributed to the growth of that business.
Speaker Change: Yeah, I don't know if we cited a specific number we did say that there was growth in revenue and Delta.
Speaker Change: It really aided by our sales performance in the wholesale channel what I would say is from an overall standpoint.
Speaker Change: Our guidance for the year from a plumbing perspective is up or down low single digits.
Speaker Change: North America, perhaps performing a bit stronger than international given the lag in and recovery in the international market. So we haven't called specific outlook with regards to North America plumbing, but we're seeing some stabilization as evidenced in Q4 of last year in Q1 of this year.
Speaker Change: And we remain cautiously optimistic, but as we've talked about before.
Speaker Change: We're early in the year, we're monitoring the situation and what I would say is our North America or Delta plumbing businesses kind of in line with our guidance for the year at this point.
Speaker Change: Thank you.
Speaker Change: And our last question comes from the line of Lee <unk> from Bank of America. Your line is open.
Lee: Hi, good morning, Thanks for taking my question.
Lee: Good morning.
Lee: The first I wanted to ask just.
Lee: You've had really.
Lee: Strong margin performance.
Lee: With volumes declining year over the last.
Lee: So if you start to see volumes turn positive.
Lee: How should we think about your incremental margins versus historical levels.
Speaker Change: I think pretty consistent right. So I think in that 30% to 35% for plumbing, it little bit lower than that for.
Speaker Change: Decorative.
Speaker Change: That's been consistent it's consistent with how we've performed and I don't I don't I wouldn't anticipate.
Speaker Change: Any change in that.
Speaker Change: And then of course on the downside, we manage the Decrementals and we've had some really strong performance in terms of having those decrementals would be less than those incrementals, which is indicative of indicative of how the teams are managing the volatility, but no real change from what we've seen historically as it relates to the dropdown on incremental volume.
Speaker Change: Okay.
Speaker Change: Got it and then on the <unk>.
Speaker Change: Arc side.
Speaker Change: Volume now and correct me if I'm wrong I think volume is now below the 2019 bubbles.
Speaker Change: And.
Speaker Change: Volume remains still remains a little soft here, but how are you working with home depot or your channel partners to drive better demand and what should we be looking for from <unk>.
Speaker Change: Macro perspective.
Speaker Change: That could possibly start to drive volumes positive there.
Speaker Change: How we work with our channel partners to drive demand is across the whole continuum of having having the right price of continuing to drive down.
Speaker Change: Our costs through productivity initiatives to keep a solid pipeline of innovation that went through some of that.
Earlier in my prepared remarks of what we're doing to make sure that we have that desired place on the shelf in that top of mind performance in the consumer So we worked very closely.
Speaker Change: And and paint specifically and in programs and how we drive.
Speaker Change: And of course in probe, where we've had a significant and continue to have very strong performance as it relates to share gain and profitability in our in our pro business. So it's really.
Speaker Change: Continuing to drive and work together, beginning first with the consumer that being partners with their channels.
Speaker Change: We'd like to thank all of you for joining us on the call. This morning and for your interest in Masco that concludes today's call have a wonderful day.
Speaker Change: Yes.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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