Q2 2024 Fortune Brands Innovations Inc Earnings Call

Good afternoon. My name is Sachi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brand's second quarter 2024 earnings conference call.

Operator: Last time, I would like to welcome everyone to Fortune Brand's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Leigh Avsec: I would like to turn the call over to Leigh Avsec, Vice President of Investor Relations and Corporate Affairs. You may begin the conference call. Good afternoon, everyone, and welcome to the Fortune Brands Innovations second quarter earnings call. Hopefully, everyone has had a chance to review the earnings release.

Operator: After the speaker's remarks, there will be a question and answer session. I would like to turn the call over to Leigh Avsec, Vice President of Investor Relations and Corporate Affairs. You may begin the conference call. Good afternoon, everyone, and welcome to the Fortune Brands Innovations second quarter earnings call. Hopefully, everyone has had a chance to review the earnings report. The earnings release and the audio replay of this call can be found in the investor section of our FBIN.com website.

Speaker Change: The earnings release and the audio replay of this call can be found on the investor section of our FBIN.com website

Operator: I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question and answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, except as required by law.

Speaker Change: I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question and answer session, are based on current expectations and market outlook, and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated.

Speaker Change: These risks are detailed in our various filings with the SEC.

Speaker Change: The company does not undertake any obligation to update or revise any forward-looking statements except as required by law.

Leigh Avsec: Any references to operating profit or margin, earnings per share, or free cash flow on today's call will focus on our results on a before-charges-and-gains basis, unless otherwise specified; please visit our website for a reconciliation. With me on the call today are Nick Fink, our Chief Executive Officer, and Dave Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nick.

Speaker Change: Any references to operating profit or margin, earnings per share, or free cash flow on today's call will focus on our results on a before-charges-and-gains basis, unless otherwise specified. Please visit our website for our reconciliations.

Speaker Change: With me on the call today are Nick Fink, our Chief Executive Officer, and Dave Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions.

Nicholas Ian Fink: Thanks, Leigh, and thank you to everyone for joining us. On this call, I will walk through the highlights of our second quarter performance, give some color on the drivers of this performance, including progress on our digital strategy, and offer some thoughts on the macro environment. I'll then turn the call over to Dave for a discussion of our financial results, including our updated full year 2024 guidance. Our teams continued to execute at a high level amidst a dynamic and uneven market and delivered solid sales and strong margin results in the second quarter.

Speaker Change: I will now turn the call over to Nick. Nick?

Nick: Thanks, Leigh, and thank you to everyone for joining us today.

Nicholas Ian Fink: On this call, I will walk through the highlights of our second quarter performance, give some color on the drivers of this performance, including progress on our digital strategy, and offer some thoughts on the macro environment.

Nicholas Ian Fink: I'll then turn the call over to Dave for discussion of our financial results, including our updated full year 2024 guidance.

Speaker Change: Our teams continued to execute at a high level amidst a dynamic and uneven market and delivered solid sales and strong margin results in the second quarter.

Nicholas Ian Fink: Our digital products portfolio saw some exciting wins this past quarter, and we are seeing accelerating growth in this key market, which I will detail shortly. The benefit of our organizational realignment continues to generate real results, as evidenced by our market-beating sales and margin performance this quarter. These actions all support our position as a growth-focused company, powered by secular tailwinds, underpinned by leading brands, innovation, and channel management, and fueled by our Fortune Brands Advantage capabilities. Now, turning to our second quarter performance.

Speaker Change: Our digital products portfolio saw some exciting wins this past quarter, and we are seeing accelerating growth in this key market, which I will detail shortly.

Speaker Change: The benefit of our organizational realignment continues to generate real results, as evidenced by our market-beating sales and margin performance this quarter.

Speaker Change: These actions all support our position as a growth-focused company powered by secular tailwinds, underpinned by leading brands, innovation, and channel management, and fueled by our Fortune Brand's advantage capabilities.

Nicholas Ian Fink: Our teams delivered solid top-line and strong bottom-line results with areas of organic growth in our core North American market. Net sales of $1.2 billion were up 7%, while organic sales were $1.1 billion, down 3%, excluding China, which was impacted by lower sales as the Chinese consumer remained very cautious.

Speaker Change: Turning to our second quarter performance

Speaker Change: Our teams delivered solid top-line and strong bottom-line results with areas of organic growth in our core North American market.

Speaker Change: Net sales of $1.2 billion were up 7%, while organic sales were $1.1 billion, down 3% versus the second quarter of 2023.

Speaker Change: Excluding China, which was impacted by lower sales as the Chinese consumer remained very cautious, our organic sales growth was positive in the second quarter, including low single-digit growth in our outdoor segment and Moen, North America.

Nicholas Ian Fink: Our organic sales growth was positive in the second quarter, including low single-digit growth in our outdoor segment and Moen North America. Looking to the remainder of 2024, we expect continued outperformance in our Moen North America and outdoor business, as well as accelerated growth in our digital portfolio. Our operating income increased 9%, and our operating margin was 40 basis points higher than the second quarter of 2023, bringing our year-to-date operating margin improvement to 110 basis points.

Speaker Change: Looking to the remainder of 2024, we expect continued outperformance in our Moen North America and outdoors business, as well as accelerated growth in our digital portfolio.

Speaker Change: Our operating income increased 9%, and our operating margin was 40 basis points higher than the second quarter of 2023, bringing our year-to-date operating margin improvement to 110 basis points.

Nicholas Ian Fink: Our sales and margin performance generated earnings per share of $1.16 in the second quarter, an 8% increase over the second quarter of 2020. Now, turning first to our digital portfolio. We saw approximately 200,000 device activations in the second quarter, and the overall digital business continues to accelerate. In the second quarter alone, we added around 20,000 users of our Flow Smart Water Monitor and Shutoff, and retail and e-commerce point-of-sale performance far exceeded our expectations as the consumer increasingly gains awareness. This is a powerful product.

Speaker Change: Our sales and margin performance generated earnings per share of $1.16 in the second quarter, an 8% increase over the second quarter of 2023.

Speaker Change: Turning first to our digital portfolio, we saw approximately 200,000 device activations in the second quarter, and the overall digital business continues to accelerate.

Speaker Change: In the second quarter alone, we added around 20,000 users of our Flow SmartWater Monitor and Shutoff, and retail and e-commerce point-of-sale performance far exceeded our expectations as the consumer increasingly gains awareness of this powerful product.

Nicholas Ian Fink: Perhaps even more important... During the second quarter, we achieved several significant milestones across our digital portfolio, which will accelerate our overall strategy. Our digital business is now expected to add over 150 basis points of organic sales growth to the second half of 2024, which we expect to accelerate in 2025 as the newly established partnerships continue to ramp, and awareness increases. We see a path to well over a billion dollars in digital sales by 2030.

Speaker Change: Perhaps even more importantly, during the second quarter, we achieved several significant milestones across our digital portfolio, which will accelerate our overall strategy.

Speaker Change: Our digital business is now expected to add over 150 basis points of organic sales growth to the second half of 2024.

Speaker Change: and which we expect to accelerate in 2025 as the newly established partnerships continue to ramp and awareness increases.

Speaker Change: We see a path for well over a billion dollars in digital sales by 2030. We're also evolving our revenue opportunities towards data monetization and reoccurring revenue, which will provide incremental growth and further margin expansion opportunities as we continue to scale.

Nicholas Ian Fink: We're also evolving our revenue opportunities towards data monetization and recurring revenue, which will provide incremental growth and further margin expansion opportunities as we continue to grow. First, we announced key partnerships with several large insurance companies, including entering into a nationwide agreement with Farmers Insurance to provide Flow Smart Water Monitor and shut-off devices to their customers. Under this agreement, Moen is providing farmers' policyholders a bundled product and installation solution, supported by dedicated infrastructure, which will allow policyholders to save money on their production. This agreement will be especially impactful in states like California, where farmers and other insurers are now requiring a significant number of new and renewing policyholders to equip their homes with an in-line leak detection system.

Speaker Change: First, we announced key partnerships with several large insurance companies this quarter, including entering into a nationwide agreement with Farmers Insurance to provide Flow Smart Water Monitor and Shutoff devices to their customers.

Moen: Under this agreement, Moen is providing farmers' policyholders a bundled product and installation solution, supported by dedicated infrastructure which will allow policyholders to save money on their premiums.

Moen: This agreement will be especially impactful in states like California where farmers and other insurers are now requiring a significant number of new and renewing policyholders to equip their homes with an inline leak detection system.

Nicholas Ian Fink: After this new requirement went into effect, farmers sought out a partner to create a seamless customer experience for the purchase, installation, and support of an in-line water monitor and shut-off system. Malone won this precedent-setting opportunity because of our exceptional product, ability to deliver lost-mile installation at a national scale, and our brand's reputation for quality, service, and innovation. Importantly, we were also selected as the partner of choice because of our ability to scale our supply chain as this opportunity grows, and we are already preparing for rapidly accelerating growth. In addition to farmers, this past quarter alone, we have signed three other agreements with insurance companies, where the providers will promote the use of our flow in connection with sizable policy rate reductions for their policies.

Speaker Change: After this new requirement went into effect, Farmers sought out a partner to create a seamless customer experience for the purchase, installation, and support of an in-line water monitor and shut-off device.

Moen: Moen won this precedent-setting opportunity because of our exceptional product, ability to deliver lost-mile installation at a national scale, and our brand's reputation for quality, service, and innovation.

Speaker Change: Importantly, we were also selected as the partner of choice because of our ability to scale our supply chain as this opportunity grows, and we are already preparing for rapidly accelerating growth.

Speaker Change: In addition to farmers insurance, this past quarter along, we have signed three other agreements with insurance companies where the providers will promote the use of our flow in connection with sizable policy rate reductions for their policyholders.

Nicholas Ian Fink: Our pipeline of insurance discussions is robust, and we expect further progress throughout the year. In June, we also announced an agreement with the California Water Efficiency Party, which will help us raise awareness of flow directly with municipalities and residents across California and will facilitate government rebates of our flow devices.

Speaker Change: Our pipeline of insurance discussions is robust, and we expect further progress throughout the year.

Speaker Change: In June , we also announced an agreement with the California Water Efficiency Partnership, which will help us raise awareness of flow directly with municipalities and residents across California and will facilitate government rebates of our flow devices.

Nicholas Ian Fink: As water scarcity becomes a major concern in California and beyond, we expect this partnership will help accelerate both sales and awareness of the flow and serve as a template for other similar partnerships across the United States. In addition to the expected revenue and exposure to our products, these agreements are important because they prove we can help enable the insurance industry to mitigate risks and issue cost-effective policies as it faces a crisis of rising costs. In doing so, they can also help their customers save money and avoid disruption by preventing catastrophic water damage. And, of course, these partnerships benefit our communities and environment by reducing wasted water and energy.

Speaker Change: As water scarcity becomes a major concern in California and beyond, we expect this partnership will help accelerate both sales and awareness of flow, and serve as a template for other similar partnerships across the United States.

Speaker Change: In addition to the added expected revenue and exposure to our products, these agreements are important because they prove we can help enable the insurance industry to mitigate risks and issue cost-effective policies as they face a crisis of rising costs.

Speaker Change: In doing so, we can also help their customers save money and avoid disruption by preventing catastrophic water damage.

Speaker Change: And of course, these partnerships benefit our communities and environment by reducing wasted water and energy.

Nicholas Ian Fink: Finally, enacting agreements like the one with Farmers Insurance or California Water Efficiency Partners requires us to quickly and effectively work across our full organization, from our sales and marketing teams, to our connected products group, to our supply chain and digital team. These agreements are yet more proof points of how Fortune Brand's innovation's new organizational structure is enabling us to capture opportunities at an accelerated rate. In addition to our agreements centered on smart water leaks, we also recently announced a minority investment and strategic partnership with Value Hybrid, a leading software startup focused on the delivery of connected lockout-tagout solutions.

Speaker Change: Finally, enacting agreements, like the one with Farmers Insurance or California Water Efficiency Partnership, requires us to quickly and effectively work across our full organization, from our sales and marketing teams, to our connected products group, to our supply chain and digital teams.

Speaker Change: These agreements are yet more proof points of how Fortune Brand's innovations new organizational structure is enabling us to capture opportunities at an accelerated rate.

Speaker Change: In addition to our agreements centered on smart water leak detection, we also recently announced a minority investment and strategic partnership with ValueHybrid, a leading software startup focused on the delivery of connected lockout-tagout solutions.

Nicholas Ian Fink: This partnership will expedite MOSFET's ability to bring to market new and innovative products in the emerging field of connected lockout-tagout and expand our leadership position in commercial safety solutions. Connected Lockout-Tagout is a significant and attractive opportunity for Fortune. Given our highly recognized MonsterLock brand, large installed base, and lockout-tagout expertise, we are very well positioned to convert mechanical lockout-tagout systems.

Speaker Change: This partnership will expedite MossLock's ability to bring to market new and innovative products in the emerging field of connected lockout-tagout, and expand our leadership position in commercial safety solutions.

Speaker Change: Connected Lockout-Tagout is a significant and attractive opportunity for Fortune Brands.

Speaker Change: Given our highly recognized Monster Lock brand, large install base, and lockout tagout expertise, we are very well positioned to convert mechanical lockout tagout systems to connected lockout tagout solutions and grow the addressable market.

Nicholas Ian Fink: To connect it, lock out tag out solutions and grow the addressable market. We estimate that the global addressable market for connected lockout-tagout is around $3 billion. Keeping associates safe is an increasing key priority for manufacturers and regulatory agencies across the globe. And finally, we are excited to announce that we recently entered into a new partnership with ADT. Under this agreement, the Yale AssureLock II Collection will be the preferred smart lock for ADT customers across the country. The Yale AssureLock II Collection will be compatible with the ADT Security Platform, including the ADT Plus app, within which ADT will launch a new feature called Trusted Neighbor.

Speaker Change: We estimate that the global addressable market for connected lockout-tagout is around $3 billion as keeping associates safe is an increasing key priority for manufacturers and regulatory agencies across the globe.

Speaker Change: And finally, we are excited to announce that we recently entered into a new partnership with ADT.

Speaker Change: Under this agreement, the Yale AssureLock II Collection will be the preferred smart lock for ADT customers across the country.

Speaker Change: The Lock Collection will be compatible with the ADT Security Platform, including the ADT Plus app.

Nicholas Ian Fink: This innovation allows customers to seamlessly grant trusted individuals secure and temporary access to their homes through either scheduled access or, in the case of events, by leveraging the capabilities of connected home devices, including, I yell, smart. Once again, this agreement is a great example of the potential of our connected product portfolio, as we are increasingly exploring new channels and distribution partners to accelerate. These are just some of the many examples of how our digital portfolio is expanding, and I am encouraged and excited by our unique right to win in this exceptionally high growth. While we cannot predict the exact timing or trajectory of our digital products,

Speaker Change: within which ADT will launch a new feature called Trusted Neighbor.

Speaker Change: This innovation allows customers to seamlessly grant trusted individuals secure and temporary access to their homes.

Operator: Holmes, to either schedule access or, in the case of events, by leveraging capabilities of connected home devices, including our Yale Smart Locks.

Speaker Change: through either scheduled access or, in the case of events, by leveraging capabilities of connected home devices, including our Yale Smart Locks.

Nicholas Fink: Once again, this agreement is a great example of the potential of our connected product portfolio, as we are increasingly exploring new channels and distribution partners to accelerate growth. These are just some of the many examples of how our digital portfolio is expanding, and I am encouraged and excited by a unique right to win in this exceptionally high-growth space. While we cannot predict the exact timing or trajectory of our digital products, we believe periods of exponential growth will be preceded by key milestones, like the ones we saw this past quarter. These milestones are significant, not just for the revenue that they are expected to bring in, but also because they represent key foundational steps in our journey towards widespread adoption of our products.

Speaker Change: Once again, this agreement is a great example of the potential of our connected product portfolio as we are increasingly exploring new channels and distribution partners to accelerate growth.

Speaker Change: These are just some of the many examples of how our digital portfolio is expanding, and I am encouraged and excited by our unique right to win in this exceptionally high growth space.

Nicholas Ian Fink: We believe periods of exponential growth will be preceded by key milestones, like the ones we saw this past quarter. These milestones are significant, not just for the revenue that they are expected to bring in but also because they represent key foundational steps in our journey toward widespread adoption of our program.

Speaker Change: While we cannot predict the exact timing or trajectory of our digital products, we believe periods of exponential growth will be preceded by key milestones like the ones we saw this past quarter.

Speaker Change: These milestones are significant, not just for the revenue that they are expected to bring in, but also because they represent key foundational steps in our journey toward widespread adoption of our products.

Nicholas Fink: Our results is quarter in the exciting developments that we are seeing give me full confidence in Fortune-Brand Innovations ability to deliver growth and sustain value creation through the cycle, and we remain committed to achieving our long-term goals.

Nicholas Ian Fink: Our results this quarter and the exciting developments that we are seeing give me full confidence in Fortune Brand's innovation's ability to deliver growth and sustained value creation in the future, and we remain committed to achieving our long-term goal. Turning now to some additional thoughts on the current housing market and the market for our products. On a macro level, favorable long-term housing fundamentals remain in place, with the need for housing remaining strong.

Speaker Change: Our results this quarter and the exciting developments that we are seeing give me full confidence in Fortune Brand's innovation's ability to deliver growth and sustained value creation through the cycle.

Nicholas Fink: Turning now to some additional thoughts on the current housing market and the market for our products. On a macro level, favorable long-term housing fundamentals remain in place, with the need for housing remaining strong, Pope prices largely holding steady, and equity levels remaining high. Importantly, inflation appears to be easing, and the likelihood that the Fed will lower interest rates in the coming months is increasing. However, we are aware of offsetting factors in the very near term, including consumer confidence and continued affordability challenges. We expect many of these macro trends will inflect positively soon, and until we see tangible evidence of improvement, we will continue to manage the business tightly.

Nicholas Ian Fink: Home prices are largely holding steady, and equity levels are remaining high. Importantly, inflation appears to be easing, and the likelihood that the Fed will lower interest rates in the coming months is increasing. However, we are aware of offsetting factors in the very near future, including consumer confidence and continued affordability challenges. We expect many of these macro trends to inflect positively soon, but until we see tangible evidence of improvement... we will continue to manage the business tightly.

Speaker Change: And we remain committed to achieving our long-term goals.

Speaker Change: Turning now to some additional thoughts on the current housing market and the market for our products.

Speaker Change: On a macro level, favorable long-term housing fundamentals remain in place, with the need for housing remaining strong, home prices largely holding steady, and equity levels remaining high.

Speaker Change: Importantly, inflation appears to be easing, and the likelihood that the Fed will lower interest rates in the coming months is increasing.

Speaker Change: However, we are aware of offsetting factors in the very near term, including consumer confidence and continued affordability challenges.

Speaker Change: We expect many of these macro trends will inflect positively soon, but until we see tangible evidence of improvement, we will continue to manage the business tightly.

Nicholas Fink: Looking at our products specifically, we believe that we are well-positioned. We have strong brains and categories where brains and innovation matter. Most of our brains do not play in opening price points, which tends to be more sensitive to pricing pressures. And finally, we have strong with the pro, and pro-led projects have held up better than DIY.

Nicholas Ian Fink: Looking at our products specifically, we believe that we are well positioned. We have strong brands in categories where brands and innovation matter. Most of our brains do not play an open price, which tends to be more sensitive to pricing pressure.

Speaker Change: Looking at our products specifically, we believe that we are well positioned.

Speaker Change: We have strong brands in categories where brands and innovation matter.

Speaker Change: Most of our brains do not play in opening price points, which tend to be more sensitive to pricing pressures.

Nicholas Ian Fink: And finally, we are strong with the pro and pro-lab projects held up better than D.I. Turning to New Construction. Single-family new construction remains strong, and large production builders remain optimally positioned to continue to be able to address the need for housing.

Speaker Change: And finally, we are strong with the pro, and pro-led projects have held up better than DIY.

Nicholas Ian Fink: Turning to new construction. Single-family new construction made strong, and large production builders made optimally positioned to continue to be able to address the need for housing. And we are a trusted partner to a very significant number of these home builders. This quarter, we continued to see encouraging growth in our products, which served the single-family new construction channel, including Moan and Thermature. We expect this talent to remain through 2024, as builders complete their starts.

Speaker Change: Turning to new construction.

Speaker Change: Single-family new construction remains strong, and large production builders remain optimally positioned to continue to be able to address the need for housing. And we are a trusted partner to a very significant number of these homebuilders.

Nicholas Ian Fink: And we are a trusted partner to a very significant number of these. This quarter, we continue to see encouraging growth in our products, which serve the single-family new construction channel, including Moen and Thermite. We expect this tailwind to remain through 2024 as builders complete their projects. Turning to R&R.

Speaker Change: This quarter, we continue to see encouraging growth in our products, which serve the single-family new construction channel, including Moen and Thermitrue.

Speaker Change: We expect this tailwind to remain through 2024 as builders complete their starts.

Nicholas Ian Fink: Consistent with what we anticipated, the R&R market has stabilized, but at a level still below the prior year, and we expect the R&R market to remain dynamic throughout 2020. However, there are some positive leading indicators in the R&R space. Google search results show that search terms around home renovations are once again up versus a year ago, indicating the continued interest in our product, with particularly high increases in searches around connected homes. Existing home cells, while not a major driver of our RNR cells, are expected to improve versus the continued softness we've seen year to year. Finally, as interest rates recede, HELOC loans may be increasingly utilized as they enable consumers to leverage high equity levels to make significant upgrades to their homes.

Nicholas Fink: Turning to our and our, consistent with what we anticipated, our and our market has stabilized, but at a level still below prior year, and we expect our and our market to remain dynamic throughout 2024. However, there are some positive leading indicators in the and our space. Google search results show that search terms around home renovations are once again up versus a year ago, indicating the continued interest in our products, with particularly high increases in searches around connected home products. Existing home cells will not a major driver of our own selves are expected to improve versus the continued surface we've seen here today.

Speaker Change: Turning to R&R. Consistent with what we anticipated, the R&R market has stabilized, but at a level still below prior year, and we expect the R&R market to remain dynamic throughout 2024.

Speaker Change: However, there are some positive leading indicators in the R&R space. Google search results show that search terms around home renovations are once again up versus a year ago, indicating the continued interest in our products, with particularly high increases in searches around connected home products.

Speaker Change: Existing home cells, while not a major driver of our R&R sales, are expected to improve versus the continued softness we've seen here to date.

Nicholas Fink: Finally, it interests rates received, heloclons may be increasingly utilized as they enable consumers to leverage high equity levels to make significant upgrades to their homes.

Speaker Change: Finally, as interest rates recede, HELOC loans may be increasingly utilized as they enable consumers to leverage high equity levels to make significant upgrades to their homes.

Nicholas Fink: The market in China continues to remain challenged. As a reminder, the impact is isolated and independent from the rest of the portfolio, and the China business provides attractive optionality for growth and innovation. We continue to re-platform the business and will be well prepared for our and our lead growth once the market recovers. We believe that our brands and products are well positioned to outperform, including in the current dynamic and uneven macro environment. We start examples of growth in many core and new product areas, and we will take advantage of the current period to further line our business behind those areas with higher growth opportunities.

Nicholas Ian Fink: The market in China continues to remain challenging. As a reminder, the impact is isolated and independent from the rest of the portfolio, and the China business provides attractive optionality for growth and innovation. We continue to replatform the business, and we'll be well prepared for R&R-led growth once the market recovers. We believe that our brands and products are well-positioned to outperform, including in the current dynamic and uneven macro environment, which is examples of growth in many core and new product areas, and we will take advantage of the current period to further align our business behind those areas with higher growth opportunities, including investing in a key set of strategic priorities, while also continuing to optimize our business to be even more agile and efficient.

Speaker Change: The market in China continues to remain challenged.

Speaker Change: As a reminder, the impact is isolated and independent from the rest of the portfolio, and the China business provides attractive optionality for growth and innovation.

Speaker Change: We continue to replatform the business and will be well prepared for R&R-led growth once the market recovers.

Speaker Change: We believe that our brands and products are well positioned to outperform, including in the current dynamic and uneven macro environment.

Speaker Change: We saw examples of growth in many core and new product areas, and we will take advantage of the current period to further align our business behind those areas with higher growth opportunities.

Nicholas Ian Fink: Including investing in a key set of strategic priorities, are also continuing to optimize our business to be even more agile and efficient.

Speaker Change: including investing in a key set of strategic priorities, while also continuing to optimize our business to be even more agile and efficient.

Nicholas Ian Fink: Turning now to our individual business results, starting with water innovations, this segment delivered 7% sales growth versus the prior year quarter, with organic sales down 5%, while generating 10 basis points of operating margin improvement. Our Water Segment saw excellent performance in an uneven market, with organic sales up low single digits, led by Moen North America.

Nicholas Ian Fink: Turning now to our individual business results. Starting with water innovations, this segment delivered 7% sales growth versus the prior year quarter; the organic sales down 5%, generating 10 basis points of operating margin improvement. Excluding China, our water segments saw excellent performance in an uneven market with organic sales up low single digits led by Mo and North America. Our core mo and business continues to outperform the market and take share, particularly in our wholesale business. Recent consumer brand metrics data indicate that we continue to be the highest rated brand for both quality and innovation. I put a sale for Mo and North America so impressive mid single digit growth with all channels showing growth outperforming a larger market for our products, which we believe was down low single digits.

Speaker Change: Turning now to our individual business results.

Speaker Change: Starting with water innovations, this segment delivered 7% sales growth versus the prior year quarter, with organic sales down 5%, while generating 10 basis points of operating margin improvement.

Speaker Change: Excluding China, our water segment saw excellent performance in an uneven market with organic sales up low single digits, led by Moen North America.

Nicholas Ian Fink: Our core Mullen business continues to outperform the market and take share, particularly in our wholesale business. Recent consumer brand metrics data indicate that we continue to be the highest rated brand for both quality and innovation. Our point of sale from Moen North America saw impressive mid-single-digit growth, with all channels showing growth, outperforming a larger market for our products, which we believe was down low single-digits. Our strong relationships with the largest production national homebuilders are expected to be a tailwind for the Mullen business throughout the remainder of 2024 and beyond.

Speaker Change: Our core Mullen business continues to outperform the market and take share, particularly in our wholesale business.

Speaker Change: Recent Consumer Brand Metrics data indicate that we continue to be the highest rated brand for both quality and innovation.

Speaker Change: Our point of sale from Moen North America saw impressive mid-single-digit growth with all channels showing growth, outperforming a larger market for our products, which we believe was down low single digits.

Nicholas Fink: Our strong relationships with the largest production national humblers are expected to be a tailwind for the mo and business throughout the remainder of 2024 and beyond. Our US luxury business again performed well as the luxury consumer remains more resilient. Our House of Wall brand is number one with designers in awareness and consideration, and brand perception data indicates that we also lead our peers for luxury trust and innovation. Our point of sale for our House of Wall business is roughly flat year over year versus a market, which we believe was down mid single digits. We are now one year into our acquisition of MTEC, and to work to integrate the brand into our comprehensive and complementary luxury portfolio, including showrooms, is progressing very well.

Speaker Change: Our strong relationships with the largest production national homebuilders are expected to be a tailwind for the Mullen business throughout the remainder of 2024 and beyond.

Nicholas Ian Fink: A U.S. luxury business again performed well as the luxury consumer remains more resilient. Our House of Roll brand is number one with designers in awareness and consideration, and brand perception data indicates that we also lead our peers for luxury, trust, and innovation.

Speaker Change: Our U.S. luxury business again performed well as the luxury consumer remains more resilient.

Speaker Change: Our House of Roll brand is number one with designers in awareness and consideration, and brand perception data indicates that we also lead our peers for luxury, trust, and innovation.

Nicholas Ian Fink: Our point of sale for our House of Roll business was roughly flat year over year versus a market which we believe was down mid-single digits. We are now one year into our acquisition of Emtek, and the work to integrate the brand into our comprehensive and complementary luxury portfolio, including showrooms, is progressing very well. As I mentioned earlier, Flow by Moen continues to gain traction with insurance companies, municipalities, and consumers.

Speaker Change: A point of sale for our House of Roll business is roughly flat year over year versus a market which we believe was down mid-single digits.

Speaker Change: We are now one year into our acquisition of Emtek, and the work to integrate the brand into our comprehensive and complementary luxury portfolio, including showrooms, is progressing very well.

Nicholas Fink: As I mentioned earlier, flow by mo and continues to gain traction within sure as companies use the paladies and consumer. Simmers. While the new insurance and municipality partnerships are beginning to ramp up, our retail and e-commerce point of sale accelerated 130% in the second quarter, highlighting the continued adoption by consumers. We expect sales of our Connected Water Business to accelerate through the back-off of 2024. Finally, China sales would down more than 35% this quarter as the Chinese consumer remains cautious. Our team in China has done an excellent job managing costs and margins. Looking to the remainder of 2024, we expect our water segment to continue to execute on our commitment to deliver above-market sales performance by focusing on those parts of the market with the greatest potential for growth.

Speaker Change: As I mentioned earlier, Flow by Moen continues to gain traction with insurance companies, municipalities, and consumers.

Nicholas Ian Fink: While the new insurance and municipality partnerships are beginning to ramp up, our retail and e-commerce point of sale accelerated 130% in the second quarter, highlighting the continued adoption by consumers. We expect sales of our connected water business to accelerate through the back half of 2020. Finally, China's sales were down more than 35% this quarter, as the Chinese consumer remains cautious.

Speaker Change: While the new insurance and municipality partnerships are beginning to ramp up, our retail and e-commerce point of sale accelerated 130% in the second quarter, highlighting the continued adoption by consumers.

Speaker Change: We expect sales of our connected water business to accelerate through the back half of 2024.

Speaker Change: Finally, China's sales were down more than 35% this quarter, as the Chinese consumer remains cautious.

Nicholas Ian Fink: Our team in China has done an excellent job managing costs and markets. Looking to the remainder of 2024, we expect our water segment to continue to execute on our commitment to deliver above-market sales performance by focusing on those parts of the market with the greatest potential for growth. We plan to continue to make thoughtful investments in our key priorities, including branding and digital initiatives. We remain very excited about our water, particularly the opportunities we see to capture growth in digital, luxury, and waterfront. Turning to the outdoors.

Speaker Change: Our team in China has done an excellent job managing costs and margins.

Speaker Change: Looking to the remainder of 2024, we expect our water segment to continue to execute on our commitment to deliver above-market sales performance by focusing on those parts of the market with the greatest potential for growth.

Nicholas Fink: We plan to continue to make thoughtful investments in our priorities, including branding and digital initiatives. We remain very excited about our water business, particularly the opportunities we see to capture growth in digital, luxury, and water filtration.

Speaker Change: We plan to continue to make thoughtful investments in our key priorities, including branding and digital initiatives.

Speaker Change: We remain very excited about our water business.

Speaker Change: particularly the opportunities we see to capture growth in digital, luxury, and water filtration.

Nicholas Fink: Turning to our doors, we had a strong second quarter with 4% sales growth and operating margins that improved sequentially over 420 basis points. We continued to focus on leveraging our expertise and investing behind our core categories and in those areas which we expect will offer the most attractive growth opportunities. Our doors business has exposure to many key secular growth tellwits, including material conversion in our fiberglass and composite decking businesses, outdoor living, and even luxury, as we increasingly integrate our solar innovations technology in our MTECH products into our doors. Our door bins delivered mid-single digit sales as tellwits from your construction in recent retail winds continue to drive sales.

Nicholas Ian Fink: We had a strong second quarter with 4% sales growth and operating margins that improved sequentially by over 420 basis points. We continue to focus on leveraging our expertise and investing in our core categories and in those areas which we expect will offer the most attractive growth. Our outdoors business has exposure to many key secular growth tailwinds, including material conversion in our fiberglass and composite decking business, Outdoor Living, and even luxury as we increasingly integrate our solar innovations technology and our Amtech products into our doors.

Speaker Change: Turning to outdoors.

Speaker Change: We had a strong second quarter with 4% sales growth and operating margins that improved sequentially over 420 basis points.

Speaker Change: We continue to focus on leveraging our expertise and investing behind our core categories and in those areas which we expect will offer the most attractive growth opportunities.

Speaker Change: Our outdoors business has exposure to many key secular growth tailwinds, including material conversion in our fiberglass and composite decking businesses.

Speaker Change: Outdoor living and even luxury as we increasingly integrate our solar innovations technology and our MTEK products into our doors.

Nicholas Ian Fink: Our door brains delivered mid-single-digit sales growth as tailwinds from new construction and recent retail winds continued to drive sales. Firmature continues to see the benefit of the increase in starts and completions which began last year. And Larson is seeing nice performance as we begin to see the benefits of new innovation. DECI cells were up low single digits in the quarter, and, once again, our fiber-on-premises is a great proof point of the power of our strong wholesale channel relationship.

Speaker Change: Our door brands delivered mid-single-digit sales growth as tailwinds from new construction and recent retail winds continued to drive sales.

Nicholas Fink: Third Richard continues to see the benefit of the increase in starts and completions which began last year, and Larson is seen nice performance as we begin to see the benefits of new innovation. Decking sales were up, losing a digit in the quarter, and once again, our fiber on business is a great proof point of the power of our strong wholesale channel relationships. Like our leading firm at your business, our fiber on business has a strong conversion story backed up by strength at the pro and the fortunate expertise in multi-channel distribution. We are seeing encouraging brand metrics, especially with the pro, and continue to be excited by the ability of this product to harness the powerful secular talents of the our security segment. Crusale's 12% in the quarter, and was down high single digits on an organic basis, primarily due to continuous softness consumers in retail and in commerce.

Speaker Change: Firmature continues to see the benefit of the increase in starts and completions which began last year, and Larson is seeing nice performance as we begin to see the benefits of new innovation.

Speaker Change: DECI cells were up low single digits in the quarter and once again our fiber-on- business is a great proof point of the power of our strong wholesale channel relationships.

Nicholas Ian Fink: Like our lead in firm and true business, our fiber on business has a strong conversion story, backed up by the strength of the Pro and the Fortune Brand's expertise in multi-channel distribution. We are seeing encouraging brand metrics, especially with the Pro, and continue to be excited by the ability of this product to harness the powerful secular tailwinds of material conversion, sustainability, and outdoor living. Finally, turning to our security.

Speaker Change: Like our leading furniture business, our fiber-owned business has a strong conversion story, backed up by strength of the pro and the Fortune Brand's expertise in multi-channel distribution.

Speaker Change: We are seeing encouraging brand metrics, especially with the Pro, and continue to be excited by the ability of this product to harness the powerful secular tailwinds of material conversion, sustainability, and outdoor living.

Nicholas Ian Fink: Our security segment grew sales 12% in the quarter and was down high single digits on an organic basis, primarily due to continuing softness of consumers in retail and e-commerce. However, encouragingly, we saw an improving point of sale as the quarter progressed. This segment also saw 330 basis points of operating margin improvement, inclusive of the technology investments in the Yale and August residential smart home, as the work we did around continuous improvement and supply chain continues to pay off. Our Master Lock Braid is incredibly strong, and we believe our recent organizational redesign will allow us to further strengthen this powerhouse brand.

Speaker Change: Finally, turning to our security business.

Speaker Change: Our security segment grew sales 12% in the quarter and was down high single digits on an organic basis, primarily due to continuing softness of consumers in retail and e-commerce.

Nicholas Fink: Incursually, we saw improving point of sale as the quarter progressed. The segment also saw 330 basis points of operating margin improvement, inclusive of the technology investments in the supply chain continues to pay off. Our master-like breed is incredibly Start, and we believe our recent organizational redesign will allow us to further strengthen this powerhouse brain. Finally, I'm also like security business, is now around one-third industrial and commercial, and we have developed a niche in the critical and growing remote access portable security space across the globe. We are proud of how our business is helping companies around the world protect their people and their assets.

Speaker Change: Encouragingly, we saw an improving point-of-sale as the quarter progressed.

Speaker Change: The segment also saw 330 basis points of operating margin improvement, inclusive of the technology investments in the Yale and August Residential Smart Lock Brands.

Speaker Change: As the work we did around continuous improvement and supply chain continues to pay off.

Speaker Change: Our Monster Lock brand is incredibly strong, and we believe our recent organizational redesign will allow us to further strengthen this powerhouse brand.

Nicholas Ian Fink: Finally, I'm also like security. It is now around one-third industrial and commercial, and we have developed a niche in the critical and growing remote access portable security across the globe. We are proud of how our business is helping companies around the world protect their people and their assets, as we accelerate our leadership in connected industrial security through our lockout-tagout investment. We expect this portion of the business to see future outsized growth. Over the past few years, we have evolved from mechanical-only products into innovative and growth-oriented businesses, with a much more strategic portfolio.

Speaker Change: Finally, our Mosselk security business is now around one-third industrial and commercial and we have developed a niche in the critical and growing remote access portable security space across the globe.

Speaker Change: We are proud of how our business is helping companies around the world protect their people and their assets.

Nicholas Fink: As we accelerate our leadership and connected industrial security for our lack of tag-out investments, we expect this portion of the business to see future unsized growth.

Speaker Change: As we accelerate our leadership in connected industrial security through our lockout-tagout investments, we expect this portion of the business to see future outsized growth.

Nicholas Ian Fink: Over the past few years, we have evolved from mechanical-only products into innovative and growth-oriented businesses with a much more strategic portfolio. We will reinvest the efficiencies gained from our recent optimization of the business to leverage strong secular trends like digital products and safety. As a result of our new aligned structure, we have substantially improved the segment supply chain and sourcing capabilities, accelerated our branding work, and have made significant progress in building a digital security portfolio. A year into the acquisition of the Ellen August, we are delighted with these accelerants to our business. In addition to being great assets, which we acquired at a very attractive price, we continue to be impressed by the strength of their teams and key areas, including digital.

Speaker Change: Over the past few years, we have evolved from mechanical-only products into innovative and growth-oriented businesses.

Nicholas Ian Fink: We will reinvest the efficiencies gained from our recent optimization of the organization to leverage strong secular trends, like digital products and safety. As a result of our new aligned structure, we have substantially improved the segment's supply chain and sourcing capabilities, accelerated our branding work, and have made significant progress in building our digital security portfolio. A year into the acquisition of Yale in August, we are delighted with these accelerants to our business, in addition to being great assets which we acquired at a very attractive price.

Speaker Change: with a much more strategic portfolio.

Speaker Change: We will reinvest the efficiencies gained from our recent optimization of the business to leverage strong secular trends like digital products and safety.

Speaker Change: As a result of our new aligned structure, we have substantially improved the segment's supply chain and sourcing capabilities, accelerated our branding work, and have made significant progress in building our digital security portfolio.

Speaker Change: A year into the acquisition of Yale in August , we are delighted with these accelerants to our business.

Nicholas Ian Fink: We continue to be impressed by the strength of their teams in key areas, including digital. We are utilizing their skills and knowledge throughout the business, and their expertise is being deployed across our portfolio, as we continue to accelerate our digital strategy. In 2022, our digital security sales will comprise just 2% of the segment's sales.

Speaker Change: In addition to being great assets, which we acquired at a very attractive price, we continue to be impressed by the strength of their teams in key areas including digital.

Nicholas Fink: We are utilizing the skills and knowledge throughout the business, and their expertise is being deployed across our portfolio as we continue to accelerate our digital strategies. In 2022, our digital security sales comprised just 2% of the segment sales. This cost quarter, they represented close to 20% of security sales, and we see a pathway to over 40% of the segment sales coming from digital products as we continue to convert mechanical products to digital products and explore new-to-world technology in our spaces.

Speaker Change: We are utilizing their skills and knowledge throughout the business.

Speaker Change: and their expertise is being deployed across our portfolio as we continue to accelerate our digital strategies.

Nicholas Ian Fink: This past quarter, they represented close to 20% of Security Sales, and we see a pathway to over 40% of this segment's sales coming from digital products as we continue to convert mechanical products to digital products and explore new-to-world technology in our sector. As we turn to the second half of 2024, we remain fully confident in Fortune Brand's ability to deliver above market growth, drive margin improvement, and continue the acceleration of our digital portfolio.

Speaker Change: In 2022, our digital security sales comprise just 2% of the segment's sales.

Speaker Change: This past quarter, they represented close to 20% of security sales, and we see a pathway to over 40% of this segment's sales coming from digital products as we continue to convert mechanical products to digital products and explore new-to-world technology in our spaces.

Nicholas Fink: As we turn to the second half of 2024, we remain fully confident in fortune-brainability to deliver a bug market growth, drive margin improvement, and continue the acceleration of our digital portfolio. Looking at our end markets, US single-family and new construction and luxury continue to be telewits. Our and our has firmed, though not yet improving year over year, and China is weaker than expected as the push to complete homes has ended and the Chinese consumer remains cautious. We continue to lead to the current environment well, or still investing in critical priorities like our digital strategy and our brains and innovations.

Speaker Change: As we turn to the second half of 2024, we remain fully confident in Fortune Brand's ability to deliver above-market growth, drive margin improvement, and continue the acceleration of our digital portfolio.

Nicholas Ian Fink: Looking at our end markets, U.S. single-family new construction and luxury continue to be tailwinds. R&R has firmed, though not yet improving year over year, and China is weaker than expected, as the push to complete Homs has ended, and the Chinese consumer remains cautious.

Speaker Change: Looking at our end markets, U.S. single-family new construction and luxury continue to be tailwards.

Speaker Change: R&R has firmed, though not yet improving year-over-year, and China is weaker than expected as the push to complete homes has ended and the Chinese consumer remains cautious.

Nicholas Ian Fink: We continue to lead through the current environment well and are still investing in critical priorities like our digital strategy and our brands and innovations. To recap, in the second quarter, we executed our priorities of focusing on the core and accelerating digital product and delivered impressive organic growth in our Cormoran North America and outdoors businesses. In doing so, we delivered solid sales and strong margins.

Speaker Change: We continue to lead through the current environment well, while still investing in critical priorities like our digital strategy and our brands and innovations.

Nicholas Fink: To recap, in the second quarter, we executed our priorities of focusing on the core and accelerating digital products and delivered impressive organic growth in our core modern North America and our doors businesses. In doing so, we deliver solid sales in strong margin results. We will continue to strategically manage the business in light of the uneven market backdrop, and we'll focus on those areas where we have the greatest potential for a bad market growth. I'll continue to make margin improvement.

Speaker Change: To recap, in the second quarter, we executed our priorities of focusing on the core and accelerating digital products.

Speaker Change: and delivered impressive organic growth in our Cormoran North America and outdoors businesses.

Speaker Change: In doing so, we delivered solid sales and strong margin results.

Nicholas Ian Fink: We will continue to strategically manage the business in light of the uneven market conditions, and we'll focus on those areas where we have the greatest potential for above-market growth and are continuing to make margin improvements. By taking decisive actions now, I believe we will be best positioned for accelerated growth when external market conditions improve. I will now turn the call over to... Thanks, Nick.

Speaker Change: We will continue to strategically manage the business in light of the uneven market backdrop.

Speaker Change: And we'll focus on those areas where we have the greatest potential for above-market growth while continuing to make margin improvements.

Nicholas Fink: Roberts. By taking decisive actions now, I believe we will be best positioned for accelerated growth when external market conditions improve.

Speaker Change: By taking decisive actions now, I believe we will be best positioned for accelerated growth when external market conditions improve.

Operator: I will now turn the call over today. Thanks, Nick. As a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance. Additionally, comparisons will be made against the same period last year and less otherwise noted. Let me start with our second quarter results. As Nick highlighted, our teams delivered solid sales and strong margin results amidst a dynamic external environment. We remain well prepared for any macro environment in our position for future growth as we focus on our core and accelerate digital, while continuing to generate cash and make key strategic investments.

David V. Barry: As a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance. Additionally, comparisons will be made against the same period last year, unless otherwise noted. Let me start with our second quarter results. As Nick highlighted, our teams delivered solid sales and strong margin results amidst a dynamic external environment. We remain well prepared for any macro environment and our position for future growth as we focus on our core and accelerate digital while continuing to generate cash and make key strategic investments. In the second quarter, sales were $1.2 billion, up 7% and down 3%, excluding acquisitions. Organic sales, excluding China, grew by 1%.

Speaker Change: I will now turn the call over to Dave.

David V. Barry: Thanks, Nick. As a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance.

David V. Barry: Additionally, comparisons will be made against the same period last year, unless otherwise noted.

David V. Barry: Consolidated operating income was $216 million, up 9%. Total company operating margin improved 40 basis points. 17.4%, and earnings per share were $1.16, an 8% increase versus last year. Our second quarter sales performance was driven by U.S. POS growth in water and outdoors, as well as digital products, offset by POS declines in security and China software. Let me provide more color on our segment results. Beginning with water innovations, sales were $660 million, up $43 million or 7%, and down 5% excluding the impact of acquisitions. Excluding China, organic sales were up a low single digit. Importantly, our organic sales results reflect mid-single-digit Moen North America POS growth. China sales declined more than 35% as the Chinese consumer remained cautious.

David V. Barry: Let me start with our second quarter results.

David V. Barry: As Nick highlighted, our teams delivered solid sales and strong margin results amidst a dynamic external environment.

David V. Barry: We remain well prepared for any macro environment and are positioned for future growth as we focus on our core and accelerate digital while continuing to generate cash and make key strategic investments.

Operator: In the second quarter, sales were 1.2 billion, up 7%, and down 3% excluding acquisitions. Organic sales excluding China grew 1%. Consolidated operating income was 216 million, up 9%. Total company operating margin improved 40 basis points to 17.4%, and earnings for share were $1.16 and 8% increased versus last year. Our second quarter sales performance was driven by USPOS growth in water and outdoors, as well as digital products, offset by POS declined in security and China softness.

Speaker Change: In the second quarter, sales were $1.2 billion, up 7%, and down 3%, excluding acquisitions.

Speaker Change: Organic sales, excluding China, grew 1%.

Speaker Change: Consolidated operating income was $216 million, up 9%.

Speaker Change: Total company operating margin improved 40 basis points to 17.4%, and earnings per share were $1.16, an 8% increase versus last year.

Speaker Change: Our second quarter sales performance was driven by US POS growth in water and outdoors, as well as digital products, offset by POS declines in security and China softness.

Operator: Let me provide more color on our segment results. Beginning with water innovations, sales were 660 million, up 43 million or 7%, and down 5% excluding the impact of acquisitions. Excluding China, organic sales were up low single digits. Importantly, our organic sales results reflect mid-single digit mowing North America POS growth. China sales declined more than 35% as the Chinese consumer remained cautious. As a reminder, our results' quarter also reflect the impact of lapping last year's project completion. We continue to re-platform the business toward an increasingly R&R lead market so that we were prepared for growth when the market recovers.

Speaker Change: Let me provide more color on our segment results.

Speaker Change: Beginning with Water Innovations, sales were $660 million, up $43 million or 7%, and down 5% excluding the impact of acquisitions.

Speaker Change: Excluding China, organic sales were up low single digits.

Speaker Change: Importantly, our organic sales results reflect mid-single-digit Moen North America POS growth.

David V. Barry: As a reminder, our results this quarter also reflect the impact of Lapping last year's project completion. We continue to replatform the business toward an increasingly R&R-led market, so that we are prepared for growth when the market recovers. Water Innovation's operating income was $153 million, an increase of 7%. Operating margin was 23.3 percent, an increase of 10 basis points, and we expect to continue to make sequential margin improvement through the second half of 2024. Turning to the outdoors.

Speaker Change: China sales declined more than 35% as the Chinese consumer remained cautious.

Speaker Change: As a reminder, our results this quarter also reflect the impact of Lapping last year's project completions.

Speaker Change: We continue to replatform the business toward an increasingly R&R-led market, so that we are prepared for growth when the market recovers.

Operator: Water innovations operating income was 153 million and increase of 7%. Operating margin was 23.3% and increase of 10 basis points. And we expect to continue to make sequential margin improvement through the second half of 2024. Turning to outdoors, sales were $389 million, up 4%, driven by growth in both doors and second. Door sales increased mid-single digits. Sales were supported by higher volumes that thermo-true, driven by the increase in single-family new construction and recent retail placement wins. Decking sales were up low single digits, driven by continued strength and wholesale, and partially offset by anticipated declines in retail.

Speaker Change: Water Innovation's operating income was $153 million, an increase of 7%.

Speaker Change: Operating margin was 23.3 percent, an increase of 10 basis points, and we expect to continue to make sequential margin improvement through the second half of 2024.

David V. Barry: Sales were $389 million, up 4%, driven by growth in both doors and decks. Store sales increased mid-single digit. Sales were supported by higher volumes at ThermaTru, driven by the increase in single-family new construction and recent retail placement wins. Decking sales were up low single digits, driven by continued strength in wholesale, and partially offset by anticipated declines in retail.

Speaker Change: Turning to outdoors.

Speaker Change: Sales were $389 million, up 4%, driven by growth in both doors and decking.

Speaker Change: Door sales increased mid-single digits.

Speaker Change: Sales were supported by higher volumes at ThermaTru, driven by the increase in single-family new construction, and recent retail placement wins.

Speaker Change: Decking sales were up low single digits driven by continued strength in wholesale and partially offset by anticipated declines in retail.

David V. Barry: Our results this quarter reflect our ongoing strategic approach of focusing on those core categories in which we expect to have the best opportunities to achieve long-term, above-market growth and profitability. Outdoors segment operating income was $63 million, up 3%; segment operating margin was 16.3%, down 10 basis points. We expect Outdoors second half operating margins to average around 15.5% and improve sequentially as favorable production costs hung up in inventory will flow through the P&L. In security, our second quarter sales increased 12%. Organic cells decreased 7%, reflecting soft POS, particularly in retail and e-commerce.

Operator: Our results' quarter reflect our ongoing strategic approach of focusing on those core categories in which we expect to have the best opportunities to achieve long-term above-market growth and profitability.

Speaker Change: Our results this quarter reflect our ongoing strategic approach of focusing on those core categories in which we expect to have the best opportunities to achieve long-term, above-market growth and profitability.

Speaker Change: Outdoors segment operating income was $63 million, up 3%.

Speaker Change: Segment operating margin was 16.3% down 10 basis points.

Speaker Change: We expect outdoors second half operating margins to average around 15.5% and improve sequentially as favorable production costs hung up in inventory will flow through the P&L.

Speaker Change: In security, our second quarter sales increased 12%. Organic sales decreased 7%, reflecting soft BOS, particularly in retail and e-commerce.

David V. Barry: Our POS trend improved in late June and early July, giving us confidence in our full-year outlook. We continue to see momentum in the categories we have identified as having higher growth potential, such as Master Lock Commercial and our digital Master Lock and Yale products. Segment operating income was $36 million, up 36%, and segment operating margin was 18.9%, an increase of 330 basis points.

Speaker Change: Our POS trend improved in late June and early July , giving us confidence in our full year outlook.

Speaker Change: We continue to see momentum in the categories we have identified as having higher growth potential, such as Master Lock Commercial and our digital Master Lock and Yale products.

Speaker Change: Segment operating income was 36 million, up 36 percent, and segment operating margin was 18.9 percent, an increase of 330 basis points.

David V. Barry: Our organic operating margins were greater than 21 percent, with over 500 basis points of improvement over last year, driven by continuous improvement initiatives. As we have discussed previously, we think our security segment is a great example of the power of our Fortune Brand's differentiated capabilities, and we expect great things from this business. Turning to the ballots.

Speaker Change: Our organic operating margins were greater than 21 percent with over 500 basis points of improvement over last year, driven by continuous improvement initiatives.

Speaker Change: As we have discussed previously, we think our security segment is a great example of the power of our Fortune Brand's advantaged capabilities, and we expect great things from this business.

David V. Barry: Our balance sheet remains solid, with cash of $353 million, net debt of $2.5 billion, and our net debt to EBITDA leverage is 2.6 times. We remain on track to achieve our target net leverage ratio of around two and a quarter times by year end. We have one billion available under our revolver. In the second quarter, we returned $85 million to shareholders via a combination of share purchases and dividends, including $55 million of share repurchase. As of today, we have repurchased $190 million of shares this year. Our second quarter free cash flow was $223 million, exceeding our expectations.

Speaker Change: Turning to the ballot sheet.

Speaker Change: Our balance sheet remains solid with cash of $353 million, net debt of $2.5 billion, and our net debt to EBITDA leverage is 2.6 times. We remain on track to achieve our target net leverage ratio of around 2.25 times by year end.

Speaker Change: We have one billion available under our revolver.

Speaker Change: In the second quarter, we returned $85 million to shareholders via a combination of share repurchases and dividends, including $55 million of share repurchases.

Speaker Change: As of today, we have repurchased $190 million of shares this year.

Speaker Change: Our second quarter free cash flow was $223 million, exceeding our expectations.

David V. Barry: To summarize the quarter, we delivered solid sales and strong margin results and are on the path of delivering our full-year commitments to grow sales above market, expand our margins, and generate cash. We are pleased with our first-half performance while being aware of the dynamic macro environment. And as you saw in our earnings release, we have updated our full-year guidance to reflect our current view of market conditions, including a stronger U.S. single-family new construction market and Strengthen Our Digital Business, offset by a weaker market in China.

Speaker Change: To summarize the quarter, we delivered solid sales and strong margin results, and are on the path of delivering our full-year commitment to grow sales above market, expand our margins, and generate cash.

Speaker Change: We are pleased with our first half performance while being aware of the dynamic macro environment. And as you saw in our earnings release, we have updated our full year guidance to reflect our current view of market conditions.

Speaker Change: including a stronger US single-family new construction market and strengthen our digital businesses offset by a weaker market in China.

David V. Barry: Importantly, we are narrowing the range around our prior EPS midpoint as growth in our core businesses, acceleration of our digital products, and margin delivery gives us confidence in our ability to deliver these results. For the remainder of 2024, we now expect the global market for our products to be down 3% to down 1%, with the U.S. market down 1% to flat. Within this market forecast, we expect U.S. R&R to fall 4% to down 3%.

Speaker Change: Importantly, we are narrowing the range around our prior EPS midpoint as growth in our core businesses, acceleration of our digital products, and margin delivery gives us confidence in our ability to deliver these results.

Speaker Change: For the remainder of 2024, we now expect the global market for our products to be down 3% to down 1%, with the U.S. market down 1% to flat.

Speaker Change: Within this market forecast, we expect U.S. R&R down 4% to down 3%.

David V. Barry: U.S. single-family new construction to be up between 8% and 10%, with starts up high single digits and completions up low single digits, and the Chinese market for our products to be down 20% to down 15%. Within this backdrop, we now expect full-year Fortune Brand sales to increase 2.5% to 4.5%, and Organic Sales to be down 2% to flat. This revised figure reflects continued strength in our core North American businesses, including Mowen and Thermitrue, strength in our luxury business, The Benefit of Our Springwheel Acquisition, and an Accelerating Digital Business, Offset by China.

Speaker Change: The U.S. single-family new construction to be up between 8% and 10%, with starts up high single digits and completions up low single digits.

Speaker Change: and the China market for our products to be down 20% to down 15%.

Speaker Change: Within this backdrop, we now expect full-year Fortune Brand sales to increase 2.5% to 4.5%, and organic sales to be down 2% to flat.

Speaker Change: This revised figure reflects continued strength in our core North American businesses, including Moen and Thermitrue, strength in our luxury business,

Speaker Change: The benefit of our spring roll acquisition and an accelerating digital business offset by China.

David V. Barry: We now expect our full-year operating margins to be between 17 and 17 and a half percent, the midpoint of which is 125 basis points above full-year 2023. We are confident in our ability to hit our margin guidance and have good line of sight to a number of productivity initiatives which will benefit our margins across the second half, particularly in our outdoors and water segment. Our commodity costs are largely set, with relatively small exposure to freight volatility, and we expect to remain price-cost favorable for the full year.

Speaker Change: We now expect our full-year operating margins to be between 17 and 17.5%, the midpoint of which is 125 basis points above full-year 2023.

Speaker Change: We are confident in our ability to hit our margin guidance and have good line of sight to a number of productivity initiatives which will benefit our margins across the second half, particularly in our outdoors and water segments.

Speaker Change: Our commodity costs are largely set, with relatively small exposure to freight volatility, and we expect to remain price-cost favorable for the full year.

David V. Barry: Based on our revised guidance, looking to the second half of the year, we expect slightly positive sales growth with operating margins of around 18%. As a reminder, we closed on our Yale, August, and EmTech acquisitions in June of last year, and the performance of those brands will be included in our second half organic results. To sum up, our teams delivered a first half of the year ahead of plan and will remain focused on the execution of our key priorities. I am increasingly excited about the opportunities ahead of us as our business transformation continues to accelerate. I will now pass the call back to Leigh to open the call for questions. Thanks, Dave.

Speaker Change: Based on our revised guidance, looking to the second half of the year, we expect slightly positive sales growth, with operating margins of around 18%.

Speaker Change: As a reminder, we closed on our Yale, August , and EmTech acquisitions in June of last year, and the performance of those brands will be included in our second half organic results.

Speaker Change: To sum up, our teams delivered a first half of the year ahead of plan and will remain focused on the execution of our key priorities. I am increasingly excited about the opportunities ahead of us as our business transformation continues to accelerate.

Leigh Avsec: That concludes our prepared remarks. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then re-enter the queue to ask additional questions. I will now turn the call back to the operator to begin the question and answer session. Operator, can you open the line?

Speaker Change: I will now pass the call back to Leigh to open the call for questions. Leigh?

Leigh Avsec: Thanks Dave. That concludes our prepared remarks. We will now begin taking a limited number of questions.

Leigh Avsec: Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then re-enter the queue to ask additional questions. I will now turn the call back to the operator to begin the question and answer session. Operator, can you open the line? Thank you.

Operator: Thank you. Thank you. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. Again, that is star one to register a question at this time. The first question is from Susan Maklari of Goldman Sachs. Please go ahead. Thank you. Good afternoon, everyone. It's you. How are you?

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, that is star 1 to register a question at this time.

Speaker Change: The first question is from Susan Maklari of Goldman Sachs. Please go ahead.

Susan Marie Maklari: I'm good, Nick. The stats that you gave on the digital initiatives are very impressive, so I'd like to start there. Perhaps can you quantify the impact of those partnerships that you mentioned over time? How do you think about the opportunity relative to the business today and the ramp that you look for as you target over a billion dollars of revenue by 2030? And then maybe within that, can you also talk about any implications for margins both in the near term as these sales start to come through and then over time? Yeah, absolutely.

Susan Marie Maklari: Thank you. Good afternoon, everyone.

Susan Marie Maklari: Thank you. How are you?

Nicholas Ian Fink: I'm good, Nick.

Susan Marie Maklari: The staff that you gave on the digital initiatives are very impressive, so I'd like to start there.

Speaker Change: Perhaps, can you quantify the impact of those partnerships that you mentioned over time? How do you think about the opportunity relative to the business today and the ramp that you look for as you target that?

Speaker Change: Over a billion dollars of revenue by 2030 and then maybe within there Can you also talk about any implications for margins both in the near term as these sales start to come through and then over time?

Nicholas Ian Fink: Why don't I try to break it down a little bit and give some perspective on that, and Dave can round out some of the numbers. So I'll just start with the entire digital portfolio. So when you think about that, it's both in-water and security. Obviously, flow and the whole ecosystem that goes around flow, security, it's connected master lock, it's connected lockout, tagout.

Speaker Change: Yeah, absolutely. Why don't I try to break it down a little bit and give some perspective on that and Dave can round out some of the numbers.

Speaker Change: So I'll just start with, you know, the entire digital portfolio.

David V. Barry: So when you think about that, right, it's both in water and security.

David V. Barry: Obviously flow and the whole ecosystem that goes around flow.

David V. Barry: Security, it's, you know, Connected, Monster Lock, it's Connected, Lockout, Tagout, where, you know, we're increasingly excited about the opportunity in commercial security, and then, of course, you know, Yale in August , and Connected Access, and everything that that gives us over there. You know, I kind of start

Nicholas Ian Fink: We're increasingly excited about the opportunity in commercial security. And then, of course, Yale in August and connected access and everything that that gives us over there. I'd kind of start.

Nicholas Ian Fink: Maybe with the headline on to your question, which is, you know, dimensionalize what the opportunity is and where we start to see it. And, you know, as I said, in my remarks, we see the opportunity being well over a billion dollars by 2030. And you're seeing the impact now, right?

David V. Barry: Maybe with the headline answer to your question, which is, you know, to dimensionalize what the opportunity is and where we start to see it, and, you know, as I said,

David V. Barry: In my remarks, you know, we see the opportunity being well over a billion dollars by 2030. And you see the impact now, right, as we said.

Nicholas Ian Fink: As we said, 150 basis points of growth we expect to come for the whole portfolio, Fortune Brand's portfolio, just in the second half alone. And so, you know, we've been working on this for a while and trying to drive it to a momentum point. And now, you know, when you're seeing that much impact on, you know, total company growth, knowing that this is a very rapidly compounding space as well, I think we're at a tipping point where you are starting to see some material impact on both top lines, and then we'll dimensionalize the margin question for you. You know, when you break down... You asked specifically about the partnership.

Speaker Change: A hundred and fifty basis points of growth we expect to come for the whole portfolio.

Speaker Change: Portfolio just in the second half alone and so you know we've been working on this for a while and trying to drive it to a momentum point and now you know when we've seen that much

Speaker Change: impact on total company growth. Knowing that this is a very rapidly compounding space as well, I think we're at a tipping point where you are starting to see some material impact on both top line and then we'll dimensionalize the margin question for you. You know, when you break down

Nicholas Ian Fink: So you break down, you know, the flow by moment, opportunity, you know, I think about it really in kind of three big ways. I'm going to talk about two pillars of Root to Market today. One is, I call it, the straight-to-consumer route to market, driven by consumer awareness of the issue that is there to solve the disruption to their lives. There's insurance, where we know there's an excess of $15 billion of addressable water damage that we can literally take to almost zero on a per annum basis just in the United States. There's the municipal channel, where we know not only is there a lot of water lost through addressable leaks, but the cost of cleaning, treating, and distributing that water in terms of carbon is very high.

Speaker Change: You asked specifically about the partnership, so you break down the flow by moment, opportunity, and I think about it really in kind of three big...

Speaker Change: [inaudible]

Speaker Change: Addressable water damage that we can literally take to almost zero on a per annum basis just in the United States and then of course, there's the municipal channel where

Speaker Change: We know not only is there a lot of water lost through addressable leaks, the cost of cleaning, treating, and distributing that water in terms of carbon is very big.

Nicholas Ian Fink: You know, just as you said in the quarter, I mean, the retail piece. I would say, you expect it to sort of grow steadily with consumer awareness over time. Point of sale is 130% in the quarter, which... It's more than a steady increase, and so we really believe that there is starting to be increasing consumer awareness of this, and they're going out and seeking the product out, so we're very excited to see that.

Speaker Change: You know, just as you said in the quarter, I mean, the retail piece, I would say, you know, you expect it to sort of grow steadily with consumer awareness over time. Point of sale is 130% in the quarter, which...

Speaker Change: You know, it's more than a steady increase. And so we really believe that there is starting to be increasing consumer awareness.

Nicholas Ian Fink: Insurance, we've been working on insurance for a while, and we've been working with insurers to improve the availability of their product. The reason that this quarter was such a milestone was because it was the first time that you saw an insurer move en masse, towards mandating a product, not just sort of on an exception basis, but more generally across a huge segment of their portfolio and really looking to the market for a partner that could help them do that.

Speaker Change: [inaudible]

Speaker Change: The reason that this quarter was such a milestone was because it was the first time that you saw an insurer move en masse towards mandating the product, not just sort of on exception, but more...

Speaker Change: generally across, you know, a huge segment of their portfolio.

Nicholas Ian Fink: And in order to do that, we needed a partner that had a best-in-class product, could step up an entire system with nationwide installation, be able to provide back-end support, dedicated landing pages, and have the supply chain that we could rent very quickly to do that.

Speaker Change: And really, you know, looking to the market for a partner that could help them do that. And in order to do that, you needed a partner that, you know, had a best-in-class product.

Speaker Change: could step up an entire system, you know, with nationwide installation, be able to provide back-end support.

Nicholas Ian Fink: I was immensely proud that our organization, in a very short amount of time, could pull all that together, and I think it speaks to the alignment we've driven across the Fortune Brands organization over the last few years and some of the organizational design work we've done to really unleash it. And then the third pillar is the municipal, you know, that CalWEP agreement that I described, where we really are going to open the platform of government rebates, which are pretty plentiful out there, making it really easy for consumers and municipalities, consumers to access, and municipalities to drive that purchase.

Speaker Change: [inaudible]

Speaker Change: The Fortune Brand's org over the last few years and some of the organizational design work we've done to really unleash it.

Speaker Change: And then the third pillar is in Musipal, you know, that Kalawap agreement that I described.

Speaker Change: where we really are going to open the platform of government rebates which are pretty plentiful out there and make it really easy for consumers to access and municipalities to drive.

Nicholas Ian Fink: It's very exciting, and A, for California, but B, I think it's really going to be a national template for how this is going to work going forward. And so, you know, you put all of that together.

Speaker Change: that purchase was very exciting, and A, for California, but B, I think it's really going to be a national template for how this is going to work going forward. And so, you know, you put all of that together, the point I was trying to make is...

Nicholas Ian Fink: The point I was trying to make is great growth, but more importantly, some really, really big milestone steps that we believe will drive an inflection in the growth that we're going to see in this portfolio. And just before I turn it over to Dan to talk about margins and maybe dimensionalize some of the numbers, I'll just add one other thing, which is, you know, we also talked about the connected lockout-tagout deal that we did with Value Hybrid, and I don't want to understate the size of that opportunity. I mean, that is making people safer in manufacturing facilities around the world.

Craig Rose: Great growth.

Craig Rose: But more importantly, some really, really milestone...

Craig Rose: Scott

Craig Rose: that we believe will drive an inflection.

Craig Rose: in the growth that we're going to see in this portfolio. And just before I turn it over to Dave to talk about margins and maybe dimensionalize some of the numbers, I'll just add one other thing, which is, you know, we also talked about the connected.

Craig Rose: Blackout-Tagout deal that we did with Value Hybrid.

Craig Rose: And I don't want to understate the size of that opportunity. I mean, that is making people safer in manufacturing facilities around the world.

Nicholas Ian Fink: But you can just start to think about the size of that market. We will have the leading product-plus-software platform in the marketplace. We're going to drive the transition of that from mechanical to connected.

David V. Barry: But you can just start to think about the size of that market.

David V. Barry: We will have the leading product-plus-software platform in the marketplace, and we're going to drive the transition of that from mechanical to connected. So another huge win, driven by the same underlying digital team that we've now put in place.

Nicholas Ian Fink: So another huge win, you know, driven by the same underlying digital team that we've now put in place across all of our portfolios. So, you know, a really big quarter for us strategically in driving this portfolio, and with that, I'll give a run. Yeah, thanks, Nick.

David V. Barry: across all of our portfolios. So, you know, a really big quarter from us strategically in driving this portfolio. And with that, I'll let Dave run to that. Yeah, thanks, Nick.

David V. Barry: Sue, I think the market has been looking for material proof points that the strategy is working, and now we have a handful of them that are material. So I think you can sense our excitement. Early days on the ramp of each of these opportunities, but still meaningful to our overall growth in the second half. As Nick mentioned, 150 basis points of growth across the second half. It's probably skewed a bit more towards the fourth quarter, closer to 200 basis points of growth in the fourth quarter.

David V. Barry: Sue, the market has been looking for material proof points that the strategy is working and now we have a handful of them that are material.

David V. Barry: And so I think you can sense our excitement.

David V. Barry: You know, it's early days of the ramps of each of these opportunities, but still...

David V. Barry: Meaningful to our overall growth in the second half, as Nick mentioned, 150 basis points of growth across the second half. It's probably skewed a bit more towards the fourth quarter, closer to 200 basis points of growth in the fourth quarter.

Speaker Change: And then each of these agreements and partnerships are margin accretive. You know, as we've talked about in the past, they're connected.

David V. Barry: The Product Portfolio is margin accretive relative to the mechanical portfolio, and then the nature of these agreements, many of which are direct selling opportunities, are margin accretive relative to the base portfolio. And that's a bit of what's driving some of the incremental margin coming through in the second half is that as these opportunities ramp, we'll continue to invest in the flywheel of the connected product business and also be able to have nice leverage from these opportunities. Okay, that's a great color.

David V. Barry: [inaudible]

David V. Barry: are margin accretive relative to the base portfolio. And that's a bit of what's driving some of the incremental margin coming through in the second half, is as these opportunities ramp, we'll continue to invest in the flywheel of the connected product business, and also be able to have nice leverage from these opportunities.

Susan Marie Maklari: Thank you both. And then maybe we could shift a little bit more to the near term and think about the back half. The back half guide seems to imply some relative conservatism, perhaps, or a bit more conservatism. And that seems in contrast to the second quarter results and the commentary that you gave. Can you talk a bit about how you think about the health of the consumer? What's making you a little bit more cautious on the third and fourth quarter outlook there? And does it vary by price point or by product category? Just any details that you can offer on that.

Speaker Change: Okay, that's great color. Thank you both. And then maybe shifting a little bit more to the near term and thinking about the back half.

Speaker Change: The back half guide seems to imply some relative conservatism, perhaps, or a bit more conservatism. And that seems in contrast to the second quarter results and the commentary that you gave. Can you talk a bit about how you're thinking of the health of the consumer? What's making you a little bit more cautious on the third and the fourth quarter outlook there? And does it vary by price point or by product category? Any details that you can offer on that?

Nicholas Ian Fink: Sure, I'll just give some high-level perspectives, and I'm sure Dave will add some color. Look, you know, I think it is still wise to be cautious about the consumer. I think you're seeing that across industries. I mean, you know..., been experiencing this not just in our industry, but in others. You know, interestingly, it is a little bit of a tale of two cities.

Speaker Change: Sure, I'll just give some high-level perspectives, and I'm sure Dave will add some color. Look, you know, I think it is still wise to be cautious about the consumer. I think you're seeing that across industries. I mean, you know, there's...

Speaker Change: [inaudible]

Nicholas Ian Fink: We see this in some areas, as we said, you know, we've seen retail kind of steady out, you know, not yet quite recover, but seem to have found a baseline, at least for our business. But you know, with, I would say we're sort of where we thought we would be, not quite where we hoped, is the way I think about it.

Speaker Change: Found a baseline, at least for our business, but, you know, with...

Nicholas Ian Fink: And so we're sort of in line with what we had forecast, maybe, a bit weak, certainly, on the China front, but better on the single-family new construction front. But with that, I think it still is wise to be cautious, particularly as we go through the third quarter and await sort of this ramp of the connected products I was talking about. You know, that said, I do think that, you know, the consumer is very sensitive from a confidence perspective to news around inflation and rates, and I do think as that improves, you know, we do see proof points that they respond very quickly, as they did in the beginning of the year, to that kind of news and information, and so, you know, to me, I would look for that to start to see a bit of an inflection around, And Sue, I'll provide a bit of context around the second half.

David V. Barry: I would say we're sort of where we thought we would be, not quite where we hoped, is the way I think about it. And so we're sort of in line with what we had forecast, maybe, a bit weaker on the China front, but better on the single-family new construction front.

David V. Barry: Though, with that, I think it still is wise to be cautious, particularly as we go through the third quarter and await sort of this ramp of the connected products I was talking about.

David V. Barry: You know, that said, I do think that, you know, the consumer is very sensitive from a confidence perspective to news around inflation and rates, and I do think that that improves.

David V. Barry: You know, we do see proof points that they respond very quickly, as they did in the beginning of the year, to that kind of news and information, and so, you know, to me, I would look for that to start to see a bit of an inflection around their recovery.

Nicholas Ian Fink: I think some of the phasing might be counter to what you typically expect, is that these opportunities ramp up, and there's some comp dynamics to sort through. So if we look at the second half, I'd expect third quarter sales down around 2.5% and fourth quarter sales growth of 3%, of which about 200 basis points of that is connected. So the third quarter is looking pretty similar to the second quarter, as Nick kind of alluded to.

Speaker Change: And Sue, I'll provide a bit of context around the second half, as I think some of the phasing might be counter to what you'd typically expect, as these opportunities ramp and there's some comp dynamics to sort through. So if we look at the second half, you know, I'd expect third quarter sales.

Speaker Change: down around two and a half percent and fourth quarter sales growth of three percent of which about 200 basis points of that is connected.

Speaker Change: So the third quarter, you know, looking pretty similar to the second quarter, as Nick kind of alluded to. And then as we move to the fourth quarter, you have that connected growth, we have continued single-family new construction completions, which have lagged start.

David V. Barry: And then as we move to the fourth quarter, that connected growth, we have continued single family new construction completions, which have lagged behind, and we'll be having a soft comp on the new construction side there. And then we have some previously awarded product placements that we'll set in the fourth quarter across the business. And so, some really strong reasons to believe in that sales phasing as we move through the period. And then, with that sales phasing operating margin, we expect it to be higher in the fourth quarter, probably closer to 18.5% than in the third quarter, where we're expecting something closer to 17. Okay, that's very helpful. Thank you both and good luck with everything.

Speaker Change: And we'll be having a soft comp on the new construction side there. And then we have some previously awarded product placements that we'll set in the fourth quarter across the business. And so some really strong reasons to believe in that sales phasing as we move through the period.

Speaker Change: And then, you know, with that sales phasing operating margin, we expect actually we'll be higher in the fourth quarter, probably closer to 18.5% than in the third quarter where we're expecting something closer to 17.5%.

Speaker Change: [inaudible]

Speaker Change: Okay, that's very helpful. Thank you both and good luck with everything. Thank you.

Susan Marie Maklari: Thanks. Thank you. The next question is from Adam Baumgarten from Zellman and Associates. Please go ahead.

Speaker Change: The next question is from Adam Baumgarten from Zellman & Associates. Please go ahead.

Adam Michael Baumgarten: Hey guys, quick question on security. Really strong margins in the quarter, but it looks like, based on the full year guide, maybe those are stepping down a bit in the second half. Maybe if you could walk through some of the dynamics there. Yeah, Adam, as we've talked about really strong margins, especially organically, in security, you know, we've replatformed the cost base there in that business, and we're starting to see those results, which we expected. With Yale in August included in that, there will be periods of reinvestment back into that business. We'll also reinvest back into Master Lock.

Adam Michael Baumgarten: Hey guys, quick question on security. Really strong margins in the quarter, but looks like based on the full year guide, maybe those are stepping down a bit in the second half. Maybe if you could walk through some of the dynamics there.

Speaker Change: Yeah, Adam, as we've talked about, really strong margins, especially organically.

Speaker Change: and security, you know, we've replatformed the cost basis.

Adam Michael Baumgarten: There in that business and we're starting to see those results which we expected

Adam Michael Baumgarten: With Yale in August included in that, there will be periods of reinvestment back into that business. We'll also reinvest back into Master Lock, and so you may see some periods of just margin volatility that will signal as we make some of those bigger investments back into the brands and to drive the product.

David V. Barry: And so you may see some periods of just margin volatility that will occur as we make some of those bigger investments back into the brands and to drive the product. The only thing I can add, Adam, about that margin journey is, you know, huge progress on the organic margin and the cost basis of the business. Of course, we like profitability, but really, we believe that this business will be a growth platform, and you can invest behind profitable growth platforms. So the motivation, the strong motivation of the team to get it to the point where we're not getting it is so that we can start to invest in this connected and commercial journey Okay, I got it.

Speaker Change: The only thing, Adam, about that margin journey is, you know...

Speaker Change: A huge progress, obviously, on the organic margin and the cost basis of the business.

Speaker Change: Of course we like profitability, but really we believe that this business will be a growth platform, and you can invest behind profitable growth platforms. So the motivation, the strong motivation of the team to get it to the point where we're now getting it is so that we can start to invest.

Speaker Change: in this connected and commercial journey that we see, you know, while driving margin improvement for the business and investors, but really create the fuel to drive top line as well.

Adam Michael Baumgarten: And then just on the full business, those three pillars to market that you spoke about, maybe where you see the biggest near-term opportunity within those three over the next year or two? Yeah, I would say it's really in that insurance pillar. I think the consumer's coming along even quicker than you know, or I might have expected at the growth rates I was describing. But there is such a huge opportunity in insurance. And if you talk to property insurers today, it's a little bit of the same pot as health insurers started in a few years ago.

Speaker Change: Okay, got it. And then just on the flow business, those three pillars to market that you spoke about, you know, maybe where you see the biggest near-term opportunity within those three over the next, you know, year or two?

Speaker Change: Yeah, I would say it's really in that insurance pillar. I think the consumer's coming along even quicker than I might have expected at the growth rates I was describing.

Speaker Change: There is such a huge opportunity in insurance, and if you talk to property insurers today, you know, it's a little bit of the same pot as, you know, health insurers started down the pot.

Nicholas Ian Fink: They are no longer just risk pricers. They really do need to mitigate downstream risk and take costs out of the system in order to offset the cost of insurance. I mean, I think since 2021, the average US homeowner's insurance is up about 30%. I think it's 27, so...

Speaker Change: a few years ago. They are no longer just risk pricers. They really do need to mitigate downstream risk and take cost out of the system in order to offset.

Speaker Change: I think since 2021, the average U.S. homeowner's insurance is up about 30%, right, it is 27.

Nicholas Ian Fink: There is a need to find ways to take costs out. We have a product that takes $15 billion plus in annualized costs. I think you'll start to see that as the fastest and largest driver as insurers start to gain confidence in this as a proposition and move towards mandating it just as they might fire suppression or alarm suppression. And Adam, I would just add, you know, as I think about it simply. You know, the insurance opportunity is really about, you know, a couple of things. One... being able to offset unknown risk from storms, fires, et cetera with known risk reduction, which is preventable water damage.

Speaker Change: There is a need to find ways to take cost out. We have a product that takes $15 billion plus of annualized cost.

Speaker Change: Plus two zero.

Speaker Change: And so, you know, I think you'll start to see that be the fastest and largest driver as insurers start to gain confidence in this as a proposition and move towards mandating it, you know, just as they might a, you know, fire suppression or alarm system in your house.

Speaker Change: And Adam, I would just add, you know, as I think about it simply...

Adam Michael Baumgarten: You know, the insurance opportunity is really about, you know, a couple, two things. One...

Adam Michael Baumgarten: Being able to offset unknown risk from storms, fires, etc. with known risk reduction, which is preventable water damage.

David V. Barry: And then two, lowering the affordability of homes, as Nick mentioned, because now you're able to price risk better for homeowners and consumers. One, offer them insurance, and two, offer them insurance at a better rate, which helps overall affordability. So we're excited about the early progress here and where this is going to go. Great, good to hear. Thank you guys. Best of luck. The next question is from Matthew Bouley from Barclays. Please go ahead. Good evening, everyone.

Adam Michael Baumgarten: And then, two, lowering the affordability of homes, as Nick mentioned, because now you're able to price risk better to homeowners and consumers.

Nicholas Ian Fink: One, offer them insurance, and two, offer them insurance at a better rate, which helps overall affordability. So we're excited about the early progress here and where this is going to go.

Speaker Change: Great. Good to hear. Thank you guys. Best of luck.

Speaker Change: Thank you.

Matthew Adrien Bouley: Thank you for taking the questions. I wanted to touch on the U.S. single-family new construction end market. It looked like, of course, you raised your guidance for the year just for that particular end market. Obviously, if you look kind of high level, there's been a little more shredding, starts, new home sales, and home builder order results. So, maybe there's a little bit of a timing difference going on, but I'm curious if you can kind of unpack that a little bit. What exactly are you seeing in single-family new construction and what gives you the confidence there to increase the guidance for the year? Yeah, hey, Matt.

Speaker Change: The next question is from Matthew Bouley from Barclays. Please go ahead.

Matthew Adrien Bouley: Good evening, everyone. Thank you for taking the questions. I wanted to touch on the U.S.

Matthew Adrien Bouley: construction end market. It looked like, of course, you raised your guidance for the year

Speaker Change: Obviously, if you look kind of high level, there's been a little more chop.

Speaker Change: Starts and new home sales and home builder order results, so, you know, maybe it's a little bit of timing difference going on, but I'm curious if you can kind of unpack that a little bit. What exactly are you seeing in

Speaker Change: single-family new construction and kind of what gives you the confidence there to increase the guidance for the year. Thank you.

David V. Barry: Yeah, so you're correct to point out the original guidance was for this segment up 5% to 7%, and now we see it up 8% to 10%. And I remind you, when we speak to the market, we're speaking to the market about our products and when we anticipate them being consumed. And so here in this segment, we do have a lag, typically from the start to when our product is consumed. And for water, for instance, it's closer to completion. For doors, it comes more in the middle.

Speaker Change: Yes, you're correct to point out the original guidance was for this segment up.

Speaker Change: 5-7% and now we see it up 8-10%. And I remind you when we speak to the market,

Speaker Change: We're speaking to the market for our products, and when we anticipate them being consumed. And so here in this segment, we do have a lag, typically from a start to when our product is consumed. And for water, for instance, it's closer to a completion.

David V. Barry: And so as we look at the first half, starts were up 17%, and completions were only up 1%. And while it seems like the builder orders, to your point, maybe softened a bit, there's still some growth. And then we have that tailwind of starts and completions to take us through the second half. So that's really what gives us confidence in this segment continuing to perform through 2024 and beyond.

Speaker Change: So for doors, it comes more in the middle. And so as we look at first half,

Speaker Change: The starts were up 17%, completes were only up 1%, and while it seems like the builder orders, to your point, maybe softened a bit, there's still some growth.

Speaker Change: And then we have that tailwind of starts and completion gap to take us through the second half. And so that's really what gives us confidence in this segment continuing to perform through 2024 and beyond.

Matthew Adrien Bouley: All right, cool. Thank you. Thank you, Dave. Secondly, I think you made a comment at the top around your sort of confidence in the ability to hit margin guidance. I believe you mentioned some productivity coming in both outdoors and water. So as we kind of think about the second half, I heard you loud and clear that you'll have some of that kind of margin of creative sales coming with the connected products as well.

Speaker Change: Got it. All right, cool. Thank you. Thank you, Dave. Secondly,

Speaker Change: I think you made a comment at the top around sort of confidence in the ability to hit margin guidance. I believe you mentioned some productivity.

Speaker Change: in both outdoors and water. So as we kind of think about the second half, I heard you loud and clear that you'll have some of that kind of margin of creative sales coming with the connected products as well. But as we kind of think about the sequential improvement in margins.

Matthew Adrien Bouley: But as we kind of think about the sequential improvement in margins in the second half and, you know, water margins implied to be above 24%, same question, kind of unpack that, and what specifically are you expecting on the productivity side that could support that margin ramp? Thank you.

Speaker Change: In the second half, water margins are implied to be above 24%. Same question, kind of unpack that and what specifically are you expecting on the productivity side that could support that margin ramp? Thank you.

David V. Barry: Yeah, so we have really good visibility into what's on our balance sheet and our plants have been running well, and we have some favorable costs that are going to flow through the P&L in the second half. So we'll see that come through, I think it's in the outdoors, it's in the water. We also have a favorable product mix, you know, so as we have the digital growth and then the incremental placements with some innovations that are going to be margin accretive, we'll see that come through in the second half.

Speaker Change: Yeah, so we have, you know, really good visibility into what's on our balance sheet in our

Speaker Change: Plants have been running well, and we're going to have some favorable costs that's going to flow through the P&L in the second half, and so we'll see that come through. I think it's in outdoors, it's in water.

Speaker Change: We'll also have favorable product mix, you know, so as we have...

Speaker Change: The digital growth and then incremental placements with some innovations that are going to be margin accretive, we'll see that come through in the second half. And then we're continuing to tightly manage our cost base. Until we see broad-based volume recovery, we've definitely seen pockets of growth.

David V. Barry: And then we're continuing to tightly manage our cost base, so until we see, you know, broad-based volume recovery, we've definitely seen pockets of growth, but until we see more broad-based, we'll be tightly managing costs. And so I think those factors together give us confidence, as we did here today, in the margin appreciation across the second half of the year. All right.

Speaker Change: But until we see more broad-based, we'll be tightly managing costs. And so I think those factors together give us confidence, as we sit here today, in the margin appreciation across the second half of the year.

Matthew Adrien Bouley: Thanks, Dave. Good luck, guys. Thank you. The next question is from Michael Rehaut from J.P. Morgan. Please go ahead.

Speaker Change: All right, thanks Dave. Good luck guys. Thank you.

Speaker Change: The next question is from Michael Rehaut from J.P. Morgan. Please go ahead.

Michael Jason Rehaut: Hi, good afternoon. Thanks for taking my question. First, you know, I know obviously it's a multi-year ramp, and we've talked a lot about digital and connected. I would like to try and get a little more granular, if possible, and recognize that, you know, there's a lot of white space and opportunity over the next several years. But you know, as you're starting to, you know, kind of ink some of these initial deals and, you know, start to, you know, the strategy becomes more and more clear.

Michael Jason Rehaut: Hi, good afternoon. Thanks for taking my questions.

Michael Jason Rehaut: First, I know obviously it's a multi-year ramp and we've talked a lot about digital and connected.

Michael Jason Rehaut: I would like to try and get a little more granular, if possible, and recognizing that, you know, there's a lot of white space and opportunity over the next several years.

Michael Jason Rehaut: You know, as you're starting to, you know, kind of ink some of these initial deals and, you know, start to...

Michael Jason Rehaut: I was just hoping to get a sense for number one, you know, across water innovation and security: what percent do you consider digital or connected today of your sales? I think you threw out a 20% number for security.

Speaker Change: you know, the strategy becomes more and more clear. I was just hoping to get a sense for number one.

Speaker Change: across water innovation and security, what percent do you consider digital or connected today of your sales? I think you threw out a 20% number for security.

David V. Barry: And, you know, more importantly, as we think about the contributions to sales growth in 25 and 26, what type of above-market lift might we expect as, you know, these different products gain momentum, you know, i.e., flow and insurance and, you know, lockout, tagout and other initiatives on the security side? Hey Mike, it's Dave.

Speaker Change: And, you know, more importantly, as we think about the contributions to sales growth in 25 and 26.

Speaker Change: What type of above market lift might, you know, we expect as, you know, these different products gain momentum, you know, i.e. flow and insurance and, you know, lockout, tagout and other initiatives on the security side?

David V. Barry: So, you know, as we think about the size of this business today and where it's going, I think a helpful reference point as we look at what we expect in the third quarter will now be annualized sales north of 300 million. You know, this is the last number we gave when we were approaching 250 million. And so we're starting to see that step change in growth.

Speaker Change: Hey Mike, it's Dave. So I, you know, as we think about the size of this business today and where it's going, I think a helpful reference point as we look at what we expect in the third quarter will now be annualized sales north of $300 million.

Michael Jason Rehaut: I think that'll be a metric we continue to follow because it's really hard, you know, as fast as things are moving and growing for us to give a retrospective view. I think it's more about what's happening in the quarter and where do we see it going from there. As we looked at 25 and 26, as we talked about, the growth will be 150 basis points in the second half of the year at the early days of these initiatives and trust that the team has a, Full list of opportunities, and the pipeline remains robust and active, and so we expect it to continue to accelerate. So as we look to drive a continued above-market growth, I think this is just the tip of the iceberg for what we'll execute on over the next two years. Great.

Speaker Change: You know, this is up, the last number we gave was we were approaching 250 million and so we're starting to see that step change in growth.

Speaker Change: I think that'll be a metric we continue to follow because it's really hard, you know, as fast as things are moving and growing for us to give a retrospective view. I think it's more about what's happening in the quarter and where do we see it going from there.

Speaker Change: As we looked at 25 and 26, as we talked about, the growth will be 150 basis points in the second half of the year at the early days of these initiatives, and trust that the team has a...

Speaker Change: Full list of opportunities and the pipeline remains robust and active and so we expect it to continue to accelerate. So as we look to drive a continued above-market growth, I think this is just the tip of the iceberg for what we'll execute on over the next two years.

David V. Barry: It's obviously really interesting and a huge opportunity over a number of years, so look forward to hearing more about that. Secondly, maybe just to kind of dive in a little bit to some of the changes in guidance by segment, if you could kind of maybe break out the drivers behind the improved margin outlook for outdoor as well as the reduced outlook for security sales, which seems to be coming more from the acquisitions piece rather than the organic piece, and I know obviously this quarter was a bit below our estimates in terms of the top line, so just trying to understand, number one, the drivers of the improved margin outlook for outdoor and if that's sustainable and kind of a new baseline for the company going into next year, and then kind of, the drivers behind some of the volatility in the acquired sales, I guess, and security this year. Yeah, happy to.

Speaker Change: Great. Now that...

Speaker Change: It's obviously really interesting and a huge opportunity over.

Speaker Change: over, you know, a number of years. So look forward to hearing more about that.

Speaker Change: Secondly, maybe just to kind of dive in a little bit to some of the changes in guidance by segment.

Speaker Change: If you could kind of maybe break out the drivers behind the improved margin outlook for outdoor as well as the...

Speaker Change: Reduced Outlook for security sales, which seems to be coming more from the

Speaker Change: acquisitions rather than the

Speaker Change: organic piece and I know obviously this quarter was a bit below our estimates in terms of the top line so just trying to understand

Speaker Change: Number one, you know, the drivers of the improved margin outlook for outdoor.

Speaker Change: And if that's a sustainable and kind of a new, you know, baseline for the company going into next year and then kind of the drivers behind some of the volatility in the acquired sales, I guess, and security this year.

Michael Jason Rehaut: So on outdoors, I'd say two things. One, you know, we took the sales up a little bit in that business because it is the most vertically integrated; we'll have some additional volume leverage coming through. And then, as I mentioned, the plants have been performing well, especially within our doors business. And so it's driving some favorable lower cost inventory that's on the balance sheet coming through the P&L as we sell as we sell through the back half of the year.

Speaker Change: Yeah, happy to. So on outdoors, I'd say two things. So one...

Speaker Change: You know, we took the sales up a little bit, and that business is the most vertically integrated. We'll have some...

Speaker Change: Additional volume leverage coming through.

Speaker Change: And then, as I mentioned, the plants have been performing well, especially within our doors business. And so, it's driving some favorable...

Michael Jason Rehaut: So we have good visibility to both of those things that will drive margin. And then on security, you know, the sales adjustment down is really POS driven, I'd say predominantly through the first half performance. And importantly, as we looked at our trends, you know, late into June, you know, up until the call, we've seen POS recover, you know, across that business, and that kind of gives us confidence in our full year outlook there for security. So it's really, you know, first half softness in that, and Matthew Federer.

Speaker Change: Lower-cost inventory that's on the balance sheet coming through the P&L as we

Speaker Change: as we sail through the back half of the year. So we have good visibility.

Speaker Change: to both of those things that will drive margin. And then on security, you know, the sales adjustment down is really POS.

Speaker Change: driven, I'd say, predominantly, you know, through the first half performance and

Speaker Change: Importantly, as we looked at our trends, you know, late into June , you know, up until the call, we've seen POS recover, you know, across that business and kind of give us confidence in our full year outlook there for security. So it's really, you know, first half softness and master lock.

David V. Barry: A couple of things to round out your question with respect to outdoors. You know, as we said at our investor day, it's now going back a little while. I mean, you know, this was part of the margin improvement journey as we thought about the footprint and made that business more efficient. And so, you know, absolutely expect this. [inaudible] kind of a pure retail e-com part of Monster Lock is where we saw some POS softness, and as Dave alluded to, improved towards the end of Q2 and into July, so it was good to see that improvement.

Speaker Change: And I'll just add a...

Speaker Change: A couple of things to round out the question with respect to outdoors.

Speaker Change: [inaudible]

Speaker Change: a total straight line every quarter, but do expect that we are continually moving this business towards the endpoint that we communicated and was tracking really well. And then just on the security side, Dave said,

Speaker Change: Kind of pure retail e-com part of Monster Lock is where we saw some POS softness

David V. Barry: And if they've improved towards the end of Q2 and into July , so it was good to see that improvement. And then the acquired business actually performed pretty well. What we've learned about it as we've gone through time is it's sort of very...

David V. Barry: And then the acquired business actually performed pretty well. What we've learned about it as we've gone through time is it's sort of very, Big Deal to Big Deal on top of POS, and so you'll lap some big deals at times, in which case, you know, it may feel like it's pulling back, and then you're signing big deals at other times, and so I think we had some laps here, but at the same time, we just announced that ADT deal, those sales aren't really yet pulling through, and so, you know, that would be an accelerant.

David V. Barry: As the business grows, it'll get a lot smoother because it will be less dependent on some big partnerships that, you know, we announced. Great. Thank you. The next question is from Phil Ng of Jeffries. Please go ahead.

David V. Barry: Big deal the big deal on top of POS and so you'll lack some big deals at times in which case you you know It may feel like it's pulling back and then you're signing big deals at other times And so I think we had some lacks here, but at the same time we just announced that ADT deal

David V. Barry: those sales aren't really yet pulling through and so you know that would be an accelerant. As the business grows it'll get a lot smoother because it will be less dependent on some big partnerships that you know we announced from time to time.

Speaker Change: Great, thank you.

Philip H. Ng: Hey guys, mid-single digit organic growth in North America is actually really impressive. Any color on the splits between volume versus price and do you actually see that business accelerating in the back half because, you know, there is a decent portion of single-family. It seems like you're expecting that to kind of firm up, and on the flip side, China was obviously weaker than we all would have hoped.

Speaker Change: The next question is from Phil Ng of Jeffries. Please go ahead.

Philip H. Ng: Hey guys, mid-single-digit organic growth in Moen, North America is actually really impressive. Any color on the splits between volume versus price and do you actually see that business accelerating in the back half?

Philip H. Ng: There is a decent portion of single family. It seems like you're expecting that to kind of firm up. And on the flip side, China was obviously weaker than we all would have hoped. Are you starting to see that business bottom out? I just wanted some color in terms of inter-quarter trends and how you think about the back half of the year.

David V. Barry: Are you starting to see that business bottom out? I just wanted some color in terms of inter-quarter trends and how you're thinking about the back half of the year. Yeah, let me start with your Moen question and then I'll let Nick talk about big picture China and get some context on that.

Nicholas Ian Fink: Yeah, we actually saw volume growth and price growth in Moa and North America in the quarter, which is great to see. And, as we mentioned in the prepared remarks, we saw growth in all channels in Moa and North America. And given, to your point, the single-family new construction ramp and the accelerated progress with flow, we do expect their growth to continue across the second half of the year, which is nice. And I'll let Nick talk about, you know, big picture China, and then I can give some context there. Yeah, and I'll just, before I jump there, just comment on a broader thing, which I think actually what you're picking up is really important.

Philip H. Ng: Yeah, let me start with your Moen question, and then I'll let Nick talk big picture China and get some

Speaker Change: contact us for that.

Speaker Change: Yeah, we actually saw volume growth and price growth in Moa and North America in the quarter, which is great to see. And as we mentioned in the prepared remarks, we saw growth in all channels in Moa and North America.

Nicholas Ian Fink: To your point, the single-family new construction ramp and the accelerated progress with flow, we do expect their growth to continue across the second half of the year, which is nice to see.

Nicholas Ian Fink: And then I'll let Nick talk, you know, big picture China, and then I can give some context there. Yeah, and I'll just, before I jump there, just comment on a broader thing, which I think actually what you're picking up is really important.

Nicholas Ian Fink: You know, you had that growth in North America, and you had that growth in outdoors. And so, you know, we were very pleased to see strong growth in this market, strong top line performance from these two key engines in our business in the key market, right? So I think that was a big takeaway from us, particularly as you pull China out. You have to see that very clearly, like the core is doing really well.

Nicholas Ian Fink: You know, you had that growth in North America, and you had that growth in outdoors. And so, you know, we were very pleased.

Nicholas Ian Fink: to see strong, in this market, strong top line performance from these two key engines.

Nicholas Ian Fink: in our business in the key markets.

Nicholas Ian Fink: I think that was a big takeaway from us, particularly as you pulled China out, you got to see that very clearly, like the core is doing really well. In China, there were really two things.

Nicholas Ian Fink: Yeah, in China, you know, there were really two things at work, you know. One, just as a reminder, this time last year, there were a lot of projects that had been sitting kind of in mid-completion mode, and so you had that last.

Nicholas Ian Fink: At work, you know, one, just as a reminder, you know, this time last year, there were a lot of government push to...

Nicholas Ian Fink: [inaudible]

Nicholas Ian Fink: But the Chinese consumer, and you've seen this across industries and segments, is very, And I think there's some work to do, you know, some Bank of China announcements this morning about interest rate easing. You know, there is some work to do in that economy. You know, I think there comes a point at which it definitely does turn and becomes much more of an R&R-focused market, and then it provides nice growth optionality. It also provides some very nice innovation for the broader portfolio, just being that, you know, close to some very innovative consumer approaches to the market, and so a nice pipeline there.

Nicholas Ian Fink: And I think there's some work to do, you know, some Bank of China announcements this morning about interest rate easing, you know, there is some work to do.

Nicholas Ian Fink: [inaudible]

Nicholas Ian Fink: for the broader portfolio, just being that, you know, close to some of, um...

Nicholas Ian Fink: Headline I might leave you with, before I just give it to Dave, is that, you know, as this business has come down from its peak, and the China housing market has come down from its peak, the team has done a fabulous job managing profitability and managing the size, and has really resized and re-platformed the business, it's gotten to the point now where, I love for it to bottom out and provide some growth, should it not, it actually isn't really that material anymore to the portfolio, I think in many ways, the worst is behind us just given its size now and its relative profitability to several fortune brands, it's just not a whole lot. And so to put some context around that, I mean, this, this was a $500 million business in 2021. We now think it'll be about $250 million by the end of the year.

Speaker Change: Headline I might leave you with, before I just give it to Dave, is that, you know, as this business has come down from its peak, and the China housing market has come down from its peak, the team has done a fabulous job in managing profitability and managing the size, and has really resized and re-platformed the business.

David V. Barry: It's gotten to the point now where...

Speaker Change: I love for it to bottom out and provide some growth, should it not, it actually isn't really that material anymore to the portfolio, I think in many ways, the worst is behind us just given its size now, you know, and it's...

David V. Barry: So to Nick's point, you know, a lot of this is behind us; it's taken a 50% reduction over the past three years. And now, if you look relative to what we have going on in the rest of the portfolio, it's smaller than our digital and connected business. The House of Roll business is more than twice as big, so it's just a less impactful piece. And as it is replatformed and the market recovers, we do expect it to grow when we get to that point. And then, from a margin standpoint, it remains profitable.

David V. Barry: It's just not a whole lot of impact.

David V. Barry: And Phil, to put some context around that, I mean, this was a $500 million business in 2021. We now think it'll be about $250 million by the end of the year.

Philip H. Ng: So Nick's point, you know, a lot of this is behind us, it's taken a 50% reduction over the past three years, and now if you look at, you know, relative to what we have going on in the rest of the portfolio, it's smaller than our digital and connected businesses.

David V. Barry: A House of Roll business is more than twice as big, so it's just a less impactful piece.

David V. Barry: As it is re-platformed and the market recovers, we do expect it to grow when we get to that point.

Philip H. Ng: What was a high-teens operating market business is now, I'd say, mid to high single digits. And so the team is working to get costs out, but it's much smaller, much less meaningful to the overall portfolio. Okay, that's a great perspective.

David V. Barry: And then from a margin standpoint, you know, it remains profitable in what was, you know, a high-teens operating margin business is now, I'd say, mid-to-high single digits. And so the team is working to get costs out, but it's much smaller, much less meaningful to the overall portfolio, and we have other avenues of growth going forward.

Nicholas Ian Fink: And then Dave, you were pretty confident that, you know, from an inflation standpoint for water innovation, you're covered this year, but certainly metal prices are higher, ocean freight ship and container prices are higher. So as we look at 2025, do you guys plan to take prices? Do you have some increases out there?

Speaker Change: Okay, that's great perspective.

Speaker Change: And then, Davey, you were pretty confident that, you know...

Davey: From an inflation standpoint for water innovation, you're covered this year, but certainly metal prices are higher, ocean freight shipping container prices are higher.

Speaker Change: So as you as we look at the 2025

Speaker Change: Do you guys plan to take price? Do you have some increases out there and do you have enough levers still to drive margins higher?

Speaker Change: And then certainly with potential change in administration, there is talk of tariffs.

David V. Barry: And do you still have enough leverage to drive margins higher? And then, certainly, with a potential change in administration, there is talk of tariffs potential on the horizon. Just kind of remind us how you're set up now, perhaps versus 18-19 in terms of your exposure to China, and how do you kind of anticipate combating that going forward? I'll just make a quick comment on the pricing part, maybe philosophically on the supply chain part, and Dave can break it up.

Speaker Change: [inaudible]

David V. Barry: Just like, you know, philosophically on pricing, we've invested very heavily in category management capabilities that really allow us to understand better how to manage our categories as category leaders and where to meet the consumers, and those insights have led to, you know, a very different set of pricing discussions with customers, where it really is about, you know, driving profitable growth for everybody in the category. And as a consequence of that, we've really trained our businesses so that, you know, we take prices every year. We may moderate how much or how little we take, but we are in an annual price taking cycle, and I think it's very important to regularly exercise that muscle.

Speaker Change: [inaudible]

Speaker Change: in Category Management.

Speaker Change: David Barry, Nicholas Fink

Speaker Change: have led to, you know, a very different set of pricing discussions with customers where it really is about...

Speaker Change: You know, driving profitable growth for everybody.

Speaker Change: in the category. And as a consequence of that, we've really trained our businesses that, you know, we take price every year. We may moderate.

Speaker Change: how much or how little we take, but we are in an annual.

Nicholas Ian Fink: Sometimes we may hum a little bit back, sometimes we may give a little bit here, but net-net, we're taking price, and, you know, we will continue to do so and just do it consistently and do it in smallish increments where you're not shocking the market because you haven't done it in a long while and you get caught out. You just do it regularly, and you do it in a good rhythm, and you maintain a lot of predictability in the market. I think Nick said it well, and at this point, what we expect to see in 2025, we don't.

Speaker Change: Price Taking Cadence, and I think it's very important to regularly exercise that muscle. Sometimes you may... I'm going to go back. Sometimes you may give a little bit here, but not...

Speaker Change: We're taking price, and we will continue to do so, and just do it consistently. And do it in smallish increments, where you're not shocking the market.

Speaker Change: Because you haven't done it in a long while, and you get caught out, you just do it regularly, and you do it in a good cadence, and you maintain a lot of predictability in the market.

David V. Barry: And we feel very strongly about that. So with that, I'll let Dave dimensionalize it. Yeah, and Phil, I think Nick said it well. And at this point, what we expect to see in 2025, we don't.

David V. Barry: We expect to be able to cover it with both internal productivity and incremental price. Like I said, we look to take pride in every year just given our capabilities around category management, our brand strength, and our innovation. But as we look across the back half of the year... You know, given the length of our supply chains and our agreements with our suppliers, we expect to have an immaterial impact on many changes that occurred in the second quarter.

David V. Barry: We expect to be able to cover it with both internal productivity and incremental price.

David V. Barry: As Nick said, we look to take pride every year just given our capabilities around category management, our brand strength, and our innovation.

Speaker Change: But as we look across the back half of the year...

Speaker Change: You know, given the length of our supply chains and our agreements with our suppliers, we expect to have an immaterial impact for many changes that occurred in the second quarter. And it's been nice to see, frankly, at the start of the third quarter, the metals have pulled back a bit. So, if that continues, that will even ease.

David V. Barry: And it's been nice to see, frankly, that at the start of the third quarter, the metals have pulled back a bit. So if that continues, that will even ease, and the impact on 2025, if you want to nick him with Tara.

Nicholas Ian Fink: I think it would be important to just dimensionize a little bit how our supply chain has changed. And it has changed quite a bit. We don't invite it, it would be an immense amount of work, as it has been in the past, but I just remind you that even going back to the days, we had a chemist. So there have been plywood tariffs, border tariffs, COVID shutdowns, you know. Our supply chain team has excelled at outperforming the market.

Speaker Change: and the impact on 2025.

Nicky, Tara: If you want to, Nicky, Tara, if you want to speak...

Speaker Change: [inaudible]

Nicky, Tara: I can dimensionize a little bit how our supply chain has changed, and it has changed quite a bit, but, you know, we've...

Speaker Change: We don't invite it. It would be an immense amount of work. As it's been in the past, I just sort of remind you, even going back to the days we had on campus, whether it's the Plywood Terrace, Border Terrace,

Speaker Change: COVID shutdowns, our supply chain team has excelled at upforming the market. And while we don't invite these types of things, there are enormous amounts of work, we tend to accelerate our share gain every time it happens.

Nicholas Ian Fink: And while we don't invite these types of things, there are enormous amounts of work, we tend to accelerate our share gain every time it happens. And even quite recently, in some very large customer discussions, our customers are demonstrating to our supply chain team just, even now, how we are outperforming the general market in terms of our ability to deliver on time, in full, and be very consistent. And so I think we're certainly prepared, and we're continuing to prepare ourselves. No matter what the result of the election is, I think there's quite a likelihood that First, a fairly heavy North American supply chain. I think we're very well equipped and with the capability of the team.

Speaker Change: and even quite recently in some very large customer.

Speaker Change: [inaudible]

Speaker Change: the general market in terms of our ability to deliver on time, in full.

Speaker Change: and be very consistent and so I, you know, I think...

Speaker Change: You're welcome.

Speaker Change: We're certainly prepared, and we're continuing to prepare ourselves, no matter what the result of the election is. You know, I think there's quite a likelihood that we may see some...

Speaker Change: [inaudible]

David V. Barry: We'll probably come out, you know, even stronger. If you look at the financials around it, Phil, so today, less than 20% of our spend, our material spend, is from China, which is down significantly from 2017 when it was north of 50%. So, as Nick mentioned, our well-positioned team has done a lot of work. We haven't stopped doing the work, because obviously tariffs are still in place.

Speaker Change: You know, even stronger.

Speaker Change: And if you look at the financials around it, Phil, so we, today, less than 20% of our material spend is from China.

Speaker Change: which is down significantly from 2017 when it was north of 50 percent.

Speaker Change: So, as Nick mentioned, well-positioned, the team has done a lot of work. We haven't stopped doing the work because, obviously, tariffs are still in place. And areas that are still in China, we have key components that are dual-sourced, and while they might be at a higher cost if we move it relative to incremental tariffs, that equation...

Philip H. Ng: And areas that are still in China, we have key components that are dual-sourced, and while they might be at a higher cost if we move them relative to incremental tariffs, that equation tips in the favor of the new source. And so we feel well-positioned, and the team has worked hard to be prepared for what comes at us. Okay, that's a great color, guys.

Speaker Change: [inaudible]

John Lovallo: Appreciate it. The next question is from John Lovallo from UBS. Please go ahead. Hey guys, thank you for taking my questions as well. The first one is, maybe just maybe, a little color on Fibron Trends.

Speaker Change: The next question is from John Lovallo from UBS. Please go ahead.

John Lovallo: Hey guys, thank you for taking my questions as well. The first one is maybe, just maybe a little color on fiber on trends. I think you talked about up low single-digit POS led by wholesale. But I'm curious how that may have progressed, you know, through the quarter and any color on what the exit rate was.

David V. Barry: I think you talked about up-low single-digit POS led by wholesale, but I'm curious how that may have progressed, you know, through the quarter and any color on what the exit rate was. Yeah, John. I think it was pretty consistent through the quarter. So we didn't see as much volatility as we would have expected given it's the season for deck building.

Speaker Change #101: Yeah, John , I think it's pretty consistent through the quarter, so we didn't see much volatility as we would have expected given it's the season for deck building.

John Lovallo: Okay. And then if we just think bigger picture as we move out into next year, I mean, R&R has had a couple years of being down. I know you don't have a crystal ball, but how are you thinking about the kind of slope of the recovery in repair and remodel spending as we move into next year? So looking at the usual factors that we consider when forecasting R&R, which for us are, you know, consumer confidence, unemployment, home equity levels, and then existing home sales.

Speaker Change #102: Got it. Okay, and then if we just think bigger picture as we move out into next year, I mean, R&R has had a couple years.

Speaker Change #103: of being down. I know you don't have a crystal ball, but how are you kind of thinking about the kind of the slope of the recovery in repair and remodel spending as we move into next year?

Speaker Change #104: Yes, looking at the usual factors that we consider when forecasting R&R, which for us is...

Speaker Change #104: Consumer Confidence.

David V. Barry: And so there's still a tale to be told here in the back half of the year as to how the consumer responds, you know, getting through the election, understanding what level of interest rate cuts happen, if any, and then how existing home sales respond. And so, we'll continue to look at those factors and provide an update on our 2025 view when we get to that point. I just had, you know, something I haven't thought about a fair amount as we think about the, you know, $33 trillion in home equity.

Speaker Change #105: unemployment, you know, home equity levels, and then existing home sales, and so...

Speaker Change #106: But there's still a tale to be told here in the back half of the year as to how the consumer responds, you know, getting through the election, understanding what level of interest rate cuts happen, if any, and then how existing home sales then, home sales...

Speaker Change #106: respond. And so we'll continue to look at those factors and provide an update on our 2025 view when we get to that point.

David V. Barry: You know, the home equity extraction rate is half of what it was in 2021, and I think that has been a factor in rates since they've just seen fewer people go and tap that home equity to go and do things. And now, I would suspect, as rates start to come down, and either the HELOC or REFI markets start to open back up, and that makes more sense for people, and that delta might be less large between existing mortgage rates and what they could get. If we see that extraction rates start to even get back up to their historical average, there would just be more cash available for people to do projects. Okay, thanks guys.

Speaker Change #106: You know the home equity

Speaker Change #109: Extraction rate is half of what it was in 2021, and I think that has been a factor of rates since we've just seen less people go and tap that home equity to go and do things, and I would suspect as rates start to come down and either the HELOC or REFI markets start to open back up, and that makes more sense.

Speaker Change #106: for people, and that delta might be, you know, less large between existing mortgage rates and what they could get. If we see that extraction rates start to even get, you know, back up towards its historical average, there would just be more cash available for people to do projects.

Operator: This concludes the question and answer session. Thank you for joining today's conference call. You may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good afternoon.

Speaker Change #107: Okay, thanks guys.

Speaker Change #108: This concludes the question and answer session. Thank you for joining today's conference call. You may now disconnect.

Speaker Change #110: ?? ?? ?? ?? ??

Speaker Change #110: Thank you for watching!

Sachi: Good afternoon. My name is Sachi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brand's second quarter 2024 earnings conference call.

Operator: My name is Sachi, and I will be your conference operator today. At this time, I would like to welcome everyone to Fortune Brands' second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change #112: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Leigh Avsec: After the speaker's remarks, there will be a question and answer session. I would like to turn the call over to Leigh Avsec, Vice President of Investor Relations and Corporate Affairs. You may begin the conference call. Good afternoon, everyone, and welcome to the Fortune Brands Innovations second quarter earnings call. Hopefully, everyone has had a chance to review the earnings. The earnings release and the audio replay of this call can be found in the investor section of our FDIN.com website.

Leigh Avsec: I would like to turn the call over to Leigh Avsec, Vice President of Investor Relations and Corporate Affairs. You may begin the conference call. Good afternoon, everyone, and welcome to the Fortune Brands Innovations second quarter earnings call.

Speaker Change #113: Hopefully, everyone has had a chance to review the earnings release. The earnings release and the audio replay of this call can be found on the investor section of our FDIN.com website.

Leigh Avsec: I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question and answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, except as required by law.

Speaker Change #114: I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question and answer session, are based on current expectations and market outlook, and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated.

Speaker Change #114: These risks are detailed in our various filings with the SEC.

Speaker Change #114: The company does not undertake any obligation to update or revise any forward-looking statements, except as required by law.

Leigh Avsec: Any references to operating profit or margin, earnings per share, or free cash flow on today's call will focus on our results on a before-charges-and-gains basis, unless otherwise specified; please visit our website for a reconciliation. With me on the call today are Nick Fink, our Chief Executive Officer, and Dave Barry, our Chief Financial Officer. Following our prepared remarks, we have a lot of time to address some questions. I will now turn the call over to Nick.

Speaker Change #114: Any references to operating profit or margin, earnings per share, or free cash flow on today's call will focus on our results on a before-charges-and-gains basis, unless otherwise specified. Please visit our website for reconciliations.

Speaker Change #115: With me on the call today are Nick Fink, our Chief Executive Officer, and Dave Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions.

Nicholas Ian Fink: Thanks, Leigh, and thank you to everyone for joining us. On this call, I will walk through the highlights of our second quarter performance, give some color on the drivers of this performance, including progress on our digital strategy, and offer some thoughts on the macro environment. I'll then turn the call over to Dave for a discussion of our financial results, including our updated full year 2024 guide. Our teams continued to execute at a high level amidst a dynamic and uneven market and delivered solid sales and strong margin results in the second quarter.

Speaker Change #115: I will now turn the call over to Nick. Nick?

Nicholas Ian Fink: Thanks, Leigh, and thank you to everyone for joining us today.

Nicholas Ian Fink: On this call, I will walk through the highlights of our second quarter performance, give some color on the drivers of this performance, including progress on our digital strategy, and offer some thoughts on the macro environment.

Nicholas Ian Fink: I'll then turn the call over to Dave for discussion of our financial results, including our updated full year 2024 guidance.

Speaker Change #116: Our teams continued to execute at a high level amidst a dynamic and uneven market and delivered solid sales and strong margin results in the second quarter.

Nicholas Ian Fink: Our digital products portfolio saw some exciting wins this past quarter, and we are seeing accelerating growth in this key market, which I will detail shortly. The benefit of our organizational realignment continues to generate real results, as evidenced by our market-beating sales and margin performance this quarter. These actions all support our position as a growth-focused company, powered by secular tailwinds, underpinned by leading brands, innovation, and channel management, and fueled by our Fortune Brands Advantage capabilities. Now, turning to our second quarter performance.

Speaker Change #116: Our digital products portfolio saw some exciting wins this past quarter, and we are seeing accelerating growth in this key market, which I will detail shortly.

Speaker Change #116: The benefit of our organizational realignment continues to generate real results, as evidenced by our market-beating sales and margin performance this quarter.

Speaker Change #116: These actions all support our position as a growth-focused company powered by secular tailwinds, underpinned by leading brands, innovation, and channel management, and fueled by our Fortune Brands Advantage capabilities.

Nicholas Ian Fink: Our teams delivered solid top-line and strong bottom-line results with areas of organic growth in our core North American market. Net sales of $1.2 billion were up 7%, while organic sales were $1.1 billion, down 3%, excluding China, which was impacted by lower sales as the Chinese consumer remained very cautious.

Speaker Change #116: Turning to our second quarter performance.

Speaker Change #116: Our teams delivered solid top-line and strong bottom-line results with areas of organic growth in our core North American market.

Speaker Change #116: Net sales of $1.2 billion were up 7%, while organic sales were $1.1 billion, down 3% versus the second quarter of 2023.

Speaker Change #116: Excluding China, which was impacted by lower sales as the Chinese consumer remained very cautious, our organic sales growth was positive in the second quarter, including low single-digit growth in our outdoor segment and Moen, North America.

Nicholas Ian Fink: Our organic sales growth was positive in the second quarter, including low single-digit growth in our outdoor segment and Moen North America. Looking to the remainder of 2024, we expect continued outperformance in our Moen North America and outdoor business, as well as accelerated growth in our digital portfolio. Our operating income increased 9%, and our operating margin was 40 basis points higher than the second quarter of 2023, bringing our year-to-date operating margin improvement to 110 basis points.

Speaker Change #116: Looking to the remainder of 2024, we expect continued outperformance in our Moen North America and outdoors business, as well as accelerated growth in our digital portfolio.

Operator: Alia. Our operating income increased 9%, and our operating margin was 40 basis points higher than the second quarter of 2023, bringing our year-to-date operating margin improvement to 110 basis points. As sales and margin performance generated earnings per share of $1.16 in the second quarter and 8% increase over the second quarter of 2023.

Speaker Change #116: Our operating income increased 9%, and our operating margin was 40 basis points higher than the second quarter of 2023, bringing our year-to-date operating margin improvement to 110 basis points.

Nicholas Ian Fink: Our sales and margin performance generated earnings per share of $1.16 in the second quarter, an 8% increase over the second quarter of 2020. Turning first to our digital portfolio, we saw approximately 200,000 device activations in the second quarter, and the overall digital business continues to accelerate.

Speaker Change #116: Our sales and margin performance generated earnings per share of $1.16 in the second quarter, an 8% increase over the second quarter of 2023.

Operator: Turning first to our digital portfolio, we saw approximately 200,000 device activations in the second quarter, and the overall digital business continues to accelerate. In the second quarter alone, we added around 20,000 users of our flow smart water monitor and shut off, and retail and e-commerce point itself performs far exceeded our expectations as the consumer increasingly gains awareness of this powerful product. Perhaps even more importantly, during the second quarter, we achieved several significant milestones across our digital portfolio, which will accelerate our overall strategy. Our digital business is now expected to add over 150 basis points of organic sales growth to the second half of 2024, in which we expect to accelerate in 2025 as the newly established partnerships continue to ramp in awareness increases.

Speaker Change #116: Turning first to our digital portfolio.

Speaker Change #116: We saw approximately 200,000 device activations in the second quarter, and the overall digital business continues to accelerate.

Nicholas Ian Fink: In the second quarter alone, we added around 20,000 users of our Flow Smart Water Monitor and Shutoff, and retail and e-commerce point-of-sale performance far exceeded our expectations as the consumer increasingly gains awareness. This is a powerful product, perhaps even more important. During the second quarter, we achieved several significant milestones across our digital portfolio, which will accelerate our overall strategy. Our digital business is now expected to add over 150 basis points of organic sales growth to the second half of 2024, which we expect to accelerate in 2025 as the newly established partnerships continue to ramp, and awareness increases.

Speaker Change #117: In the second quarter alone, we added around 20,000 users of our Flow smart water monitor and shutoff, and retail and e-commerce point-of-sale performance far exceeded our expectations as the consumer increasingly gains awareness of this powerful product.

Speaker Change #117: Perhaps even more importantly, during the second quarter, we achieved several significant milestones across our digital portfolio, which will accelerate our overall strategy.

Speaker Change #117: Our digital business is now expected to add over 150 basis points of organic sales growth to the second half of 2024.

Speaker Change #117: in which we expect to accelerate in 2025 as the newly established partnerships continue to ramp and awareness increases.

Nicholas Ian Fink: We see a path for well over a billion dollars in digital sales by 2030. We're also evolving our revenue opportunities towards data monetization and recurring revenue, which will provide incremental growth and further margin expansion opportunities as we continue to... First, we announced key partnerships with several large insurance companies, including entering into a nationwide agreement with Farmers Insurance to provide Flow Smart Water Monitor and shut-off devices to their customers. Under this agreement, Moen is providing farmers policyholders a bundled product and installation solution, supported by dedicated infrastructure, which will allow policyholders to save money on their production. This agreement will be especially impactful in states like California, where farmers and other insurers are now requiring a significant number of new and renewing policyholders to equip their homes with an in-line leak detection system.

Operator: We see a path for well over a billion dollars in digital sales by 2030. We're also evolving our revenue opportunities towards data monetization and reoccurring revenue, which will provide incremental growth and further margin expansion opportunities as we continue to scale. First, we announce key partnerships with several larger shares companies this quarter, including entering into a nationwide agreement with Farmers Insurance to provide flow smart water monitor and shut off devices to their customers. Under this agreement, loan is providing farmers policy holders a bundled product and installation solution supported by dedicated infrastructure, which will allow policy holders to save money on their premiums. This agreement will be especially impactful in states like California, where farmers and other insurers are now requiring a significant number of new and renewing policy holders to equip their homes with an inline leak detection system.

Speaker Change #117: We see a path for well over a billion dollars in digital sales by 2030. We're also evolving our revenue opportunities towards data monetization and reoccurring revenue, which will provide incremental growth and further margin expansion opportunities as we continue to scale.

Speaker Change #117: First, we announced key partnerships with several large insurance companies this quarter, including entering into a nationwide agreement with Farmers Insurance to provide Flow Smart Water Monitor and Shellif devices to their customers.

Moen: Under this agreement, Moen is providing farmers' policyholders a bundled product and installation solution, supported by dedicated infrastructure which will allow policyholders to save money on their premiums.

Moen: This agreement will be especially impactful in states like California, where farmers and other insurers are now requiring a significant number of new and renewing policyholders to equip their homes with an in-line leak detection system.

Nicholas Ian Fink: After this new requirement went into effect, farmers sought out a partner to create a seamless customer experience for the purchase, installation, and support of an in-line water monitor and shut-off system. Moen won this precedent-setting opportunity because of our exceptional product, ability to deliver lost-mile installation at a national scale, and our brand's reputation for quality, service, and innovation. Importantly, we were also selected as the partner of choice because of our ability to scale our supply chain as this opportunity grows, and we are already preparing for rapidly accelerating growth. In addition to farmers, this past quarter alone, we have signed three other agreements with insurance companies, where the providers will promote the use of our flow in connection with sizable policy rate reductions for their policies.

Operator: After this new requirement went into effect, farmers sought out a partner to create a seamless customer experience for the purchase, installation, and support of an inline water monitor and shut-off device. More on one, this precedent setting opportunity because our exceptional product ability to deliver lost mal installation at a national scale and our brain's reputation for quality service and innovation. Importantly, we will also be selected as the partner of choice because of our ability to scale our supply chain as this opportunity grows, and we are already preparing for rapidly accelerating growth. In addition to Farmers Insurance, this pause quarter along we have signed three other agreements for the insurance companies where the providers will promote the use of our flow in connection with sizable policy rate reductions for their policy holders.

Speaker Change #118: After this new requirement went into effect, farmers sought out a partner to create a seamless customer experience for the purchase, installation, and support of an in-line water monitor and shut-off device.

Speaker Change #119: Malone won this precedent-setting opportunity because of our exceptional product, ability to deliver lost-mile installation at a national scale, and our brand's reputation for quality, service, and innovation.

Speaker Change #120: Importantly, we were also selected as the partner of choice because of our ability to scale our supply chain as this opportunity grows, and we are already preparing for rapidly accelerating growth.

Speaker Change #120: In addition to farmers insurance, this past quarter alone, we have signed three other agreements with insurance companies where the providers will promote the use of our flow in connection with sizable policy rate reductions for their policyholders.

Nicholas Ian Fink: Our pipeline of insurance discussions is robust, and we expect further progress throughout the year. In June, we also announced an agreement with the California Water Efficiency Partnership, which will help us raise awareness of flow directly with municipalities and residents across California and will facilitate government rebates of our flow devices.

Operator: Our pipeline of insurance discussions is robust and we expect further progress throughout. the Year.

Speaker Change #120: Our pipeline of insurance discussions is robust, and we expect further progress throughout the year.

Operator: In June, we also announced an agreement with the California Water Efficiency Partnership, which will help us raise awareness of flow directly with municipalities and residents across California and will facilitate government rebates of our flow devices. As water scarcity becomes a major concern in California and beyond, we expect this partnership will help accelerate both sales and awareness of flow and serve as a template for other similar partnerships across the United States. In addition to the added expected revenue and exposure to our products, these agreements are important because they prove we can help enable the insurance industry to mitigate risks and issue cost-effective policies as they face a crisis of rising costs.

Speaker Change #120: In June , we also announced an agreement with the California Water Efficiency Partnership, which will help us raise awareness of flow directly with municipalities and residents across California and will facilitate government rebates of our flow devices.

Nicholas Ian Fink: As water scarcity becomes a major concern in California and beyond, we expect this partnership will help accelerate both sales and awareness of the flow and serve as a template for other similar partnerships across the United States. In addition to the expected revenue and exposure to our products, these agreements are important because they prove we can help enable the insurance industry to mitigate risks and issue cost-effective policies as it faces a crisis of rising prices. In doing so, they can also help their customers save money and avoid disruption by preventing catastrophic water damage. And, of course, these partnerships benefit our communities and environment by reducing wasted water and energy.

Speaker Change #120: As water scarcity becomes a major concern in California and beyond, we expect this partnership will help accelerate both sales and awareness of flow, and serve as a template for other similar partnerships across the United States.

Speaker Change #120: In addition to the added expected revenue and exposure to our products, these agreements are important because they prove we can help enable the insurance industry to mitigate risks and issue cost-effective policies as they face a crisis of rising costs.

Operator: In doing so, we can also help their customers save money and avoid disruption by preventing catastrophic water damage. And of course, these partnerships benefit our communities and environment by reducing waste of water and energy. Finally, enact the agreements like the one with farmers and shirts or California Water Efficiency Partnership requires us to quickly and effectively work across our full organization from our sales and team to our connected products group to our supply chain and digital teams. These agreements are yet more proof points of how Fortune-Bremes innovations new organizational structure is enabling us to capture opportunities at an accelerated rate.

Speaker Change #120: In doing so, we can also help their customers save money and avoid disruption by preventing catastrophic water damage.

Speaker Change #120: And of course, these partnerships benefit our communities and environment by reducing wasted water and energy.

Nicholas Ian Fink: Finally, enacting agreements like the one with Farmers Insurance or California Water Efficiency Partners requires us to quickly and effectively work across our full organization, from our sales and marketing teams, to our connected products group, to our supply chain and digital team. These agreements are yet more proof points of how Fortune Brand's innovation's new organizational structure is enabling us to capture opportunities at an accelerated rate. In addition to our agreements centered on smart water leaks, we also recently announced a minority investment and strategic partnership with Value Hybrid, a leading software startup focused on the delivery of connected lockout-tagout solutions.

Speaker Change #120: Finally, enacting agreements like the one with Farmers Insurance or California Water Efficiency Partnership.

Speaker Change #120: requires us to quickly and effectively work across our full organization.

Speaker Change #120: from our sales and marketing teams, to our connected products group, to our supply chain and digital teams.

Speaker Change #120: These agreements are yet more proof points of how Fortune Brand's innovations new organizational structure is enabling us to capture opportunities at an accelerated rate.

Operator: In addition to our agreements centered on smart water leak detection, we also recently announced a minority investment in a strategic partnership with Value Hybrid, a leading software startup focused on the delivery of connected Lockout Tagout solutions. This partnership will expedite muscle flexibility to bring to market new and innovative products in the emerging field of connected Lockout Tagout and expand our leadership position in commercial safety solutions. Connected Lockout Tagout is a significant and attractive opportunity for Fortune-Bremes. Given our highly recognized muscle-like brand, large installed based, and Lockout Tagout expertise, we are very well positioned to convert mechanical Lockout Tagout systems to connect it Lockout Tagout solutions and grow the addressable market.

Speaker Change #120: In addition to our agreements centered on smart water leak detection, we also recently announced a minority investment and strategic partnership with ValueHybrid, a leading software startup focused on the delivery of connected lockout-tagout solutions.

Nicholas Ian Fink: This partnership will expedite MOSFET's ability to bring to market new and innovative products in the emerging field of connected lockout-tagout and expand our leadership position in commercial safety solutions. Connected Lockout-Tagout is a significant and attractive opportunity for Fortune. Given our highly recognized MonsterLock brand, large installed base, and lockout tagout expertise, we are very well positioned to convert mechanical lockout tagout systems.

Speaker Change #121: This partnership will expedite MossLock's ability to bring to market new and innovative products in the emerging field of connected lockout-tagout, and expand our leadership position in commercial safety solutions.

Speaker Change #121: Connected lockout tagout is a significant and attractive opportunity for Fortune Brands.

Speaker Change #121: Given our highly recognized MonsterLock brand, large install base, and lockout tagout expertise, we are very well positioned to convert mechanical lockout tagout systems to connected lockout tagout solutions and grow the addressable market.

Nicholas Ian Fink: To connect it, lock out tag out solutions and grow the addressable market. We estimate that the global addressable market for connected lockout-tagout is around $3 billion. Keeping associates safe is an increasing key priority for manufacturers and regulatory agencies across the globe. And finally, we are excited to announce that we recently entered into a new partnership with ADT. Under this agreement, the Yale AssureLock II Collection will be the preferred smart lock for ADT customers across the country. The Yale AssureLock II Collection will be compatible with the ADT Security Platform, including the ADT Plus app, within which ADT will launch a new feature called Trusted Neighbor.

Operator: We estimate that the global addressable market for connected Lockout Tagout is around $3 billion, as keeping associates safe is an increasing key priority for manufacturers in regulatory agencies across the globe.

Speaker Change #121: We estimate that the global addressable market for connected lockout-tagout is around $3 billion, as keeping associates safe is an increasing key priority for manufacturers and regulatory agencies across the globe.

Operator: And finally, we are excited to announce that we recently entered into a new partnership with ADT. Under this agreement, the L-Assure Lock 2 Collection will be the preferred smart lock for ADT customers across the country. The Lock Collection will be compatible with the ADT security platform, including the ADT Plus App, within which ADT will launch a new feature called Trusted Neighbor. This innovation allows customers to seamlessly grant trusted individuals secure and temporary access to their homes to either schedule access or, in the case of events, by leveraging capabilities of connected home device.

Speaker Change #121: And finally, we are excited to announce that we recently entered into a new partnership with ADT.

Speaker Change #121: Under this agreement, the Yale AssureLock II collection will be the preferred smart lock for ADT customers across the country.

Speaker Change #121: The Lock Collection will be compatible with the ADT Security Platform, including the ADT Plus app.

Nicholas Ian Fink: This innovation allows customers to seamlessly grant trusted individuals secure and temporary access to their homes through either scheduled access or, in the case of events, by leveraging the capabilities of connected home devices, including our Yale smart. Once again, this agreement is a great example of the potential of our connected product portfolio, as we are increasingly exploring new channels and distribution partners to accelerate growth. These are just some of the many examples of how our digital portfolio is expanding.

Speaker Change #121: within which ADT will launch a new feature called Trusted Neighbor.

Speaker Change #121: This innovation allows customers to seamlessly grant trusted individuals secure and temporary access to their homes.

Speaker Change #121: through either scheduled access or, in the case of events, by leveraging capabilities of connected home devices, including our Yale Smart Locks.

Speaker Change #121: Once again, this agreement is a great example of the potential of our connected product portfolio as we are increasingly exploring new channels and distribution partners to accelerate growth.

Nicholas Ian Fink: And I am encouraged and excited by our unique right to win in this exceptionally high growth. While we cannot predict the exact timing or trajectory of our digital products, we believe periods of exponential growth will be preceded by key milestones, like the ones we saw this past quarter. These milestones are significant, not just for the revenue that they are expected to bring in but also because they represent key foundational steps in our journey toward widespread adoption of our program.

Speaker Change #121: These are just some of the many examples of how our digital portfolio is expanding, and I am encouraged and excited by our unique right to win in this exceptionally high growth space.

Speaker Change #121: While we cannot predict the exact timing or trajectory of our digital products, we believe periods of exponential growth will be preceded by key milestones like the ones we saw this past quarter.

Speaker Change #121: These milestones are significant, not just for the revenue that they are expected to bring in, but also because they represent key foundational steps in our journey toward widespread adoption of our products.

Nicholas Ian Fink: Our results this quarter and the exciting developments that we are seeing give me full confidence in Fortune Brand's innovation's ability to deliver growth and sustained value creation through the future, and we remain committed to achieving our long-term goal. Turning now to some additional thoughts on the current housing market and the market for our products. On a macro level, favorable long-term housing fundamentals remain important, with the need for housing remaining strong.

Speaker Change #121: Our results this quarter, and the exciting developments that we are seeing, give me full confidence in Fortune Brand's innovation's ability to deliver growth and sustained value creation through the cycle.

Speaker Change #121: And we remain committed to achieving our long-term goals.

Speaker Change #121: Turning now to some additional thoughts on the current housing market and the market for our products.

Speaker Change #121: On a macro level, favorable long-term housing fundamentals remain in place, with the need for housing remaining strong, home prices largely holding steady, and equity levels remaining high.

Nicholas Ian Fink: Home prices are largely holding steady, and equity levels are remaining high. Importantly, inflation appears to be easing, and the likelihood that the Fed will lower interest rates in the coming months is increasing. However, we are aware of offsetting factors in the very near term, including consumer confidence and continued affordability challenges. We expect many of these macro trends to inflect positively soon, but until we see tangible evidence of improvement... we will continue to manage the business tightly.

Speaker Change #121: Importantly, inflation appears to be easing, and the likelihood that the Fed will lower interest rates in the coming months is increasing.

Speaker Change #121: However, we are aware of offsetting factors in the very near term, including consumer confidence and continued affordability challenges.

Speaker Change #121: We expect many of these macro trends will inflect positively soon, and until we see tangible evidence of improvement, we will continue to manage the business tightly.

Nicholas Ian Fink: Looking at our products specifically, we believe that we are well positioned. We have strong brands in categories where brands and innovation matter. Most of our brains do not play at an opening price, which tends to be more sensitive to pricing pressure.

Speaker Change #121: Looking at our products specifically, we believe that we are well positioned.

Speaker Change #121: We have strong brands in categories where brands and innovation matter.

Speaker Change #121: Most of our brains do not play in opening price points, which tend to be more sensitive to pricing pressures.

Nicholas Ian Fink: And finally, we are strong with the pro and pro-led projects held up better than D.I. Turning to New Construction. Single-family new construction remains strong, and large production builders remain optimally positioned to continue to be able to address the need for housing.

Speaker Change #121: And finally, we are strong with the pro, and pro-led projects have held up better than DIY.

Speaker Change #121: Turning to new construction.

Speaker Change #121: Single-family new construction remains strong, and large production builders remain optimally positioned to continue to be able to address the need for housing. And we are a trusted partner to a very significant number of these homebuilders.

Nicholas Ian Fink: And we are a trusted partner to a very significant number of these. This quarter, we continue to see encouraging growth in our products, which serve the single-family new construction channel, including Moen and Thermite. We expect this tailwind to remain through 2024 as builders complete their projects. Turning to R&R.

Speaker Change #121: This quarter, we continue to see encouraging growth in our products, which serve the single-family new construction channel, including mowing and thermitrue.

Speaker Change #121: We expect this tailwind to remain through 2024 as builders complete their starts.

Nicholas Ian Fink: Consistent with what we anticipated, the R&R market has stabilized, but at a level still below the prior year, and we expect the R&R market to remain dynamic throughout 2020. However, there are some positive leading indicators in the R&R space. Google search results show that search terms around home renovations are once again up versus a year ago, indicating the continued interest in our product, particularly high increases in searches around connected home properties. Existing home sales, while not a major driver of our R&R sales, are expected to improve versus the continued softness we've seen year to year. Finally, as interest rates recede, HELOC loans may be increasingly utilized as they enable consumers to leverage high equity levels to make significant upgrades to their homes.

Speaker Change #121: Turning to R&R. Consistent with what we anticipated, the R&R market has stabilized, but at a level still below prior year, and we expect the R&R market to remain dynamic throughout 2024.

Speaker Change #121: However, there are some positive leading indicators in the R&R space. Google search results show that search terms around home renovations are once again up versus a year ago, indicating the continued interest in our products, with particularly high increases in searches around connected home products.

Speaker Change #121: Existing home sales, while not a major driver of our R&R sales, are expected to improve versus the continued softness we've seen here to date.

Speaker Change #121: Finally, as interest rates recede, HELOC loans may be increasingly utilized as they enable consumers to leverage high equity levels to make significant upgrades to their homes.

Nicholas Ian Fink: The market in China continues to remain challenging. As a reminder, Impact is isolated and independent from the rest of the portfolio, and the China business provides attractive optionality for growth and innovation. We continue to replatform the business, and we'll be well prepared for R&R-led growth once the market recovers. We believe that our brands and products are well-positioned to outperform, including in the current dynamic and uneven macro environment, which is examples of growth in many core and new product areas, and we will take advantage of the current period to further align our business behind those areas with higher growth opportunities, including investing in a key set of strategic priorities, while also continuing to optimize our business to be even more agile and efficient.

Speaker Change #121: The market in China continues to remain challenged.

Speaker Change #121: As a reminder, the impact is isolated and independent from the rest of the portfolio, and the China business provides attractive optionality for growth and innovation.

Speaker Change #121: We continue to replatform the business and will be well prepared for R&R-led growth once the market recovers.

Speaker Change #121: We believe that our brands and products are well positioned to outperform, including in the current dynamic and uneven macro environment.

Speaker Change #121: We saw examples of growth in many core and new product areas, and we will take advantage of the current period to further align our business behind those areas with higher growth opportunities.

Speaker Change #121: including investing in a key set of strategic priorities, while also continuing to optimize our business to be even more agile and efficient.

Nicholas Ian Fink: Turning now to our individual business results, starting with water innovations, this segment delivered 7% sales growth versus the prior year quarter, with organic sales down 5%, while generating 10 basis points of operating margin improvement. Our Water Segment saw excellent performance in an uneven market, with organic sales up low single digits, led by Moen North America.

Speaker Change #121: Turning now to our individual business results.

Speaker Change #122: Starting with water innovations, this segment delivered 7% sales growth versus the prior year quarter, with organic sales down 5%, while generating 10 basis points of operating margin improvement.

Speaker Change #122: Excluding China, our water segment saw excellent performance in an uneven market with organic sales up low single digits, led by Moen North America.

Nicholas Ian Fink: Our core Mullen business continues to outperform the market and take share, particularly in our wholesale business. Recent consumer brand metrics data indicate that we continue to be the highest rated brand for both quality and innovation. Our point of sale from Moen North America saw impressive mid-single-digit growth with all channels showing growth, outperforming a larger market for our products, which we believe was down low single-digits. Our strong relationships with the largest production national homebuilders are expected to be a tailwind for the Mohan business throughout the remainder of 2024 and beyond.

Speaker Change #122: Our core Mullen business continues to outperform the market and take share, particularly in our wholesale business.

Speaker Change #122: Recent Consumer Brand Metrics data indicate that we continue to be the highest rated brand for both quality and innovation.

Speaker Change #122: Our point of sale for Moen North America saw impressive mid-single-digit growth with all channels showing growth outperforming a larger market for our products, which we believe was down low single digits.

Speaker Change #123: Our strong relationships with the largest production national homebuilders are expected to be a tailwind for the Mullen business throughout the remainder of 2024 and beyond.

Nicholas Ian Fink: Our U.S. luxury business again performed well as the luxury consumer remains more resilient. Our House of Wahl brand is number one with designers for awareness and consideration, and brand perception data indicates that we also lead our peers for luxury, trust, and innovation.

Speaker Change #123: Our U.S. luxury business again performed well as the luxury consumer remains more resilient.

Speaker Change #124: Our House of Roll brand is number one with designers in awareness and consideration, and brand perception data indicates that we also lead our peers for luxury, trust, and innovation.

Nicholas Ian Fink: Our point of sale for our house of roll business is roughly flat year over year versus a market which we believe was down mid-single digit. We are now one year into our acquisition of Emtek, and the work to integrate the brand into our comprehensive and complimentary luxury portfolio, including showrooms, is progressing very well. As I mentioned earlier, Flow by Moen continues to gain traction with insurance companies, municipalities, and consumers.

Speaker Change #124: Our point of sale for our House of Roll business is roughly flat year-over-year versus a market which we believe was down mid-single digits.

Speaker Change #124: We are now one year into our acquisition of Emtek, and the work to integrate the brand into our comprehensive and complementary luxury portfolio, including showrooms, is progressing very well.

Speaker Change #124: As I mentioned earlier, Flow by Mowan continues to gain traction with insurance companies, municipalities, and consumers.

Nicholas Ian Fink: While the new insurance and municipality partnerships are beginning to ramp up, our retail and e-commerce point of sale accelerated 130% in the second quarter, highlighting the continued adoption by consumers. We expect sales of our connected water business to accelerate through the back half of 2020. Finally, China's sales were down more than 35% this quarter, as the Chinese consumer remains cautious.

Speaker Change #124: While the new insurance and municipality partnerships are beginning to ramp up, our retail and e-commerce point of sale accelerated 130% in the second quarter, highlighting the continued adoption by consumers.

Speaker Change #124: We expect sales of our connected water business to accelerate through the back half of 2024.

Speaker Change #124: Finally, China's sales were down more than 35% this quarter, as the Chinese consumer remains cautious.

Nicholas Ian Fink: Our team in China has done an excellent job managing costs and markets. Looking to the remainder of 2024, we expect our water segment to continue to execute on our commitment to deliver above-market sales performance by focusing on those parts of the market with the greatest potential for growth. We plan to continue to make thoughtful investments in our key priorities, including branding and digital initiatives. We remain very excited about our water, particularly the opportunities we see to capture growth in digital, luxury, and waterfront. Turning to the outdoors.

Speaker Change #124: Our team in China has done an excellent job managing costs and margins.

Speaker Change #124: Looking to the remainder of 2024, we expect our water segment to continue to execute on our commitment to deliver above-market sales performance by focusing on those parts of the market with the greatest potential for growth.

Speaker Change #124: We plan to continue to make thoughtful investments in our key priorities, including branding and digital initiatives.

Speaker Change #124: We remain very excited about our water business.

Speaker Change #124: particularly the opportunities we see to capture growth in digital, luxury, and water filtration.

Nicholas Ian Fink: We had a strong second quarter with 4% sales growth and operating margins that improved sequentially by over 420 basis points. We continue to focus on leveraging our expertise and investing in our core categories and in those areas which we expect will offer the most attractive growth. Our outdoors business has exposure to many key secular growth tailwinds, including material conversion in our fiberglass and composite decking business, Outdoor Living, and even luxury, as we increasingly integrate our solar innovations technology and our M-TECH products into our doors.

Speaker Change #124: Turning to outdoors.

Speaker Change #125: We had a strong second quarter with 4% sales growth and operating margins that improved sequentially over 420 basis points.

Speaker Change #125: We continue to focus on leveraging our expertise and investing behind our core categories and in those areas which we expect will offer the most attractive growth opportunities.

Speaker Change #125: Our outdoors business has exposure to many key secular growth tailwinds, including material conversion in our fiberglass and composite decking businesses.

Speaker Change #125: Outdoor Living, and even luxury as we increasingly integrate our solar innovations technology and our M-TECH products into our doors.

Nicholas Ian Fink: Our door brains delivered mid-single-digit sales growth as tailwinds from new construction and recent retail winds continued to drive sales. Firmature continues to see the benefit of the increase in starts and completions which began last year, and Larson is seeing nice performance as we begin to see the benefits of new innovation. DECI sales were up low single digits in the quarter, and, once again, our fiber-on-premises business is a great proof point of the power of our strong wholesale channel relationship.

Speaker Change #125: Our door brains delivered mid-single-digit sales growth as tailwinds from new construction and recent retail winds continued to drive sales.

Speaker Change #125: Firmature continues to see the benefit of the increase in starts and completions which began last year, and Larson is seeing nice performance as we begin to see the benefits of new innovation.

Speaker Change #125: DECI cells were up low single digits in the quarter, and, once again, our fiber-on-business is a great proof point of the power of our strong wholesale channel relationships.

Nicholas Ian Fink: Like our leading firm, a true business, our Fibron business has a strong conversion story backed up by strength with the Pro and Fortune Brand's expertise in multi-channel distribution. We are seeing encouraging brand metrics, especially with the Pro, and continue to be excited by the ability of this product to harness the powerful secular tailwinds of material conversion, sustainability, and outdoor living. Finally, turning to our security.

Speaker Change #125: Like our leading PharmaTru business, our Fibron business has a strong conversion story, backed up by strength of the pro and the Fortune Brand's expertise in multi-channel distribution.

Nicholas Ian Fink: Our security segment grew sales 12% in the quarter and was down high single digits on an organic basis, primarily due to continuing softness of consumers in retail and e-commerce. However, encouragingly, we saw an improving point of sale as the quarter progressed. The segment also saw 330 basis points of operating margin improvement, inclusive of the technology investments in the Yale and August Residential Smart Lab, as the work we did around continuous improvement and supply chain continues to pay off. Our Master Lock Braid is incredibly strong. And we believe our recent organizational redesign will allow us to further strengthen this powerhouse brand. Finally...

Nicholas Ian Fink: I'm also like security, is now around one-third industrial and commercial, and we have developed a niche in the critical and growing remote access portable security sector across the globe. We are proud of how our business is helping companies around the world protect their people and their assets, as we accelerate our leadership in connected industrial security through our lockout-tagout investment. We expect this portion of the business to see future outsized growth. Over the past few years, we have evolved from mechanical-only products into innovative and growth-oriented businesses, with a much more strategic portfolio.

Nicholas Ian Fink: We will reinvest the efficiencies gained from our recent optimization of the organization to leverage strong secular trends, like digital products, in safety. As a result of our new aligned structure, we have substantially improved the segment's supply chain and sourcing capabilities, accelerated our branding work, and have made significant progress in building our digital security portfolio. A year into the acquisition of Yale in August, we are delighted with these accelerants to our business, in addition to being great assets which we acquired at a very attractive price.

Speaker Change #125: As a result of our new aligned structure, we have substantially improved the segments supply chain and sourcing capabilities accelerated our branding work and have made significant progress in building our digital security portfolio.

Speaker Change #125: A year into the acquisition of yellow in August we are delighted with these accelerants to our business.

Speaker Change #125: In addition to being great assets, which we acquired at a very attractive price. We continue to be impressed by the strength of their teams in key areas, including digital.

Nicholas Ian Fink: We continue to be impressed by the strength of their teams in key areas, including digital. We are utilizing their skills and knowledge throughout the company, and their expertise is being deployed across our portfolio as we continue to accelerate our digital strategy. In 2022, our digital security sales comprised just 2% of the segment.

Speaker Change #125: We are utilizing their skills and knowledge throughout the business.

Speaker Change #125: And their expertise is being deployed across our portfolio as we continue to accelerate our digital strategies.

Speaker Change #125: In 2022, our digital security sales comprised just 2% of segment sales.

Nicholas Ian Fink: This past quarter, they represented close to 20% of security sales, and we see a pathway to over 40% of this segment's sales coming from digital products as we continue to convert mechanical products to digital products and explore new-to-world technology in our sector. As we turn to the second half of 2024, we remain fully confident in Fortune Brand's ability to deliver above market growth, drive margin improvement, and continue the acceleration of our digital portfolio.

Speaker Change #125: Past quarter, they represented close to 20% of security sales and we see a pathway to over 40%. This segment sales coming from digital products as we continue to convert mechanical products digital products and explore new to world technology in our spaces.

Speaker Change #125: As we turn to the second half of 2024, we remain fully confident in fortune brand's ability to deliver above market growth drive margin improvement and continued acceleration of our digital portfolio.

Nicholas Ian Fink: Looking at our end markets, U.S. single-family new construction and luxury continue to be tailwinding. R&R has firmed, though not yet improving year over year, and China is weaker than expected, as the push to complete Homs has ended, and the Chinese consumer remains cautious.

Speaker Change #126: Looking at our end markets U S single family New construction in luxury continue to be <unk>.

Speaker Change #127: R&R has firmed, so not yet improving year over year.

Speaker Change #127: China is weaker than expected as the push to complete homes has ended and the Chinese consumer remains cautious.

Nicholas Ian Fink: We continue to lead through the current environment well, still investing in critical priorities like our digital strategy and our brands and innovations. To recap, in the second quarter, we executed our priorities of focusing on the core and accelerating digital product development and delivered impressive organic growth in our Cormoran North America and outdoors businesses. In doing so, we delivered solid sales and strong margin returns.

Speaker Change #127: We continue to lead through the current environment well.

Speaker Change #127: Still investing in critical parties like our digital strategy and our brands and innovations.

Speaker Change #127: To recap in the second quarter, we executed on our priorities focusing on the core.

Speaker Change #127: Accelerating digital products.

Speaker Change #127: And delivered impressive organic growth in our core Moen, North America, and our tours businesses.

Speaker Change #127: In doing so we delivered solid sales and strong margin results.

Nicholas Ian Fink: We will continue to strategically manage the business in light of the uneven market back..., and we'll focus on those areas where we have the greatest potential for above-market growth and are continuing to make margin improvements. By taking decisive actions now, I believe we will be best positioned for accelerated growth when external market conditions improve. I will now turn the call over to... Thanks, Nick.

Speaker Change #127: We will continue to strategically manage the business in light of the uneven market backdrop.

Speaker Change #127: And we will focus on those areas, where we have the greatest potential for above market growth.

Speaker Change #127: While continuing to make margin improvements.

Speaker Change #127: By taking decisive actions now I believe we will be best positioned for accelerated growth and external market conditions improve.

Speaker Change #127: I will now turn the call over to Dave.

David V. Barry: As a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance. Additionally, comparisons will be made against the same period last year, unless otherwise noted. Let me start with our second quarter results.

David V. Barry: Thanks, Nick as a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance.

David V. Barry: Additionally, comparisons will be made against the same period last year unless otherwise noted.

David V. Barry: As Nick highlighted, our teams delivered solid sales and strong margin results amidst a dynamic external environment. We remain well prepared for any macro environment and our position for future growth as we focus on our core and accelerate digital while continuing to generate cash and make key strategic investments. In the second quarter, sales were $1.2 billion, up 7% and down 3%, excluding acquisitions. Organic sales, excluding China, grew 1%.

David V. Barry: Let me start with our second quarter results.

David V. Barry: As Nick highlighted our teams delivered solid sales and strong margin results amidst a dynamic external environment.

David V. Barry: We remain well prepared for any macro environment and are positioned for future growth as we focus on our core and accelerate digital while continuing to generate cash in the key strategic investments.

David V. Barry: In the second quarter sales were $1 2 billion up 7% and down 3% excluding acquisitions.

David V. Barry: Organic sales, excluding China grew 1%.

David V. Barry: Consolidated operating income was $216 million, up 9%. Total company operating margin improved 40 basis points to 17.4%, and earnings per share were $1.16, an 8% increase versus last year. Our second quarter sales performance was driven by U.S. POS growth in water and outdoors, as well as digital products, offset by POS declines in security and China software. Let me provide more color on our segment results. Beginning with water innovations, sales were $660 million, up $43 million or 7%, and down 5% excluding the impact of acquisition. Excluding China, organic sales were up a low single digit. Importantly, our organic sales results reflect mid-single-digit Moen North America POS growth. However, China sales declined more than 35% as the Chinese consumer remained cautious.

David V. Barry: Consolidated operating income was $216 million up 9%.

David V. Barry: Total company operating margin improved 40 basis points to 17, 4% and earnings per share were $1 16, an 8% increase versus last year.

David V. Barry: Our second quarter sales performance was driven by U S. Pos growth in water and outdoors as well as digital products.

David V. Barry: Set by P O S declines in security and China softness.

David V. Barry: Let me provide more color on our segment results.

David V. Barry: Beginning with water innovations sales were $660 million up $43 million or 7% and down 5%, excluding the impact of acquisitions.

David V. Barry: Excluding China organic sales were up low single digits importantly, our organic sales results reflect a mid single digit Mo in North America Pos growth.

David V. Barry: China sales declined more than 35% as the Chinese consumer remained cautious.

David V. Barry: As a reminder, our results this quarter also reflect the impact of Lapping last year's project completion. We continue to replatform the business toward an increasingly R&R-led market, so that we are prepared for growth when the market recovers. Water Innovation's operating income was $153 million, an increase of 7%. Operating margin was 23.3 percent, an increase of 10 basis points, and we expect to continue to make sequential margin improvement through the second half of 2024. Turning to the outdoors.

As a reminder, our results this quarter also reflect the impact of lapping last year's project completions.

David V. Barry: We continue to re platform the business toward an increasingly R&R led market. So that we are prepared for growth when the market recovers.

David V. Barry: Water innovations operating income was $153 million an increase of 7%.

David V. Barry: Operating margin was 23, 3% an increase of 10 basis points and we expect to continue to make sequential margin improvement through the second half of 2024.

David V. Barry: Turning to outdoors.

David V. Barry: Sales were $389 million, up 4%, driven by growth in both doors and decks. Door sales increased mid-single digits. Sales were supported by higher volumes at ThermaTru, driven by the increase in single-family new construction and recent retail placement wins. Decking sales were up low single digits, driven by continued strength in wholesale, and partially offset by anticipated declines in retail.

David V. Barry: Sales were $399 million up 4% driven by growth in both doors and decking.

David V. Barry: Door sales increased mid single digits sales.

Sales were supported by higher volumes at certain metrics driven by the increase in single family, New construction and recent retail placement wins.

David V. Barry: <unk> sales were up low single digits, driven by continued strength in wholesale and partially offset by anticipated declines in retail.

David V. Barry: Our results this quarter reflect our ongoing strategic approach of focusing on those core categories in which we expect to have the best opportunities to achieve long-term, above-market growth and profitability. Outdoors segment operating income was $63 million, up 3%; segment operating margin was 16.3%, down 10 basis points. We expect Outdoors second half operating margins to average around 15.5% and improve sequentially as favorable production costs hung up in inventory will flow through the P&L. In security, our second quarter sales increased 12%. Organic cells decreased 7%, reflecting soft POS, particularly in retail and e-commerce.

David V. Barry: Our results this quarter reflect our ongoing strategic approach of focusing on those core categories in which we expect to have the best opportunities to achieve long term above market growth and profitability.

David V. Barry: Outdoors segment operating income was $63 million up 3%.

David V. Barry: Segment operating margin was 16, 3% down 10 basis points.

David V. Barry: We expect outdoor second half operating margins to average around 15, 5% and improved sequentially as favorable production costs hung up in inventory will flow through the P&L.

In security, our second quarter sales increased 12%.

David V. Barry: Organic sales decreased 7%, reflecting soft Pos, particularly in retail and e-commerce.

David V. Barry: Our POS trends improved in late June and early July, giving us confidence in our full-year outlook. We continue to see momentum in the categories we have identified as having higher growth potential, such as Master Lock Commercial and our digital Master Lock and Yale products. Segment Operating Income was $36 million, up 36%, and Segment Operating Margin was 18.9%, an increase of 330 basis points.

David V. Barry: Our Pos trends improved in late June and early July, giving us confidence in our full year outlook.

David V. Barry: Our organic operating margins were greater than 21 percent, with over 500 basis points of improvement over last year, driven by continuous improvement initiatives. As we have discussed previously, we think our security segment is a great example of the power of our Fortune Brand's differentiated capabilities, and we expect great things from this business. Turning to the ballots.

David V. Barry: Our balance sheet remains solid, with cash of $353 million, net debt of $2.5 billion, and our net debt to EBITDA leverage is 2.6 times. We remain on track to achieve our target net leverage ratio of around two and a quarter times by year end. We have one billion available under our revolver. In the second quarter, we returned $85 million to shareholders via a combination of share purchases and dividends, including $55 million of share repurchase. As of today, we have repurchased $190 million of shares this year. Our second quarter free cash flow was $223 million, exceeding our expectations.

David V. Barry: To summarize the quarter, we delivered solid sales and strong margin results and are on the path of delivering our full-year commitments to grow sales above market, expand our margins, and generate cash. We are pleased with our first-half performance while being aware of the dynamic macro environment. And as you saw in our earnings release, we have updated our full-year guidance to reflect our current view of market conditions, including a stronger U.S. single-family new construction market and Strengthen Our Digital Business, offset by a weaker market in China.

David V. Barry: Importantly, we are narrowing the range around our prior EPS midpoint as growth in our core businesses, acceleration of our digital products, and margin delivery gives us confidence in our ability to deliver these results. For the remainder of 2024, we now expect the global market for our products to be down 3% to down 1%, with the U.S. market down 1% to flat. Within this market forecast, we expect US R&R to fall 4% to down 3%.

David V. Barry: U.S. single-family new construction to be up between 8% and 10% with starts up high single digits and completions up low single digits, and the Chinese market for our products to be down 20% to down 15%. Within this backdrop, we now expect full-year Fortune Brand sales to increase 2.5% to 4.5%, and Organic Sales to be down 2% to flat.

David V. Barry: This revised figure reflects continued strength in our core North American businesses, including Moen and Thermitrue, strength in our luxury business, and the benefit of our Springville acquisition and an accelerating digital business, offset by China. We now expect our full-year operating margins to be between 17 and 17 and a half percent, the midpoint of which is 125 basis points above full-year 2023. We are confident in our ability to hit our margin guidance and have good line of sight to a number of productivity initiatives which will benefit our margins across the second half, particularly in our outdoors and water segment. Our commodity costs are largely set, with relatively small exposure to freight volatility, and we expect to remain price-cost favorable for the full year.

David V. Barry: Based on our revised guidance, looking to the second half of the year, we expect slightly positive sales growth with operating margins of around 18%. As a reminder, we closed on our Yale, August, and EmTech acquisitions in June of last year, and the performance of those brands will be included in our second half organic results. To sum up, our teams delivered a first half of the year ahead of plan and will remain focused on the execution of our key priorities. I am increasingly excited about the opportunities ahead of us as our business transformation continues to accelerate. I will now pass the call back to Leigh to open the call for questions. Thanks, Dave.

Leigh Avsec: That concludes our prepared remarks. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then re-enter the queue to ask additional questions. I will now turn the call back to the operator to begin the question and answer session. Operator, can you open the line?

Operator: Thank you. Thank you. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, that is star one to register a question at this time. The first question is from Susan Maklari of Goldman Sachs. Please go ahead. Thank you. Good afternoon, everyone. It's you. How are you?

Susan Marie Maklari: I'm good, Nick. The stats that you gave on the digital initiatives are very impressive, so I'd like to start there. Perhaps, can you quantify the impact of those partnerships that you mentioned over time? How do you think about the opportunity relative to the business today and the ramp that you look for as you target over a billion dollars of revenue by 2030? And then maybe within that, can you also talk about any implications for margins both in the near term as these sales start to come through and then over time? Yeah, absolutely.

Nicholas Ian Fink: Why don't I try to break it down a little bit and give some perspective on that, and Dave can round out some of the numbers. So I'll just start with the entire digital portfolio. So when you think about that, it's both in-water and security. Obviously, flow and the whole ecosystem that goes around flow, security, it's connected master lock, it's connected lockout, tagout.

Nicholas Ian Fink: We're increasingly excited about the opportunity in commercial security. And then, of course, Yale in August and connected access and everything that that gives us over there. I kind of start.

Nicholas Ian Fink: Maybe with the headline answer to your question, which is, you know, dimensionalize what the opportunity is and where we start to see it. And, you know, as I said, in my remarks, we see the opportunity being well over a billion dollars by 2030. And you're seeing the impact now, right, as we said, 150 basis points of growth we expect to come for the whole portfolio, Fortune Brand's portfolio, just in the second half alone.

Nicholas Ian Fink: And so, you know, we've been working on this for a while and trying to drive it to a momentum point. And now, you know, when you're seeing that much impact on, you know, total company growth, knowing that this is a very rapidly compounding space as well, I think we're at a tipping point where you are starting to see some material impact on both the top line, and then we'll dimensionalize the margin question for you. You know, when you break down.

Nicholas Ian Fink: You asked specifically about the partnership. So you break down, you know, the flow by moment, opportunity, you know, I think about it really in kind of, you know, three big areas. I'm going to talk about three pillars of Root to Market today. One is, call it the straight-to-consumer Root to Market, driven by consumer awareness of the issue that is there to solve the disruption to their lives. There's the insurance, where we know there's an excess of $15 billion of addressable water damage that we can literally take to almost zero on a per annum basis just in the United States. There's the municipal channel, where we know not only is there a lot of water lost through addressable leaks, but the cost of cleaning, treating, and distributing that water in terms of carbon is very high.

Nicholas Ian Fink: You know, just as you said in the quarter, I mean, the retail piece. I would say, you expect it to sort of grow steadily with consumer awareness over time. Point of sale was 130% in the quarter, which is more than a steady increase. And so we really believe that there is starting to be increasing consumer awareness of this, and they're going and seeking the product out.

Nicholas Ian Fink: So we're very excited to see that. Insurance, we've been working on insurance for a while. And we've been working with insurers to assist in the availability of their product. The reason that this quarter was such a milestone was because it was the first time that you saw an insurer move en masse, towards mandating a product, not just sort of on an exception basis, but more generally across a huge segment of their portfolio and really looking to the market for a partner that could help them do that.

Nicholas Ian Fink: And in order to do that, you needed a partner that had a best-in-class product, could step up an entire system with nationwide installation, be able to provide back-end support, dedicated landing pages, and have the supply chain that we could rent very quickly to do that. I was immensely proud that our organization, in a very short amount of time, could pull all that together.

Nicholas Ian Fink: And I think it speaks to the alignment we've driven across the Fortune Brand's org over the last few years, and some of the organizational design work we've done to really unleash it. And then the third pillar is in municipal, you know, that CalWAP agreement that I described Where we really are going to open the platform of government rebates Which are pretty plentiful out there make it really easy for consumers and municipalities Consumers to access and municipalities to drive that purchase was very exciting and A, for California But B, I think it's really going to be a national template for how this is going to work going forward And so, you know, you put all of that together The point I was trying to make is, great growth, but more importantly, some really, really milestone steps that we believe will drive an inflection in the growth that we're going to see in this portfolio.

Nicholas Ian Fink: And just before I turn it over to Dave to talk about margins and maybe dimensionalize some of the numbers, I'll just add one other thing, which is, you know, we also talked about the connected lockout-tagout deal that we did with Value Hybrid, and I don't want to understate the size of that opportunity. I mean, that is making people safer in manufacturing facilities around the world.

Nicholas Ian Fink: You can just start to think about the size of that market. We will have the leading product-plus-software platform in the marketplace. We're going to drive the transition of that from mechanical to connected.

Nicholas Ian Fink: So another huge win, driven by the same underlying digital team that we've now put in place across all of our portfolios. So, you know, a really big quarter for us strategically in driving this portfolio. With that, I'll give it around to that. Yeah, thanks, Nick.

David V. Barry: Sue, I think the market has been looking for material proof points that the strategy is working, and now we have a handful of them that are material. And so, I think you can sense our excitement. Early days on the ramp of each of these opportunities, but still meaningful to our overall growth in the second half. As Nick mentioned, 150 basis points of growth across the second half, it's probably skewed a bit more towards the fourth quarter, closer to 200 basis points of growth in the fourth quarter.

David V. Barry: And then each of these agreements and partnerships is margin accretive. As we've talked about in the past, they're connected. The Product Portfolio is margin accretive relative to the mechanical portfolio, and then the nature of these agreements, many of which are direct selling opportunities, are margin accretive relative to the base portfolio. And that's a bit of what's driving some of the incremental margin coming through in the second half. As these opportunities ramp, we'll continue to invest in the flywheel of the connected product business and also be able to have nice leverage from these opportunities. Okay, that's a great color.

Susan Marie Maklari: Thank you both. And then maybe we could shift a little bit more to the near term and think about the back half. The back half guide seems to imply some relative conservatism, perhaps, or a bit more conservatism. And that seems in contrast to the second quarter results and the commentary that you gave. Can you talk a bit about how you think about the health of the consumer? What's making you a little bit more cautious on the third and fourth quarter outlook there? And does it vary by price point or by product category? Just any details that you can offer on that.

Nicholas Ian Fink: Sure, I'll just give some high-level perspectives, and I'm sure Dave will add some color. Look, you know, I think it is still wise to be cautious about the consumer. I think you're seeing that across industries. I mean, you know... [inaudible] I found a baseline, at least for our business. But you know, with, I would say we're sort of where we thought we would be, not quite where we hoped, is the way I think about it.

Nicholas Ian Fink: And so we're sort of in line with what we had forecast, maybe, a bit weak, certainly, on the China front, but better on the single-family new construction front. But with that, I think it still is wise to be cautious, particularly as we go through the third quarter and await this sort of ramp-up of the connection products I was talking about. You know, that said, I do think that, you know, the consumer is very sensitive from a confidence perspective to news around inflation and rates, and I do think that improves. We do see proof points that they respond very quickly, as they did in the beginning of the year, to that kind of news and information. And so, you know, I would look for that to start to see a bit of an inflection around that.

David V. Barry: And Sue, I'll provide a bit of context around the second half, as I think some of the phasing might be counter to what you typically expect as these opportunities ramp and there's some comp dynamics to sort through. So if we look at the second half, you know, I'd expect third-quarter sales down around 2.5% and fourth-quarter sales growth of 3%, of which about 200 basis points of that is connected. So the third quarter, looking pretty similar to the second quarter, as Nick kind of alluded to.

David V. Barry: And then as we move to the fourth quarter, that connected growth, we have continued single family new construction completions, which have lagged start, and we'll be having, it'll be a soft comp on the new construction side there. And then we have some previously awarded product placements that will set in the fourth quarter across the business, and so some really strong reasons to believe in that sales phasing as we move through the period.

David V. Barry: And then with that sales phasing operating margin, we expect it to be higher in the fourth quarter, probably closer to 18.5% than in the third quarter, where we're expecting something closer to 17. Okay, that's very helpful. Thank you both and good luck with everything.

Susan Marie Maklari: Thanks. Thank you. The next question is from Adam Baumgarten from Zellman and Associates. Please go ahead.

Adam Michael Baumgarten: Hey guys, quick question on security. Really strong margins in the quarter, but it looks like, based on the full year guide, maybe those are stepping down a bit in the second half. Maybe if you could walk through some of the dynamics there. Yeah, Adam, as we've talked about really strong margins, especially organically, in security, you know, we've replatformed the cost base in that business, and we're starting to see those results, which we expected.

Adam Michael Baumgarten: With Yale in August included in that, there will be periods of reinvestment back into that business. We'll also reinvest back into Master Lock. And so you may see some periods of just margin volatility that will occur as we make some of those bigger investments back into the brands and to drive the product. The only thing I can add, Adam, about that margin journey is, you know...

David V. Barry: Huge progress, obviously, on the organic margin and the cost basis of the business. Of course, we like profitability, but really, we believe that this business will be a growth platform, and you can invest behind profitable growth platforms, so the motivation, the strong motivation of the team to get it to the point where we're not getting it is so that we can start to invest in this connected and commercial journey that we see, you know, while driving margin improvement for the business and investors, but really create fuel to drive the top line. Okay, I got it.

Adam Michael Baumgarten: And then just on the whole business, those three pillars to market that you spoke about, maybe where you see the biggest near-term opportunity within those three over the next year or two? Yeah, I would say it's really in that insurance pillar. I think the consumer's coming along even quicker than you know, or I might have expected at the growth rates I was describing. But there is such a huge opportunity in insurance. And if you talk to property insurers today, it's a little bit of the same pot as health insurers started in a few years ago.

Nicholas Ian Fink: They are no longer just risk pricers. They really do need to mitigate downstream risk and take costs out of the system in order to offset the cost of insurance. I mean, I think since 2021, the average US homeowner's insurance is up about 30%. I think it's 27, so...

Nicholas Ian Fink: There is a need to find ways to take costs out. We have a product that takes $15 billion plus of annualized costs and gets close to zero. And so, you know, I think you'll start to see that be the fastest and largest driver as insurers start to gain confidence in this as a proposition and move towards mandating it, you know, just as they might mandate fire suppression or alarms. And Adam, I would just add, you know, as I think about it simply. You know, the insurance opportunity is really about, you know, a couple of things. One... being able to offset unknown risk from storms, fires, et cetera with known risk reduction, which is preventable water damage.

David V. Barry: And then two, lowering the affordability of homes, as Nick mentioned, because now you're able to price risk better for homeowners and consumers. One, offer them insurance, and two, offer them insurance at a better rate, which helps overall affordability. So we're excited about the early progress here and where this is going to go. Great, good to hear. Thank you guys. Best of luck. The next question is from Matthew Bouley from Barclays. Please go ahead. Good evening, everyone.

Matthew Adrien Bouley: Thank you for taking the questions. I wanted to touch on the U.S. single-family new construction end market. It looked like, of course, you raised your guidance for the year just for that particular end market. Obviously, if you look kind of high level, there's been a little more chop. I'm curious if you can unpack that a little bit, what exactly are you seeing in single-family new construction and kind of what gives you the confidence there to increase the guidance for the year. Hey Matt.

David V. Barry: Yeah, so you're correct to point out the original guidance was for this segment up 5 to 7 percent, and now we see it up 8 to 10 percent. And I remind you, when we speak to the market, we're speaking to the market about our products and when we anticipate them being consumed. And so here in this segment, we do have a lag, typically from the start to when our product is consumed. And for water, for instance, it's closer to completion. For doors, it comes more in the middle.

David V. Barry: And so as we look at the first half... Starts were up 17%, and completions were only up 1%. And while it seems like the builder orders, to your point, maybe softened a bit, there's still some growth. And then we have that tailwind of starts and completions to take us through the second half. So that's really what gives us confidence in this segment continuing to perform through 2024 and beyond.

Matthew Adrien Bouley: All right, cool. Thank you. Thank you, Dave.

David V. Barry: Secondly, I think you made a comment at the top around sort of confidence in the ability to hit margin guidance. I believe you mentioned some productivity to come in both outdoors and water. So as we kind of think about the second half, I heard you loud and clear that you'll have some of that kind of margin of creative sales coming with the connected products as well. But as we kind of think about the sequential improvement in margins in the second half and, you know, water margins implied to be above 24 percent, same question, kind of unpack that, and what specifically are you expecting on the productivity side that could support that margin ramp?

David V. Barry: Thank you. Yeah, so we have really good visibility into what's on our balance sheet in our plants have been running well, and we have some favorable costs that are going to flow through the P&L in the second half, and so we'll see that come through. I think it's outdoors, it's in water.

Matthew Adrien Bouley: We also have a favorable product mix, you know, so as we have the digital growth and then the incremental placements with some innovations that are going to be margin accretive, we'll see that come through in the second half. And then we're continuing to tightly manage our cost base. Until we see, you know, broad-based volume recovery, you know, we've definitely seen pockets of growth, but until we see more broad-based growth, we'll be tightly managing costs. And so I think those factors together give us confidence, as we did here today, in the margin appreciation across the second half of the year. All right.

Michael Jason Rehaut: Thanks, Dave. Good luck, guys. Thank you. The next question is from Michael Rehaut from J.P. Morgan. Please go ahead. Hi, good afternoon.

David V. Barry: Thanks for taking my question. First, you know, obviously, it's a multi-year ramp, and we've talked a lot about digital and connected. I would like to try and get a little more granular if possible and recognize that, you know, there's a lot of white space and opportunity over the next several years. But, you know, as you're starting to, you know, kind of ink some of these initial deals and, you know, start to, you know, the strategy becomes more and more clear.

David V. Barry: I was just hoping to get a sense for number one, you know, across water innovation and security: what percent do you consider digital or connected today of your sales? I think you threw out a 20% number for security.

Michael Jason Rehaut: And, you know, more importantly, as we think about the contributions to sales growth in 25 and 26, what type of above-market lift might we expect as, you know, these different products gain momentum, you know, i.e., flow and insurance and, you know, lockout, tagout, and other initiatives on the security side? Hey, Mike, it's Dave.

David V. Barry: So, you know, as we think about the size of this business today and where it's going, I think a helpful reference point as we look at what we expect in the third quarter will now be annualized sales north of $300 million. You know, the last number we gave was that we were approaching $250 million, and so we're starting to see that step change in growth. I think that'll be a metric we continue to follow because it's really hard, you know, as fast as things are moving and growing, for us to give a retrospective view.

Michael Jason Rehaut: I think it's more about what's happening in the quarter and where do we see it going from there. As we looked at 25 and 26, as we talked about it, the growth will be 150 basis points in the second half of the year at the early days of these initiatives and trust that the team has a, Full list of opportunities, and the pipeline remains robust and active, and so we expect it to continue to accelerate. So as we look to drive a continued above-market growth, I think this is just the tip of the iceberg for what we'll execute on over the next two years. Great.

David V. Barry: It's obviously really interesting and a huge opportunity over a number of years, so look forward to hearing more about that. Secondly, maybe just to kind of dive in a little bit to some of the changes in guidance by segment, if you could kind of maybe break out the drivers behind the improved margin outlook for outdoor as well as the reduced outlook for security sales, which seems to be coming more from the acquisitions piece rather than the organic piece, and I know obviously this quarter was a bit below our estimates in terms of the top line, so just trying to understand, number one, the drivers of the improved margin outlook for outdoor and if that's sustainable and kind of a new baseline for the company going into next year, and then kind of, the drivers behind some of the volatility in the acquired sales, I guess, and security this year. Yeah, happy to. So on outdoors, I'd say two things.

David V. Barry: So one, you know, we took the sales up a little bit in that business is the most vertically integrated; we'll have some additional volume leverage coming through. And then, as I mentioned, we the plants have been performing well, especially within our doors business. And so it's driving some favorable, lower cost inventory that's on the balance sheet coming through the P&L as we sell through the back half of the year.

David V. Barry: So we have good visibility to both of those things that will drive margin. And then on security, you know, the sales adjustment down is really POS driven, I'd say predominantly through the first half performance. And importantly, as we looked at our trends, you know, late into June, you know, up until the call, we've seen POS recover, you know, across that business, and that kind of gives us confidence in our full year outlook there for security. So it's really just the first half softness in that, and Roger Federer.

Michael Jason Rehaut: A couple of things to round out your question with respect to outdoors. You know, as we said at our investor day, it's not going back for a little while. I mean, you know, this was part of the margin improvement journey as we thought about the footprint and made that business more efficient. And so, you absolutely expect this.

David V. Barry: [inaudible] kind of a pure retail e-com part of Monster Lock is where we saw some POS softness, and as Dave alluded to, improved towards the end of Q2 and into July, so it was good to see that improvement. And then the acquired business actually performed pretty well. What we've learned about it as we've gone through time is it's sort of very, Big Deal to Big Deal on top of POS, and so you'll lap some big deals at times, in which case, you know, it may feel like it's pulling back, and then you're signing big deals at other times, and so I think we had some laps here, but at the same time, we just announced that ADT deal, those sales aren't really yet pulling through, and so, you know, that would be an accelerant.

David V. Barry: As the business grows, it'll get a lot smoother because it will be less dependent on some big partnerships that, you know, we announced. Great. Thank you. The next question is from Phil Ng of Jeffries. Please go ahead.

Philip H. Ng: Hey, guys. Mid-single-digit organic growth in Moa and North America is actually really impressive. Any color on the splits between volume versus price? And do you actually see that business accelerating in the back half? Because, you know, there is a decent portion of single-family homes.

David V. Barry: Seems like you're expecting that to kind of firm up. And on the flip side, China was obviously weaker than we all would have hoped. Are you starting to see that business bottom out? I just wanted some color in terms of inter-quarter trends and how you think about the back half of the year. Yeah, let me start with your Moan question, and then I'll let Nick talk about big picture China and get some context on that.

Nicholas Ian Fink: Yeah, we actually saw volume growth and price growth in Moa and North America in the quarter, which is great to see. And, as we mentioned in the prepared remarks, we saw growth in all channels in Moa and North America. And given, to your point, the single-family new construction ramp and the accelerated progress with flow, we do expect their growth to continue across the second half of the year, which is nice. Then I'll let Nick talk about, you know, big picture China, and then I can give some context there.

Nicholas Ian Fink: Yeah, and I'll just, before I jump there, just comment on a broader thing, which I think actually what you're picking up is really important. You know, you had that growth in modern North America, and you had that growth in the outdoors.

Nicholas Ian Fink: And so, you know, we were very pleased to see, you know, strong in this market, strong top-line performance from these two key engines in our business in the key market, right? So I think that was a big takeaway from us, particularly as you pulled China out, you got to see that very clearly, like the course doing really well. Yeah, in China, you know, there were really two things at work.

Nicholas Ian Fink: You know, just as a reminder, this time last year, there were a lot, the government pushed to complete a lot of projects that had been sitting kind of in mid-completion mode. And so, you had that last, but the Chinese consumer, and you've seen this across industries, And I think there's some work to do, you know, some Bank of China announcements this morning about interest rate easing. You know, there is some work to be done in this economy.

Nicholas Ian Fink: You know, I think there comes a point at which it definitely does turn and becomes much more of an R&R-focused market, and then it provides nice growth optionality. It also provides some very nice innovation for the broader portfolio, just being that, you know, close to some very innovative consumer approaches to the market, and so a nice pipeline there.

Nicholas Ian Fink: The headline I might leave you with before I just give it to Dave is that, you know, as this business has come down from its peak and the Chinese housing market has come down from its peak, the team has done a fabulous job managing profitability and managing the size and has really resized and re-platformed the business. It's gotten to the point now where I love for it to bottom out and provide some growth, but should it not, it actually isn't really that material anymore to the portfolio. I think, in many ways, the worst is behind us, just given its size now and its relative profitability to several fortune brands. It's just not a whole lot of it. And Phil, to put some context around that, I mean, this was a $500 million business in 2021.

David V. Barry: You know, we now think it'll be about $250 million by the end of the year. So to Nick's point, you know, a lot of this is behind us. It's taken a 50% reduction over the past three years. And now, if you look at it relative to what we have going on in the rest of the portfolio, it's smaller than our digital and connected business. The House of Roll business is more than twice as big, so it's just a less impactful piece.

Philip H. Ng: And as it is replatformed and the market recovers, we do expect it to grow when we get to that point. And then, from a marketing standpoint, it remains profitable, and what was a high-team operating market business is now, I'd say, mid-to-high single digits, and so the team is working to get cost out, but it's much smaller, much less meaningful to the overall portfolio. Okay, that' And then Dave, you were pretty confident that, you know, from an inflation standpoint for water innovation, you're covered this year, but certainly metal prices are higher, ocean freight ship and container prices are higher. So as we look out to 2025, do you guys plan to take prices? Do you have any increases out there?

Nicholas Ian Fink: And do you still have enough leverage to drive margins higher? And then, certainly, with a potential change in administration, there is talk of tariffs potential on the horizon. Just kind of remind us how you're set up now, perhaps versus 18-19 in terms of your exposure to China, and how do you kind of anticipate combating that going forward? I'll just make a quick comment on the pricing part, maybe philosophically on the supply chain part, and Dave can break it up.

Nicholas Ian Fink: Just philosophically on pricing, we've invested very heavily in category management capabilities that really allow us to understand better how to manage our categories as category leaders and where to meet the consumers, and those insights have led to a very different set of pricing discussions with customers, where it really is about driving profitable growth for everybody in the category. As a consequence of that, we've really trained our businesses to take prices every year. We may moderate how much or how little we take, Sometimes we may hum a little bit back, sometimes we may give a little bit here, but net-net, we're taking price, and you know, we will continue to do so and do it in smallish increments where you're not shocking the market because you haven't done it in a long while and you get caught out. You just do it regularly and you do it in a good cadence, and you maintain a lot So with that, I'll let Dave dimensionize it.

David V. Barry: Yeah, and I think Nick said it well, and we, you know, at this point, what we expect to see in 2025, we don't. We expect to be able to cover it with both internal productivity and incremental price. Like I said, we look to take pride in every year just given our capabilities around category management, our brand strength, and our innovation. But as we look across the back half of the year... You know, given the length of our supply chains and our agreements with our suppliers, we expect to have an immaterial impact on many changes that occurred in the second quarter. And it's been nice to see, frankly, that at the start of the third quarter, the metals have pulled back a bit.

Nicholas Ian Fink: So if that continues, that will even ease, and the impact on 2025 will be smaller. [inaudible] Okay, I'll just do it very generally, because I would say, look, I think it would be important to just dimensionize a little bit how our supply chains change. And they have changed quite a bit. But, you know, we don't invite it, it would be an immense amount of work.

Nicholas Ian Fink: As it has been in the past, I just remind you, even going back to the days when we had a chemist, there have been plywood tariffs, border tariffs, COVID shutdowns, you know, our supply chain team has excelled at outperforming the market. And while we don't invite these types of things, there is enormous amounts of work, we tend to accelerate our share gain every time it happens. And even quite recently, in some very large customer discussions, our customers are demonstrating to our supply chain team just, even now, how we are outperforming the general market in terms of our ability to deliver on time, in full, and be very consistent. And so I think we're certainly prepared, and we're continuing to prepare ourselves, no matter what the result of the election is. First, a fairly heavy North American supply chain.

David V. Barry: I think we're very well equipped and with the capability of the team. We'll probably come up, you know, even stronger. If you look at the financials around it, Phil, today, less than 20% of our spend, our material spend, is from China, which is down significantly from 2017 when it was north of 50%. So, as Nick mentioned, well-positioned, the team has done a lot of work. We haven't stopped doing the work because, obviously, tariffs are still in place.

David V. Barry: And areas that are still in China, we have key components that are dual-sourced, and while they might be at a higher cost if we move them relative to incremental tariffs, that equation tips in the favor of the new source. And so, we feel well-positioned, and the team has worked hard to be prepared for what comes at us. Okay, that's a great color, guys.

Philip H. Ng: I appreciate it. The next question is from John Lovallo from UBS. Please go ahead.

John Lovallo: Hi guys. Thank you for taking my questions as well. The first one is, maybe just maybe, a little color on fiber on trends.

David V. Barry: I think you talked about up-low single-digit POS led by wholesale, but I'm curious how that may have progressed through the quarter in any color on what the exit rate was. Yeah, John, I think it's pretty consistent through the quarter. So we didn't see as much volatility as we would have expected given it's the season for deck building. Got it. Okay.

John Lovallo: And then if we just think bigger picture as we move out into next year, I mean, R&R has had a couple years of being down. I know you don't have a crystal ball, but how are you kind of thinking about the kind of slope of the recovery in repair and remodel spending as we move into next year? So, looking at the usual factors that we consider when forecasting R&R, which for us is, you know, consumer confidence, unemployment, home equity levels, and then existing home sales.

John Lovallo: And so, there's still a tale to be told here in the back half of the year as to how the consumer responds, you know, getting through the election, understanding what level of interest rate cuts happen, if any, and then how existing home sales respond. And so, we'll continue to look at those factors and provide an update on our 2025 view when we get to that point. I just had, you know, something I haven't thought about a fair amount as we think about the, you know, $33 trillion in home equity.

John Lovallo: You know, the home equity extraction rate is half of what it was in 2021, and I think that has been a factor of rates since we've just seen fewer people go and tap that home equity to go and do things. And, you know, I would suspect that as rates start to come down and either the HELOC or REFI markets start to open back up, and that makes more sense for people. And that delta might be, you know, less large between existing mortgage rates and what they could get. If we see that extraction rates start to even get back up to their historical average, there would just be more cash available for people to do projects.

Operator: Okay, thanks guys. This concludes the question and answer session. Thank you for joining today's conference call. You may now disconnect.