Q2 2024 Masco Corp Earnings Call
Good morning, Ladies and gentlemen, welcome to My School Corporation second quarter Conference call. My name is <unk> and I'll 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 Star then the number one on your telephone keypad do we do.
Your question. Please press the star followed by the number two I will now turn the call over to Robyn Zondervan, Vice President Investor Relations and F. D. N. A of Masco Corp. You may begin.
Operator, and good morning, everyone.
Welcome to Masco Corporation.
24 second quarter conference call.
With me today are Keith Allman, President and CEO of Masco.
And Rick Westenburg Masters, Vice President and Chief Financial Officer.
Our second 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.
We've described 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.
Our statements will also include non-GAAP financial metrics.
Our references to operating profit and earnings per share will be as adjusted unless otherwise noted.
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 will now turn the call over to Keith.
Thank you Robyn.
Good morning, everyone and thank you for joining us today.
As we sit here midway through the year I'm pleased with our performance.
Despite a challenging macroeconomic environment.
We have delivered solid financial results with our continued focus on operational excellence.
Rand service and innovation.
Additionally, the strength of our repair and remodel oriented product portfolio has enabled us to drive operating profit margin expansion in the first half of the year better than we expected. Despite a decrease in sales.
Turning to our second quarter results. Please refer to slide five.
Demand continued to stabilize as net sales decreased 2% in line with the prior two quarters.
Second quarter sales performance was primarily impacted by lower volume and mix.
In the quarter, our gross profit grew $16 million and gross margin rose 140 basis points to 37, 6% as a result of our ongoing initiatives to drive operational efficiencies and achieve cost savings.
Our solid execution resulted in operating profit of $399 million and operating profit margin of 19, 1%.
In addition, our earnings per share grew 1% to $1 20 per share.
Moving to our segments plumbing sales increased 2% overall and 1%, excluding the impacts of acquisitions and currency.
In local currency, North American plumbing sales increased 5% overall and 2% excluding the impact of acquisitions.
And international plumbing sales decreased 1% in local currency.
Demonstrating continued signs of stabilization, particularly in Europe and China.
Operating profit for the segment was up $4 million to $249 million.
Operating margin was 19, 9%.
Largely in line with the prior year.
Driven by our pricing discipline and operational performance as we continue to focus on productivity efficiency and cost savings.
We are pleased with our performance in the plumbing segment throughout the first half of the year as our teams both in North America and international continue to leverage our operating system and execute on our strategic priorities.
Lastly in plumbing.
Delta Faucet was awarded the J D power customer service distinction for the third year in a row.
This award recognizes our outstanding customer service and reinforces our commitment to industry leading service.
Moving to our decorative architectural segment.
Sales decreased 7% in the quarter.
Speaker Change: Overall paint sales were down high single digits as DIY paint sales decreased low double digits, while pro paint sales grew mid single digits.
And propane we continue to execute on our strategic initiatives to grow share with our partner the home depot.
Our partnership dates back over 40 years and together we are focused on meeting the needs of our customers through quality service brand and performance.
We are proud of our sales growth and market expansion with the pro painter and we are continuing to invest to drive additional growth going forward.
Speaker Change: Operating profit for the segment decreased $6 million to $174 million, while operating margin was up 80 basis points to 28%.
For the first half of this year demand in our decorative segment overall was generally in line with our expectations. However, DIY paint was more challenging than expected.
Partially offset by stronger performance in propane.
Turning to capital allocation, we continued to generate strong free cash flow during the quarter and maintained a solid balance sheet.
As a result, we executed on our capital deployment strategy and returned $206 million to shareholders through dividends and share repurchases.
Now for a few comments on our outlook for 2024.
Overall sales for the total company were largely in line with our expectations for the first half of the year.
Down low single digits.
Speaker Change: As uncertainty within the broader macroeconomic environment has continued we are tempering our expectations for sales in the second half of the year from up low single digits to roughly flat.
Leaving our full year sales within our previously guided range of plus or minus low single digits.
Speaker Change: However, we are raising our full year operating margin expectation to be within the range of 17% to 17, 5% driven.
Driven by the strong first half performance in the plumbing segment.
We remain confident in our ability to drive margin expansion through our continued execution of our operating system.
Additionally, with our strong focus on our cost structure and productivity, we are well positioned to leverage volume growth when the market returns to normalized growth rates.
We now anticipate adjusted earnings per share for 2024 to be in the range of $4 five.
The $4 20 per share narrowed from our previous expectations of $4 to $4 25 per share.
We continue to believe that the long term fundamentals of our repair and remodel markets are strong and that structural factors such as age of housing stock consumers staying in their homes longer and higher home equity levels will drive increased repair and remodel activity in the mid to long term.
With these favorable fundamentals the continued successful execution of our strategic initiatives and our disciplined capital deployment, we are well positioned to drive shareholder value creation.
We will continue to invest in our brands capabilities and people to outperform the competition and deliver double digit EPS growth through cycles for our investors.
Now I'll turn the call over to Rick to go over our second quarter results and 2024 outlook in more detail Rick.
Rick: Thank you Keith and good morning, everyone. Thank you for joining us.
As Robin mentioned my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other onetime items.
Turning to slide seven sales in the quarter decreased 2% year over year or 1%, excluding the unfavorable impact of currency.
Our acquisition of <unk> hundred 60 in the third quarter of last year.
Added 1% of growth to our second quarter results.
In local currency North American sales decreased 1%.
Or 2% excluding acquisitions.
In local currency international sales decreased 1%.
Despite modestly lower sales level.
Our initiatives to drive operational efficiencies and a favorable price cost performance in the quarter.
Contributed to significant gross margin expansion of 140 basis points to 37, 6%.
SG&A as a percent of sales was 18, 5%.
It was impacted by higher employee related costs.
Overall, our operating profit was $399 million in the quarter.
Down slightly year over year, driven by lower sales.
However, our margin remains strong at 19, 1%.
Our strong margin performance was primarily driven by cost savings initiatives and a favorable price cost relationship.
We also grew EPS during the quarter by 1% to $1 20 per share.
Turning to slide eight plumbing sales increased 2% in the quarter or 3%, excluding the unfavorable impact of currency.
Volume in our plumbing segment was flat year over year for the first time since the second quarter of 2020 to.
Demonstrating encouraging signs of stabilization.
Pricing actions increased sales by 2% and acquisitions contributed another 2% to growth year over year.
This was partially offset by unfavorable mix and currency, which reduced sales by 1% each.
North American plumbing sales increased 5%.
Including 3% related to acquisitions.
Delta Faucet delivered another quarter of low single digit sales growth in our Watkins wellness Spa business returned to year over year sales growth.
Before factoring in the benefit of the <unk> hundred 60 acquisition.
In local currency international plumbing sales decreased 1% driven by unfavorable mix.
Partially offset by pricing actions and favorable volume as we continue to see signs of stabilization in our key markets of Europe and China.
Segment operating profit in the second quarter was up $4 million or 2% year over year in.
Rick: And operating margin was 19, 9% in.
Rick: In line with the prior year.
This operating profit performance was driven primarily by cost savings initiatives.
Rick: And a favorable price cost relationship.
Partially offset by unfavorable mix.
And higher employee related costs.
Turning to slide nine.
Decorative architectural sales decreased 7% for the second quarter.
In the quarter total paint sales decreased high single digits due to lower volume and price.
Propane sales were up mid single digits in DIY paint sales decreased low double digits.
A portion of this DIY decrease was driven by timing of sales across the first half of the year.
For the first half of the year overall.
Rick: Total comp sales decreased mid single digits.
With propane sales up low single digits.
In DIY paint sales down high single digits.
As we continue to experience overall softness in the DIY market.
We now anticipate our full year DIY paint business to be down mid single digits.
Versus our previous expectation of down low single digits.
Rick: Yes.
And our propane business, we continue to expect sales to increase low single digits.
Operating profit was $174 million down slightly year over year. However, operating margin was up 80 basis points to 28%.
Rick: Operating profit was impacted by lower volume.
And an unfavorable price cost relationship.
Partially offset by cost savings initiatives and the timing of marketing spend.
Okay.
Turning to slide 10, our balance sheet remained strong with gross debt to EBITDA at two times at quarter end.
We ended the quarter with $1 $4 billion of liquidity.
Including cash and availability under our revolving credit facility.
Working capital as a percent of sales decreased 50 basis points to 18, 4%.
As we continue to stay disciplined on our working capital levels.
During the second quarter, we repurchased 2 million shares for $143 million in.
<unk> paid a dividend of $64 million to shareholders.
As we previously guided.
Continue to anticipate deploying approximately $600 million.
During the year.
Toward share repurchases or acquisitions.
Now, let's turn to slide 11, and review our outlook for 2024.
For total masco, our topline for the first half of the year came in largely as expected.
While we previously expected sales growth in the second half of the year.
We are moderating our view and now anticipate sales to be roughly flat in the second half of the year.
And for our full year sales to remain within our previously guided range.
Or minus low single digits.
Rick: With our strong first half execution and operating margin performance in our plumbing segment.
We now expect full year operating margin to be approximately 17% to 17, 5%.
Increased from our previous guide of approximately 17%.
And while we are seeing an increased commodity and ocean freight costs across both of our segments.
We expect to continue to deliver operating margin expansion in the second half of the year.
With most of this to occur in the fourth quarter.
Rick: In our plumbing segment.
We are maintaining our topline expectation of full year 2024 sales to be plus or minus low single digits versus the prior year.
Based on strong execution in the first half of this year.
We are increasing our expected full year operating margin to approximately 19%.
Up from our previous guide of approximately 18, 5%.
In our decorative architectural segment.
We are lowering our 2024 sales expectation to be down low single digits year over year versus our previous guidance of plus or minus low single digits.
This change is primarily due to continued softness in the DIY paint market.
Lower expected sales, we are maintaining our anticipated full year operating margin of approximately 18%.
This would be up from our prior year margin of 17, 8%.
And primarily driven by cost savings initiatives.
Finally, as Keith mentioned earlier, we are narrowing our 2024 EPS estimate.
To be in the range of $4 five.
The $4 20 per share.
This assumes a 220 million average diluted share count for the year.
And a 24, 5% effective tax rate.
Additional financial assumptions for 2024 can be found on slide 14 of our earnings deck.
Speaker Change: With that I would like to open up the call for questions operator.
Speaker Change: Thank you 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 question. During the Q&A session to ask a question. Please press Star then the number one on your telephone keypad.
If you do all your question. Please press star followed by the number Q. Once again, please limit yourself to asking one question and one follow up.
Your first question comes from the line of Matthew Bouley with Barclays. Please go ahead.
Good morning, everyone. Thank you for taking the questions.
He will start on decorative.
Thinking about the guidance for a low single digit decline for the year.
And you're obviously tracking down kind of mid single digits in the first half.
Speaker Change: Did I hear you correctly that you were saying paint would be down mid single digits for the year.
Speaker Change: Just if you could clarify that relative to the total segment of down low single digits and I Might've misheard you, but in general the question is around whats happening in DIY with this kind of deceleration here in Q2, and what are you assuming to.
Some level of acceleration there in the second half to get to the full year guide. Thank you.
Good morning, Matt Keith here, Thanks for the question.
I think when we.
Speaker Change: We think about the DIY, specifically DIY paint sub sank segment I think it's well known that that sub segment tends to be more <unk> more <unk>.
Sensitive than other segments sensitive to economic conditions sensitive to affordability sensitive to consumer confidence overall, so when you look up to think about what's happened in the market with regards to the price that's been put in I think over the last couple of years.
Speaker Change: I can add 40% price increases across our total.
Speaker Change: The company on average so theres a lot of pressure that's been put on that.
Speaker Change: Sensitive segment.
Rates being high overall affordability and that whole consumer basket from gasoline to groceries to everything so.
Speaker Change: Knowing that that's a a sense of segment and we expected it.
Speaker Change: Should be down I think when we look across regionally, it's pretty consistent so it's a little bit.
Speaker Change: A more pressured than we expected I think we highlighted that in our remarks.
Looking forward, while we have the guide where we have it is based on really three fundamental things one.
Speaker Change: As our conference.
<unk> when you look at the first half over the second half.
Our comparable soften a little bit that'll be some tail winds.
Secondly, we've talked about some of our SG&A spend being transferred from last year, where it was in the second quarter to the third quarter. This year, we're going to be used is using that to drive demand principally through advertising.
Obviously, you have a lot of experience in that and we know.
Speaker Change: What to expect and then lastly, I would say that our guide contemplates while I'm not going to get into the specific our guide contemplates what we're seeing in and recent demand trends as we exit the quarter.
Yes, Matt the only thing I would add to that just to clarify the guide for the full year. What we indicated is that the AAP segment overall would be down low single digits for the year.
Within that we indicated that propane would be up low single digits in DIY paint to be down.
Mid single digit we didn't give an overall pain guidance, but you can assume that it's in line from a total paint perspective in line with the overall segment.
Download single digits.
Matt when you think about how we've performed in this volatile time not only in our decorative architectural segment, but across the company and you see what we've been able to do.
Our margins as it relates to driving sticky and sustainable productivity enhancements across the P&L statement.
And what we've been able to do with regards to price.
Which is an opportunity that we have given our strong brands and our innovation pipeline. This business has really handled this volatile market well and we are in good shape and what's what's exciting is about what we have to look forward. When this demand does return to more stabilized and more normal growth rates. We have this business dialed into <unk>.
Contribute incremental.
Earnings on that incremental volume so feel real good about both of our segments in terms of what we've been able to demonstrate in terms of performance.
Speaker Change: Got it okay. Thank you for all that color and detail and for clarifying the guidance there.
And then so.
Maybe shifting the plumbing.
Speaker Change: Certainly the topline result, there in the second quarter I mean, you did see I guess I would call it acceleration.
Inorganic growth U S and international.
Maybe I mean, maybe across both U S and international what what exactly is driving that I mean, you gave some great color there on why DIY paint as having a specific issue, but perhaps here on the plumbing side you saw some better trends so just.
Just kind of any color on sort of the shape of demand and how you're envisioning demand continue to involve evolve in the plumbing segment. Thank you.
If you think about I'll talk globally now international versus domestic.
We've started to see some demand challenges early last year and international or domestic and then international lagged.
Speaker Change: Couple of quarters.
Last call I talked about how I felt strongly that we've come.
Come to a stabilization point.
North America, and whilst we are seeing side, we were seeing signs of stabilization in Europe I was a little reticent to call that a stable at that point, but it was moving in the right direction I will tell you that we continue to see more signs of stabilization international and I feel that where we are in that period of stabilized demand internationally so that.
<unk> for our key markets in Central Europe.
Germany in particular.
Speaker Change: And China, so it feels very much like it did a quarter or two ago in North America.
Internationally.
The team at <unk> continues to do a wonderful job and we are clearly taking share there.
Speaker Change: Thats wallets I've been consistent in talking about how it's difficult to nail down market size spin.
Specifically quarter to quarter, but when you look at our performance fees via our major competitors on the continent, we're doing a very good job and we're gaining share. So it's a combination of the market starting to come around.
Stabilization of demand strong initiatives with regards to.
Share gains and organic growth.
Yeah, a little bit of a slight slight bit of some some pricing tailwind, where we've had some carryover pricing from last year and that's incremental spot pricing.
Excuse me.
Speaker Change: In parts of our assortment this year.
North America, I can't I can't say enough about the team in North America continue.
Continuing to do.
A very strong job of organic growth with <unk>.
Speaker Change: Influencer advocacy development that we've been focused on for about a decade.
Frankly, and that just continues to pay off and we view that as a factory where were producing advocates through our.
Speaker Change: Influencers, where there is an assisted sale and showrooms for example, our product assortment and our product launches in our spa business has been.
Wonderful and we've got a great assortment that continues to and will continue to rollout.
We've returned to growth in that.
Our spa business thats over above the benefits of the acquisition of <unk> 360, we think sort of 360 has some nice legs to it as we start to leverage our outstanding dealer network and get that brand more in that assortment more available here in North America. So.
Yes, good hard work and we get and we anticipate.
Is that continuing and again.
Like my comments on your paint.
A question around your decorative question.
The margins are indicative of how well we're doing in operating our operating system, we have a pipeline of kaizen and continuous improvement activities that is across our P&L. We're working on variable cost productivity with labor productivity scrap rate reductions overall equipment effectiveness improvements.
Were working on variable cost productivity was with regards to <unk>.
Trying very hard and keeping a close eye on and put them, taking shifts offline and combining shifts maybe even working some overtime.
Table us to take a shift offline. So we can drive that sort of productivity those are sticky initiatives.
Speaker Change: So looking forward when this when this demand does return to normal.
We're excited about the prospects of earnings and what it can do for shareholder value.
Speaker Change: Excellent well, thanks, guys and good luck.
Thank you Matt.
Your next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.
Yes, thanks, very much guys I appreciate all the color I had a couple of a longer term question for you though.
Uh huh.
Speaker Change: I guess the first one relates to your.
What adjustments you might make in the event that there was an abrupt change in tariff policy.
If there are any lessons you learned from last time. This happened that you would expect to apply in the future if needed.
Speaker Change: Yes, I think when you when you think about tariffs.
When the original Trump tariffs when there were enacted.
We've been working very hard with our suppliers I would tell you Steve in that in terms of moving to alternative sourcing solutions.
That would avoid tariffs.
Been able to reduce our exposure by approximately 30%.
So that's a big number.
Speaker Change: We've obviously been driving margin improvement initiatives that I've I've already talked about I won't go into that as much.
We've demonstrated the ability to manage through it and I think thats. The best indicator of future performance is what we've been able to do in the past and our margins are above pre pandemic levels. So it took some time, but we've been able to manage it so should those tariffs come back into play.
We have incentive systems that we've learned from how to how to appropriately.
Guide the behaviors of our teams to address these issues in a quick fashion, we're starting from a better spot, where we have 30% less of our bi.
Speaker Change: Tariff exposed so that's a big help and we'll continue to.
To execute much of the same playbook that we did in the past I think we will do it more effectively we will do it more.
Additionally in faster.
Based on our experience, but all of our key management teams have been through this and we're keenly aware of it.
Yeah, that's very helpful. Thanks, very much for that.
And then a broader question about your product portfolio I was wondering whether you are actively seeking to broaden or narrow your product portfolio. At this time anything specific that you might talk about.
And as you look out over the next few years, how do you assess the key strengths that masco brings to the table that make you a better owner of of certain assets.
Speaker Change: So in terms of our product portfolio and the question of broadening our narrowing I think theres a couple components to that first we begin with the consumer and we look at pain points that the consumer is experiencing and try to find ways that we can resolve those pain points.
Speaker Change: And we continue to drive that so that's not so much with a lens on broad or narrow it's more with a lens of can we meet an unmet need and do it efficiently and rapidly get it to market hopefully wrap some IP around it so that we can have some protection and then move on to the next.
Innovation so.
Speaker Change: Things as simple as is how is how.
Consumers clean clean their glasses and the St. What we can develop to help them do that how we can work with better.
Speaker Change: Better technology to avoid.
Speaker Change: Germs on your hands and how we can activate.
Various technologies to enable consumers to have their problems solved in the kitchen.
We certainly are looking at environmental issues in our ESG and you may have seen it in our sustainability report, where we're working hard on water conservation and how to utilize technology to give.
Better shower experience at lower flow rates for example, so it's really about customer back innovation to meet an unmet need.
And to continue to leverage our brand and build our brand and give us that pricing power that must have position on the shelf. So that's really the fundamental nature of where we're focusing our innovation in terms of narrowing.
80, 20 is a fundamental component of our operating system and.
We look at the long tail and we understand the costs associated with that and we know and we believe that there's no line item on the P&L that says complexity, but there's a cost of complexity and so we are keenly aware of of cutting that long tail to be as productive as we can save those costs to put back in to a.
Speaker Change: <unk> have more growth and higher margin so.
Speaker Change: It really is a.
Speaker Change: Two edged sword.
Speaker Change: D of unmet customer need and complexity reduction.
Speaker Change: In terms of the key strength of Masco really there's brand service and innovation are the strengths that we bring to the market and coupled with that is strong.
Speaker Change: Customer and channel knowledge that we lever leverage across our product assortment. So when you look at our portfolio you will see that we've as we've talked before Steve that we've we've really pruned our portfolio down to where we now have very similar businesses that performed very similar in terms of margin profile or capital requirements.
<unk> low ticket and we're able to leverage our channel expertise at R. R.
Expertise as it relates to supply chain management across these businesses to make what we believe is our our portfolio is more valuable because they are part of our portfolio and that's our view.
Okay I appreciate that.
Speaker Change: That very much guys best of luck with the rest of the year.
Steve: Thanks, Steve.
Speaker Change: Your next question comes from the line of John Lovallo with UBS. Please go ahead.
Good morning, guys. Thanks for taking my questions as well the first one Keith just talking about some of the cost savings initiatives and efficiencies that have been in place I am curious how you guys think about the sensitivity of your EPS guide to the top line and what I mean is that if sales were to come in at the lower end of the range do you think you could still.
Sort of achieved the midpoint, maybe even the higher end of the EPS range, just on the cost saves and execution.
Speaker Change: Yes, I do and the reason John is because of the nature of the improvements that we've done we're not we're not hoping on things to happen in the future to enable us to hit our margin targets. We are confident in being able to hit our margin targets because of the pipeline we have for execution going forward and.
Speaker Change: <unk> of what we've done what we've done and completed and those are things that that are that are sticky that debt.
The teams have done an excellent job of executing against and we remain confident in.
Speaker Change: We do have a demonstrated ability overtime.
Speaker Change: To price and to get our fair to get a fair price and we've earned back with with our expense and our spend on brand our innovation pipeline. How we do in terms of service our advocacy with the channels that we've driven to help us get that kind of must have position on the shelf. So.
Speaker Change: Yes, we're confident we will hit our margin targets.
John Lovallo: Yeah, and John I would add John the only thing I would add is as you obviously saw from our comments. This morning, we've tempered our expectations for the second half of the year.
John Lovallo: And that's factored into our guide and even in spite of despite the lower tempered expectations for sales, we've narrowed our guide keeping that midpoint and we're confident we'll land within that within that EPS Guide range.
Speaker Change: Okay. That's helpful. And then can you guys comment on the June exit rates for both businesses. It seems like plumbing may have actually been positive penalize things exited any kind of help you can give us on what July trends are and then within that why is propane hanging in there so strongly given kind of the softness.
Speaker Change: And some of the overall economic metrics and things of that nature.
Speaker Change: Yes, John I'll comment on the exit rates coming.
Speaker Change: Coming out of the quarter.
Speaker Change: It's.
Speaker Change: When you look at quarter versus prior year quarter, and what happens on the edge of one quarter.
Speaker Change: The following quarter, one year than the previous quarter. The next year. It makes that in itself can throw some complexity and some <unk> into how we look at the business. When you start parsing out to how we exit quarters in where the months are and what happens in a quarter that gets even worse. So we don't do that.
Speaker Change: But I will tell you that our exit rates in our run rates at the end of the quarter at through July are contemplated in our guide. So those are factored it factored in can.
Speaker Change: Can you help me out with that second question hedge at propane, yes sure yes.
Speaker Change: What is keeping pro so strong in your opinion.
Speaker Change: I think it's a couple of things one is is the nature of the consumer who uses the pro versus the Diyer and how sensitive they are and we're seeing that call. It a mixed dynamic in this case, it's a it's a.
Speaker Change: Call It a mix of who kudos your installation users or you hire a pro but we're also seeing that in terms of the high end of our assortment.
Speaker Change: In plumbing and then some of the high end assortment in Deco, where it's just less sensitive so people who tend to use a pro.
Speaker Change: Are less sensitive to some of the macroeconomic uncertainties in consumer confidence issues that are around there are more robust consumer because they're a little more affluent. So I think that that's a piece of it the other piece is our performance.
Speaker Change: And our share gain which we continue.
Speaker Change: To drive and to hold so I think.
Speaker Change: That really shed a little bit light from my perspective on why <unk> is performing a little bit better than DIY, while the upper end of our assortment across the whole business is hanging in there a little bit better than the lower end of our assortment and it really has to do with the sub segment of the consumer base and how sensitive there.
Speaker Change: Okay. Thank you guys.
Speaker Change: Your next question comes from the line of Adam Baumgarten with Zelman and Associates. Please go ahead.
Adam Michael Baumgarten: Hey, good morning, everyone.
Speaker Change: If we think about DIY, where does volumes currently sit compared to pre COVID-19 levels in pain.
Speaker Change: So Adam it's Rick So DIY volumes are are below where we were pre pandemic.
Speaker Change: Pro volumes are above where we were pre pandemic and so overall, we're relatively consistent in terms of pre pandemic, obviously the mix has changed.
Speaker Change: Obviously, we articulated DIY is more challenged given the factors that Keith articulated about pro is performing.
Speaker Change: As you May recall, we had incredible growth and pro really from 2020 to 2023 really 60% stacked comp in terms of growth and that's really more or less offset the DIY headwind that we're facing.
Speaker Change: That said, we've been able to really hold on to our margins in that environment, and we're really positioned well both in pro and DIY from when the market turns to growth again.
Speaker Change: Adam I might add add onto that and expand a little bit on your question, which was specifically on propane pre pandemic to now and backup ill take a broader look at our.
Adam Michael Baumgarten: Our entire company at our whole whole assortment as it relates to our performance pre pandemic to where we are today.
Adam Michael Baumgarten: And I do so because I think it tells a very interesting story for our investors when you look at pre pandemic levels.
Speaker Change: Levels of volume and you extend that out of the traditional growth rate of say two 5% and you get to where we are today, what you'll see.
Speaker Change: And a little bit of timing differences, but broadly speaking when the pandemic hit we had a very substantial bump in our demand and that demand below the.
Speaker Change: Our historical run rate extended from pre pandemic levels and we went through that pull forward. If you will and when you look at where we are now in terms of volume and you inflation adjust that cobot bump because there was significant pricing in there. So you really look at where the volume is what you see is a deferral of demand we believe.
Speaker Change: And that the size of that deferral that area under the curve is roughly the same as the as what we saw post pandemic inflation. Adjusted so our view is that we really are seeing a deferral of spend.
Speaker Change: The DIY space and that's exciting for us because as we've talked quite a bit already today, our business is tuned yet and that's the measure of that is our margins and we have.
Speaker Change: A state of the art new.
Speaker Change: Paint plant coming up in Ohio on that ramp up is going fabulously the team's doing a great job, we have a significant very large.
Speaker Change: Plumbing manufacturing plant in Serbia, that's coming online and again same story.
Speaker Change: All things are going well and that pickup plants coming up nicely. So as this.
Speaker Change: The demand starts to return to normalized levels, we've got the business tuned with with regards to our cost control, we're watching our SG&A spend closely on the growth incentives our growth investments.
Speaker Change: And our capacity is in great shape to be able to support it including some surge capacity for selling seasons that are paying side. So this business is ready to do some exciting stuff when this market turns.
Speaker Change: Okay got it good to hear.
Speaker Change: Then just in plumbing and a couple of questions. Just if you could walk through kind of how north American growth trended across retail and wholesale and then you mentioned negative mix in the segment, maybe what drove that.
Speaker Change: Yeah.
Speaker Change: A couple of components, we are seeing some trade down and the assortment while the upper end of the assortment is holding up very well.
Speaker Change: <unk> talked a little bit earlier, there is a little bit trade down from mid to the lower part of our assortment to understand that we don't play in the very low piece of the assortment. So theres a bit of trade down and then there was also a bit of geographic mix.
Rick: Our earlier on we're seeing it more stable now for sure, but China was challenged for a couple of quarters in China for us with our highest growing at axon brand tends to be a higher end consumer. So is geographically as China goes down Thats, a natural mix that now having said that Rick I don't think were really calling for much of an impact in mix for the year.
Rick: Yeah.
Rick: And I think your question.
Rick: Adam to your question about channel outperformance, there's a bit of noise quarter to quarter from a comparable perspective, so I'd like to think about it really from a first half perspective.
Speaker Change: Really we saw.
Rick:
Rick: Kind of low single digit growth in kind of the wholesale trade.
Rick: And retail held off actually reasonably well and we're expecting that trend to continue in the second half of the year as we've guided for the segment overall plus or minus low single digits. So we're seeing.
Rick: Stability and also on top of that some some pricing.
Rick: I do some favorable price cost relationship as well as adding to our margin expansion for the year.
Speaker Change: Okay got it best of luck.
Adam Michael Baumgarten: Thanks, Adam.
Rick: Okay.
Rick: Your next question comes from the line of Michael Rehaut with Jpmorgan. Please go ahead.
Rick: Hi, everyone. Thanks for taking my question. This is Andrew on for Mike.
Andrew: I just wanted to ask maybe high level thinking about your repair and remodel outlook.
Speaker Change: Some potential rate year, and some pressure on existing home sales.
Speaker Change: I'm, just curious if you're leaning more towards the upside or downside on that outlook.
Speaker Change: Not really leaning it away, we're kind of right in the middle of our call on R&R to be flat to down low single digits and I think that's the right place to be.
Speaker Change: Got it and then.
Speaker Change: Yes.
Speaker Change: Commodity volatility just curious on how youre thinking about input cost and across segments.
Speaker Change: Pricing to offset that.
Rick: Sure Andrew it's Rick.
Rick: From a commodity perspective, I'll take a step back overall.
Speaker Change: In Q2, we didn't see a significant driver one way or the other.
Rick: In the first half of the year, we saw commodities be a slight tailwind to our performance and.
Speaker Change: And in the plumbing segment, we had positive price cost relationship.
Speaker Change: As we think about where we sit here today.
Speaker Change: We've all observed we've seen a bit of an uptick with regards to the metal prices of copper and zinc it has trailed off a bit but still elevated.
Speaker Change: As well as some of the pain inputs with tio too and resin Ah Theres some pressure on that so we see that as as I mentioned in my opening comments, we see that as a bit of a headwind in the second half of the year now granted it takes time for the commodity cost and ocean freight costs for that matter to work or worked its way through our inventory and hit our <unk>.
Rick: Now given.
Rick: Given the.
Rick: Inflation that we saw really during the quarter.
Speaker Change: Do you expect to have that be a bit of a headwind in the second half of the year I really later in the year.
Speaker Change: Despite that we actually are as you would know expecting margin expansion in the second half of the year really in both of our segments and so we were able to overcome those headwinds we're monitoring that very closely and we're taking action accordingly, but we do expect to have margin expansion in the second half of the year and margin expansion overall and thus we've raised our.
Speaker Change: Our operating profit margin expectations for the year.
Speaker Change: Really appreciate that additional color. Thanks, so much good luck.
Speaker Change: Your next question comes from the line of Anthony Pettinari with Citigroup. Please go ahead.
Anthony James Pettinari: Hi, good morning.
Anthony James Pettinari: For DIY peak year to date do you think your volume performance has been sort of in line with kind of the underlying DIY market or have your volumes may be tracked a little bit better or a little bit worst in the industry.
Speaker Change: And if theres any sort of variance there what do you think is driving it.
Speaker Change: Anthony.
Anthony: I've talked about this really across our entire company but.
Speaker Change: Particularly when you talk about getting into sub segments of DIY that go through multiple channels.
Speaker Change: It's very difficult to accurately pin down market size, particularly from one quarter to the next.
Speaker Change: That's a major caveat here, but when we look at.
Speaker Change: Where we performed in the first half of the year.
Speaker Change: Because there was a little bit of a.
Speaker Change: Some some system fill volume that last year was in the very beginning of the second quarter that this year was in the <unk>.
Speaker Change: The end of the first quarter. So when you look at it.
Speaker Change: For the first half and we look at.
Speaker Change: How we are performing versus what we can tease out from what we hear from our competition and that's not easy as well, sometimes you have to really listen hard to understand what is DIY versus what is in a particular segment. How much is DIY isn't another segment et cetera, but we think we're right. There. We think we are holding share and.
Speaker Change: You know that's that's attributable to a couple of things obviously, we have an outstanding partner in the home depot, who does a phenomenal job of generating foot traffic that would end up merchandising and with our partnership with some 40 years, it's very productive as we're both focused on the same thing which is serving the customer. So that's that's a big piece.
Speaker Change: And then Behr brand when.
Speaker Change: When you look at the Bayer brand.
Speaker Change: I can make a very strong argument that we are the best brand out there and that's based on collaboration from outside sources, whether you look at quality or service or brand in terms of both awareness and equity so I feel extremely good about our business knowing full well that.
Speaker Change: The DIY channel is a bit challenged now.
Speaker Change: And again as I've said before when this starts to turn around we are ready with search capacity, we're ready with the tuned yet and cost structure as demonstrated by our margins and the team is fired up so.
Speaker Change: I think we are holding our own and certainly when you look at the pro side of the business.
Speaker Change: Not only.
Speaker Change: Gain some significant share over the years, but demonstrated the ability to hold it and with frankly are.
Speaker Change: Lower piece of the total market, we have a lot of white space and a nice value proposition that we're going to continue to invest in.
Speaker Change: Okay, that's very helpful.
Speaker Change: And then just we've seen existing home sales fall below 4 million really historically low levels and I'm. Just wondering how that is impacting different parts of your business. If you can just kind of remind us maybe which parts of masco are most impacted are may be least impacted by the slowdown in existing home sales in the U.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay. That's very helpful I'll turn it over.
Speaker Change: Your next question comes from the line of Mike Dahl with RBC. Please go ahead.
Speaker Change: Hi, This is Chris on for Mike just going back to the DIY paint comments I think earlier you said.
Speaker Change: You made a comment around a more sensitive consumer.
Speaker Change: And DIY I mean, how would you characterize the dynamics in DIY today relative to kind of what you saw last quarter and then within the.
Speaker Change: The download double digit sales decline in.
Speaker Change: <unk> any way you could break out what was price versus volume looks and your expectations on on both of those drivers in the back half that would be helpful. Thanks.
Speaker Change: I don't think there's really any difference in the DIY perspective, this quarter from last quarter I don't have any technical numbers on a quarter by quarter basis to say that but just.
Speaker Change: Talking and being in the channel and getting exposed to our business I really don't see a difference as far as the low double digit down in DIY and you really have to look at the half as I said because there was some.
Speaker Change: Volume.
Speaker Change: Straddled one quarter versus the other quarter when you look year over year.
Chris: Yes, Chris I mean, just to add a perspective, that's why we look at it really we think it's appropriate to look at it from a first half perspective, and as we mentioned DIY was down high single digits in the first half of the year and that was you know there isn't really any trend per se within the half to focus on I think your other question as it pertains to volume and price we haven't broken down.
Chris: Specifics, but they were both headwinds.
Speaker Change: Price was a low single digit.
Speaker Change: What <unk> been doing here, because you've done the streamlining that sub segment and what are the opportunities to kind of further stabilize top line here.
Speaker Change: And good memory, so with regards to the lighting business. We the team has taken some some really.
Speaker Change: Proactive actions with regards to the opportunistic pricing.
Speaker Change: Streamlining lines of business exiting lines of business that had.
Speaker Change: Less profitable dynamics to them and of course cutting costs and really has positioned the business for success going forward.
Speaker Change: Provide as you know breakdowns of financials within our segment, but I would say is the topline performance has improved sequentially and were expecting that the lighting in.
Speaker Change: Hardware business, which are the complements to paint in the.
Speaker Change: D. J P segment to be really going forward that performance top line to be in line with the R&R industry expectations, which is.
Speaker Change: Articulated early it would be flat to down low single digits, but we're definitely seeing a positive trajectory relative to where we were let's say a few months ago.
Speaker Change: That's helpful. And then wanted to switch gears and dig a little deeper on plumbing really quickly, but maybe in the context of pricing are there were there any noticeable differences in pricing between channels. So I'm thinking wholesale versus retail retail here and then thinking in terms of kind of what's embedded in your outlook for <unk>.
Speaker Change: H.
Speaker Change: Have any divergence in pricing, we should be thinking from a channel perspective, again kind of retail versus wholesale.
Speaker Change: And we measure those in terms of where they are in the pipeline at a five step process on how we drive them through we look at size. When we look at flow through and then we have finance validate what the actual benefit is so we make sure that we're putting it into.
Into the P&L, so they're pretty small in discrete items and the benefit of that is that the ability to manage these improvement initiatives through the system is what our leadership profile is really about so it's not only helping to develop our business in terms of margin and performance, but it's also developing our leaders.
Speaker Change: So my point is they are pretty small modules. So.
Speaker Change: Things like identifying a capacity constraint in a particular area of our business, where demand has taken off more than more than than expected and being able to drive improvement in that capacity. So that we are more efficient and that the rest of the factory isn't waiting on that output.
Speaker Change: Big Big.
Speaker Change: Output from a small event that we've done over time multiple events. So that's on equipment productivity on people productivity it's about.
Speaker Change: Balancing shifts and taking shifts instead of running a half ship on second shift, which takes maintenance personnel and supervisory personnel, we jam that into into one shift and then we're able to get more productive on the semi variable overhead and then do a series of kaizen events on that shift that's working overtime to sustain to get us off over time that sort of thing.
Speaker Change: On the top line, it's coming in with growth initiatives and how we can how we can execute better through sales force execution, whether it's better segmentation or better standardization of how we make our sales call. So that we are more effectively.
Speaker Change: Sure. So as you as you alluded to and I mentioned in my opening comments and enjoying an earlier Q&A, we do see some commodity inflation and ocean freight.
Speaker Change: Elevated ocean freight here now that it's going to be serving as a bit of a headwind as we enter the second half of the year specific to your question, we do see pricing in the plumbing segment as an offset to that really we're continuing to take low single digit price increases with regards to our plumbing segment.
Speaker Change: Do you need to lever that.
Speaker Change: But really that's a plumbing dynamic as it pertains to the coatings, it's really going to be a balance between where we end up relative to commodity input costs.
Speaker Change: And our net price with regards to our retail partner in that regard so really no comment there.
Speaker Change: I would say, though in addition to price as Keith has alluded to a couple of times now the team has done tremendous work with railroads to driving operational efficiencies and costs down so with regards to offsetting that commodity headwind. It's certainly price is part of the equation, but it's not exclusively price. It's also operational efficiency cost reduction and running the business tighter.
Speaker Change: And we're seeing that here in the first half and will continue to drive that in the second half of the year to deliver the margins overall that we've guided to.
Speaker Change: Okay. Thank you.
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.
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