Q1 2025 Masco Corp Earnings Call
Joelle: Good morning ladies and gentlemen. Welcome to the Masco Corporation first quarter 2025 conference call. My name is Joelle and I will be your conference operator for today's call. Thank you very much.
Joelle: As a reminder, today's conference has been recorded for replay purposes. To ask a question, please press star than the number one on your telephone keypad. To a dry question, please press star two. I will now turn the call over to Robin. Zondervan, Vice President, Investor Relations, and FPNA, you may begin.
Robin Zondervan: Thank you operator and good morning everyone. Welcome to Masco Corporations 2025 First Quarter Conference Call.
Robin Zondervan: With me today are Keith Allman, President and CEO of Masco, and Rick Westenberg, Masco's Vice President and Chief Financial Officer.
Robin Zondervan: Our first quarter earnings release and the presentation slides are available on our website under investor relations.
Robin Zondervan: Following our remarks, we will open the call for analyst questions.
Please limit yourself to one question, with one follow-up. [inaudible]
Robin Zondervan: If we can't take your question now, please call me directly at 313-792-5500.
Robin Zondervan: Our statements today will include our views about our future performance which constitute forward looking statements.
Robin Zondervan: These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward looking statements. [inaudible]
Robin Zondervan: We described these risk and uncertainties in our risk factors and other disclosures in our Form 10K and our Form 10Q that we filed with the Securities and Exchange Commission.
Our statements will also include non-GAAP financial metrics.
Robin Zondervan: Our references to operating profit and earnings for share will be as adjusted and less otherwise noted.
Robin Zondervan: We reconcile these adjusted metrics to Gap in our earnings release and presentation slides which are available on our website under investor relations.
Keith Allman: With that, I will now turn the call over to Keith.
Keith Allman: Thank you Robin, good morning everyone and thank you for joining us.
Keith Allman: I want to start today by talking about some significant changes that have occurred since our last quarterly call.
Speaker Change: One of these changes was the announcement of my decision to retire as president and CEO of Masco and the appointment of John Newdy as our incoming president and CEO .
Keith Allman: It has truly been an honor to lead Masco for over a decade
Keith Allman: and I'm so very proud of all our employees and the work we've accomplished together.
Keith Allman: We built and refined our core portfolio of leading brands to focus on innovative repair and remodel products.
Keith Allman: We've embedded the Masco operating system throughout the entire company which has allowed us to significantly expand our operating profit margins.
And finally, we've delivered long-term value to our shareholders.
Keith Allman: Achieving compound annual earnings per share growth of more than 12% over the last five calendar years.
Keith Allman: I'm confident that Masco is in great hands going forward under John's leadership.
Keith Allman: John has been on our Board of Directors since 2023, and I've seen firsthand his strategic vision, his commitment to customer service, and his recognition of the spank of our Masco team in delivering superior results.
Speaker Change: I am currently working very closely with John in order to ensure a seamless transition.
Keith Allman: and we are excited about officially welcoming him to the Masco team at the beginning of July .
Keith Allman: We also experience significant changes in the geopolitical and macroeconomic environment, including the enactment of new and broad-reaching tariffs.
Keith Allman: The extent of the tariffs currently imposed on imports from China is substantial, and will increase our overall costs considerably, particularly in our plumbing segments.
Keith Allman: Our experienced teams are actively taking steps in an effort to mitigate these increased costs.
Keith Allman: Our mitigation efforts are extensive and include pricing actions, additional cost savings initiatives, and ongoing changes to our sourcing footprint.
Keith Allman: As we have done in the past, we are rapidly responding to the shifting economic landscape.
Keith Allman: However, a high level of uncertainty remains around how these changes and associated higher prices.
will ultimately impact demand trends across our industry moving forward.
Keith Allman: Therefore, we will not be providing full-year financial guidance this quarter.
Keith Allman: However, we do want to dimension how we are thinking about the impacts of tariffs and the related mitigation actions in 2025.
Keith Allman: First, based on the tariffs enacted this year, we expect in your costs of approximately 400 million prior to mitigation efforts.
Second, based on her extensive mitigation actions. [inaudible]
Keith Allman: We currently estimate that we can offset approximately 200 to 250 million dollars or roughly 50 to 65 percent of these costs during the current year.
Keith Allman: We currently anticipate mitigating the remaining net tariff costs by the end of 2026.
Keith Allman: Finally, while it is reasonable to assume a potential softening of demand in the near term.
Keith Allman: We are not yet able to estimate the timing or extent of the impact on volumes that may result from the direct or indirect impacts of these additional tariffs.
Rick will provide additional details in a few minutes.
Rick Westenberg: Abilities expected in-year and annualized impacts from the inactive tariffs and are related mitigation actions.
Rick Westenberg: Our teams have demonstrated their capability to manage through these environments in the past.
Rick Westenberg: from the COVID pandemic to unforeseen supply chain challenges to previously enacted tariffs.
Rick Westenberg: Therefore, we are competent that we have the right teams and plans in place to work quickly toward mitigating the various impacts arising from the recently enacted tariffs.
Amidst all these changes.
Rick Westenberg: and the work we are doing to address their impact on our business.
We remain focused on our core strengths.
Rick Westenberg: Our Market League Brands, our Exceptional Customer Service, and our Innovative Product portfolio.
Rick Westenberg: This quarter we introduced several innovative new products and received a variety of awards across our businesses.
A few of which are highlighted on slide five.
Beginning with North American plumbing.
Rick Westenberg: Delta Fawcett showcased multiple new and award-winning products at the kitchen and bath industry show held in February .
Rick Westenberg: including the Pivot Pro 3-1 combination shower, the shower sense, digital shower, and the Briso, Frank Lloyd Wright, Kitchen and Bath Collections.
Rick Westenberg: Additionally, Delta Foster received multiple awards in recognition of their outstanding service to their customers, including the prestigious JD Powers Customer Service Excellence Award, which they received for the fourth year in a row.
Rick Westenberg: and our spa business, Watkins Wellness launched two new cold plunge products.
Rick Westenberg: Cold plunge is the ideal complement to our existing spa and sauna portfolio, as customers can enjoy the multiple benefits of integrating both cold and hot therapies into their wellness routine. [inaudible]
Rick Westenberg: and our international plumbing business. Hans Groey continued to demonstrate their leadership.
at the ISH Sanitation and Heating Show held in March.
Rick Westenberg: Two of their new premium products, Rain Dance Alive and Ebilegra, received IAF Design Gold Awards in the Sanitary category.
Rick Westenberg: Since 2015, Hans Groway has won more IF Gold Awards than any other manufacturer.
and our Decorative Architectural Segment.
Speaker Change: Bare was voted the most trusted paint and stain brand among consumers in the United States and Canada by Brand Spark, demonstrating the continued strength and exceptional quality of our leading bare brand. [inaudible]
Speaker Change: With that, I'll now discuss our first court of results. Please turn to slide six.
Speaker Change: in the first quarter, our top line decreased 6%, partially due to our divestiture of Kitschler in the prior year.
Speaker Change: excluding this divestiture and the unfavorable impact of currency, sales decreased 3%, primarily due to lower volumes in the decorative architectural segment.
Gross margins increase 20 basis points to 35.9% [inaudible]
Speaker Change: Operating profit was $288 million, and operating profit margin was solid at 16%.
earnings per share for the quarter was $0.87
Speaker Change: Turning to our segments, plumbing sales increased 1% in local currency.
Speaker Change: North American plumbing sales also increased 1% in local currency driven by higher volumes in our spa and sauna business and favorable pricing.
Partially offset by lower volumes in our retail channel.
Speaker Change: International plumbing sales were flattened local currency as higher volumes in Europe and slightly favorable pricing were offset by unfavorable mix.
Speaker Change: Operating profit for the segment was $219 million, and operating margin was 18.5%.
Speaker Change: We are pleased with our overall performance in the plumbing segment this quarter, as sales were slightly higher than anticipated, and operating margin was in line with our expectations.
Turning to our decorative architectural segment.
Sales Decrease 16% or 8% excluding our Investiture of Kitsler.
Speaker Change: Overall, paint sales were down high single digits, and included a partial reversal of the inventory timing benefit that impacted Q4 of 2024.
Speaker Change: Excluding this impact, overall paint sales were down mid-single digits, and DIY paint sales were down high single digits, while pro-paint sales were up mid-single digits.
Speaker Change: Operating profit for the segment was $96 million, and operating margin was 15.6%.
Speaker Change: We are seeing ongoing demand pressure across the industry in DIY paint.
Speaker Change: driven by dampened macroeconomic environment, and expect that this will continue as the year progresses.
Thank you very much.
Speaker Change: However, we continue to grow in the propane category driven by the quality and performance of our products, the strength of our partnership with the Home Depot, and our expanded services and support.
for our Pro Customers.
Speaker Change: This has led to ongoing share gains as we continue to capitalize on the sizeable growth opportunity in the propane market.
Speaker Change: as we look across both segments for the balance of the year.
Speaker Change: We anticipate demand softening as consumers spend more cautiously amidst this uncertain economic backdrop.
Speaker Change: However, as I mentioned earlier the extent and duration of this impact cannot yet be determined until there is more clarity on the terror policies and the overall macroeconomic conditions. [inaudible]
Once that occurs.
Speaker Change: and as additional information becomes available, we will be able to provide further financial guidance at that time.
Masco is a resilient company.
Speaker Change: and the long-term fundamentals of the repair and remodel industry remain strong.
Speaker Change: Our product portfolio is well positioned to deliver meaningful results as we execute on our strategic initiatives and maintain our discipline capital deployment.
as I reflect on my 10 year as CEO of Masco.
Speaker Change: It's the strength of our people and our teams that has allowed us to outperform the market and drive long-term shareholder value creation especially in dynamic times.
Speaker Change: Our people are at the heart of what we do each day, and we remain focused on driving results through our leading global brands, innovative products and customer service.
Speaker Change: With that, I'll turn the call over to Rick for further details around our first quarter, expected to tear off impacts and related mitigation actions.
Rick
Speaker Change: Thank you, Keith, and good morning everyone. Thank you for joining
Speaker Change: Before I get started, I'd like to take a moment to congratulate Keith on a successful 27-year career at Masco.
Speaker Change: Through a strong leadership, he has been instrumental in reshaping Masco's portfolio.
Fiving significant operational improvements across the company
Developing Senior Leadership Talent and Delivering Outstanding Financial Results
Speaker Change: On a personal note, I'd like to thank Keith for his partnership over the past year and a half, and wish him all the best in his future endeavors.
Now turn into our results.
Speaker Change: As Robin mentioned, my comments today will focus on adjusted performance and performance.
excluding the impact of rationalization charges and other one-time items.
Trina Slide 8
Salz and the first quarter decreased 6% [inaudible]
Speaker Change: or 3% excluding the impacts of our divestiture of Kitchler and unfavorable currency.
Speaker Change: Our Devastator of Kichler in the third quarter of 2024, decreased sales by 3% year-over-year in the first quarter of 2025.
But decreased 3% excluding the divestiture impact.
Speaker Change: International sales were in line with the prior year in local currency.
Speaker Change: Grossmargin increased 20 basis points in the quarter, the 35.9% [inaudible]
CNA decreased $9 million, your rear, given by our divestiture.
Harsley Offset by increased marketing expenses.
Speaker Change: S.G.A. as a percent of sales was 19.9% in the quarter.
Speaker Change: Given the current environment, we are actively managing our expenses and taking appropriate cost savings actions.
Speaker Change: Operating profit was $288 million in the quarter, and our margin was 16%
Speaker Change: Operating profit was impacted primarily by lower volume and higher marketing costs.
Lastly, our EPS was 87 cents per share.
Speaker Change: Trained to slide nine, plumbing sales decreased 1% in the first quarter
but increased 1% excluding the unfavorable impact of currency. [inaudible]
Faithful pricing increased sales by 1% [inaudible]
Offset by Unfairable Mix, which reduced sales by 1%
Speaker Change: In local currency, North American plumbing sales increased 1% in the quarter
Speaker Change: This performance was driven by continued sharegains in the e-commerce channel and wrote at our specialty spa and sauna dealers.
partially offset by Sofnis in the retail channel.
Speaker Change: In local currency, international plumbing sales were in line with the prior year, driven by favorable volume and pricing actions.
Offset by Unfairable Max [inaudible]
Constroy achieved growth in its key market of Germany
as well as other European markets.
Speaker Change: This was offset by softness in various other markets, particularly China
Speaker Change: Segment offering profit in the first quarter was $219 million, and offering margin was 18.5%.
Speaker Change: Operating profit was impacted by unfavorable mix and hired trade show cause during the quarter.
Partly offset by cost savings initiatives.
in a favorable price-cost relationship. Thank you very much.
Speaker Change: Trained to slide ten, decorative architectural sales decreased 16% in the first quarter.
The divestiture of Kittler, lower sales by 8% [inaudible]
In the quarter, Total Pain Sales decreased high single digits.
Speaker Change: Impacted by a partial reversal of the favorable inventory impact in Q4 last year, as mentioned in our February call.
Excluding his unfurable inventory impact. [inaudible]
Speaker Change: Total paint sales were down mid single digits in the first quarter. [inaudible]
Speaker Change: with propane cells up mid-single digits in line with our expectation.
Speaker Change: and DIY paint sales down high single digits below our expectations.
Speaker Change: DIY paint performance was driven by continued softness in the DIY market.
Speaker Change: and we now anticipate this weakness to continue as the year progresses.
Speaker Change: Operating profit in the first quarter was $96 million, and Operating Margin was 15.6%
Speaker Change: Operating profit was primarily impacted by lower volume, including inventory timing [inaudible]
Turning the flight 11
Speaker Change: Our balance sheet remains strong, with a gross debt to Ivita at 2.1 times at quarter end.
Speaker Change: We ended the quarter with 1.2 billion of liquidity, including cash and availability under our revolving credit facility.
Speaker Change: Working Capital was 18.7% of sales at quarter-end in line with Q-1, 2024 [inaudible]
Speaker Change: Given our strong cash performance, we were able to return $196 million to shareholders.
through dividends and cherry purchases.
Speaker Change: including a repurchase of $130 million in stock in the first quarter.
Speaker Change: We continue to expect to invest approximately $175 million through capital expenditures.
to pay a dividend of $1.24 per share.
Speaker Change: and a deploy all available free cash flow towards share repurchases or acquisitions.
Speaker Change: Lastly, as Keith mentioned earlier, given a highly volatile and uncertain market environment related to tarot [inaudible]
We are not providing 2025 financial guidance. We are not providing 2025 financial guidance.
Speaker Change: However, I will try to provide some clarity around our tariff exposure and impact [inaudible]
based on the currently enacted tariffs. [inaudible]
Speaker Change: as well as the estimated benefits from our ongoing mitigation actions.
Speaker Change: As discussed on our fourth quarter call, our current import exposure to China Terrace is approximately $450 million.
Representing a 45% reduction from our peak exposure in 2018.
Speaker Change: We estimate the total annualized impact from incremental tariffs to be approximately $675 million
Speaker Change: This includes the incremental Chinatarris of 145%, which amounts to an annualized cost impact of approximately $625 million.
Speaker Change: plus an approximately $50 million of incremental annual expense from tariffs on steel and aluminum.
and a 10% global reciprocal tariffs.
Speaker Change: We expect a 2025 in-year impact of approximately $400 million before mitigation.
Speaker Change: with the impact largely occurring in the second half of the year.
Speaker Change: We are actively working to mitigate these additional costs, through price increases, cost reduction, and continued efforts to change our sourcing footprint.
Speaker Change: First, we expect to implement meaningful price increases or a course of 2025.
Speaker Change: 2nd, we are expanding our cost reduction efforts across the business [inaudible]
Speaker Change: Delane were eliminating non-critical spend while preserving investments in key growth areas of the business.
Speaker Change: Furthermore, we continue to work with our suppliers to achieve additional cost reductions.
Speaker Change: based on our expectations for the extent in timing of our price and cost reduction actions.
Speaker Change: We currently believe we can mitigate approximately 200 to $250 million, or roughly 50 to 65% of the amount of tariff costs in 2025.
Speaker Change: Leaving a net impact of approximately 150 to $200 million in 2025.
Prior to any potential volume impact.
Speaker Change: As we exit 2025, we believe our actions have the potential to mitigate 60 to 75% of the impact of the currently enacted tariffs on a run rate basis.
Speaker Change: We will continue to work to mitigate the remaining impact by the end of 2026.
through accelerating changes to our sourcing footprint.
Speaker Change: is important to note that these tariff impacts, mitigation estimates, do not consider potential unfavorable impacts on volumes related to price increases or the overall market environment.
Speaker Change: These impacts remain highly uncertain as does the overall tarot and macroeconomic environment.
Additionally, these estimates are based on currently enacted tariffs.
Speaker Change: and do not attempt to estimate the impact of potential future terrors or changes in existing terrors.
Nielis is safe. The over-environment remained highly uncertain. [inaudible]
Speaker Change: We will provide updates to the impacts on our business as appropriate
Speaker Change: and expect to update our outlook for 2025 once we have more clarity.
Keith Allman: To echo Keith's comments, I would like to recognize and thank our teams for their tremendous efforts in responding to this rapidly changing environment.
Our teams have a demonstrated track record
Keith Allman: and I'm confident in our ability to navigate these challenging times.
Keith Allman: With that, I would like to open up the call for questions.
operator
Speaker Change: Thank you. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question and one follow-up.
Keith Allman: during the Q&A session. To ask a question, please press star then the number one on your telephone keypad. To withdraw your question, please press star two.
Speaker Change: Your first question comes from Michael Reholt with JP Morgan. Your line is now open.
Speaker Change: Thanks and good morning everyone. Thanks for all the comments and John welcome to the call and to the company.
Speaker Change: You know, not only in the first quarter, but you know, if you could provide any kind of commentary on April , you mentioned during the prepared remarks that your DIY paint was a little bit below expectations. Thank you very much.
Speaker Change: I'm really more interested in the trend line through the first roughly four months of the year, both in paint and plumbing, and if you have any kind of insights into maybe...
Speaker Change: 2Q overall, how we should think about the top line.
Speaker Change: Thanks Mike, just to be clear, I'm on the call today and John will be joining us in July .
Speaker Change: Yep, now got that. Wasn't sure if he was there, but okay. Yeah, fair enough. So with regards to...
Speaker Change: How the overall pop line trends are looking as we sit here, mid-April, and e-commerce, I'll take a channel cut at it first, in e-commerce.
We continue to have really nice strong performance.
Speaker Change: So that continues to be a favorable aspect of our business. We've been investing in that both in terms of technology and people for quite some time have what we believe to be a leadership position and that continues to grow and do well for us. We did particularly well in international plumbing.
that continues to be strong for us.
Speaker Change: in Central Europe , we're seeing and getting more stabilization specifically in our home country of Germany, where we're the share leader, and that continues to go well. Of course, we're having a little bit of a...
Thank you. Thank you.
In China.
Speaker Change: Segment, we continue to what we believe to be outgrow the market and gain share. So we're gaining share and we're holding share. Very strong, that promoter scores continue with our customers.
Speaker Change: and the value proposition that we're able to deliver with our partner, the Home Depot, remains strong.
Speaker Change: We are seeing some softening in the DIY paint market. This has been relatively consistent and we can expect, again, this is a...
Thank you.
Speaker Change: of view in terms of the future. But we expect this softness to continue through the remainder of the year. So I think we've got pockets of good strength and continued growth.
Speaker Change: that are favorable, but overall I would say that our view is that the consumer is tentative, particularly as we look at the volatility that exists.
Speaker Change: in both geopolitically and from a macroeconomic perspective. So hopefully that gives you a little bit of view across the realm horn.
Speaker Change: I don't know, that's very helpful, Keith, appreciate that. I guess secondly,
You know, maybe to try and dimensionalize a little bit. [inaudible]
Speaker Change: specifically when you talk about the mitigation efforts on the tariffs.
Speaker Change: and specifically, the price increases, which I would assume would be the...
The Primary Offset, or Mitigation Action.
Speaker Change: You know, for the back half of this year at least, and correct me if I'm wrong on that, but if we're talking about, you know, 200, 250 million, maybe you could kind of dimensionalize that in terms of maybe what that would mean in terms of an average price increase. We'll see you next time.
Speaker Change: for your key plumbing products, and if you've seen any type of... [inaudible]
Speaker Change: Prior instances of demand elasticity or inelasticity, you know, or the amount that you know you would expect maybe demand to react.
Speaker Change: off of those price increases, let's say in a vacuum, and I know that obviously a lot of different macro drivers influencing demand as well, but we have any costs on that.
Sure, Mike, it's Rick. I'll take a shot at that.
Speaker Change: So as we articulated in terms of our mitigation, components of our mitigation actions there's obviously a number of facets to it. The main buckets are pricing.
Speaker Change: Cost reduction and sourcing of footprint changes, and as you anticipated, at least in the near term, IE 2025.
Speaker Change: The bulk of those actions are going to be pricing and cost reductions. Those are the things that we can pull in the near term.
Speaker Change: Sourcing footprint is something that we continue to focus on. We've been meeting full progress in terms of changing our sourcing footprint over time, and the team continues to execute and to accelerate that, but it will take a longer horizon to effectuate some of those sourcing changes. [inaudible]
Speaker Change: As it pertains to 2025, it is primarily price and cost. The majority of that is pricing as you anticipated. We are not going to quantify the pricing magnitude per se.
Speaker Change: or the price increases. They vary by business unit and they vary by product category. And it's over the course of 2025 as you would anticipate.
Speaker Change: The tariffs started to roll into effect on February 4th, continued in March and then again escalated in April and so our pricing has been responsive to that and we're going to continue to execute on that [inaudible]
Speaker Change: As it pertains to elasticity, I think we're in a bit of uncharted territory as it pertains to that. We obviously are confident in the strength of our brands and our products, so we think there's some resiliency there. But ultimately, just given not only the elasticity dynamic but the uncertainty in terms of the macroeconomic and the consumer sentiment,
Speaker Change: are unknown. And what frankly, that is really the root of why we were...
Speaker Change: We've pretty much decided not to provide financial guidance, just given the uncertainty.
But the teams, you know, rest assured, the teams are, are...
Speaker Change: Our hyper focus with regards to developing and executing mitigation strategies, and as Keith mentioned in his remarks, we've got confidence given the team's experience and capabilities that we'll navigate this as we've done in the past.
Great, thanks so much, Rick, for my…
Speaker Change: Your next question comes from Stephen Kim with Evercore ISI. Your line is now open.
Stephen Kim: Thanks very much guys and yeah, we obviously appreciate all the efforts here to give us some framework for how you're going to manage this tariff thing. I guess I wanted to drill in on the pricing.
Speaker Change: and you haven't even taken any pricing actions really. I'm assuming yet. I'm curious if you think that
Speaker Change: Maybe what you're seeing in the consumer is maybe some stockpiling ahead of some tariffs.
Speaker Change: and maybe they're cherry picking, you know, or prioritizing some products where they think that they could be vulnerable and paint would maybe not be one of them. And if you think that had any impact on what you saw in the quarter, or if there's anything else that would provide a little bit of color for why DIY paint in particular, would have been impacted, it feels like more than some of your other products. [inaudible]
Speaker Change: You know, particularly, you know, pro paint seems like it did better and just if you could help us drill in a little bit more about what you saw in the DIY paint that caused the, you know, the myths relative to what we're looking for. [inaudible]
Hey, Stephen, Keith, with regards to...
Speaker Change: Stockpiling. We don't have specific data where we've went out in and...
Speaker Change: Query the consumer to see if they're stocking up and putting faucets in their basement or stacking up gallons of paint and anticipating anticipation of future projects.
Speaker Change: I doubt significantly that's that, that is the case, as we see rather consistent.
Speaker Change: POS data, that's not indicative of something like some sort of a pre-COVID stockpile of some consumer goods or something of that sort. So I discount that and I'm confident in that even though I don't have data.
This is something that we've seen consistently now for... [inaudible]
market overall for, call it five years.
times as we see the demographic shift.
of the baby boomers who were very much. [inaudible]
Speaker Change: Strong and avid painters, now getting to an age where they're choosing to use a professional to install the paint rather than themselves and the backfill.
Speaker Change: of the Millennials, which we are seeing and we do believe that when our data shows that they are not only DIYers but multiple project DIYers rather than say a one and done so it's just not, it hasn't.
Speaker Change: Come to the level of where it's backfilling that. So there's clearly a shift from DIY to pro. So that's a component of it. Secondly, when you think about sensitivity,
Speaker Change: We believe that the consumer that is in that DIY market tends to be more price sensitive, and more sensitive to overall macroeconomic concerns like we're in now than a more affluent customer. [inaudible]
So when we...
Interestingly, when we look across our portfolio.
Speaker Change: The consumer itself in that DIY space as it relates to sensitivity to price.
Speaker Change: and a migration from a heavy consumer that is continuing as it relates to the baby boomer starting to hire a pro. Now when I step back and look at
What type of...
of Assortment, I would want to have...
leading into these kind of conditions.
Speaker Change: As it relates to what's going to be the most resilient and tough times, what's going to be able to rebound, it is in fact...
Speaker Change: a lower-ticket repair and remodel product, particularly the products and the assortments that we have that give a quote-unquote a very nice bang for the buck. So I think when you combine that.
Speaker Change: The strength of our assortment that we've built over time, together with the experience of our leadership teams, even though these are tough times, I think we have a nice hand to play.
Speaker Change: That's really interesting. Just want to sort of pull on that thread a little bit more, Keith. So initially when you were talking about the fact that the price elasticity was typically more felt immediately by the lower end consumer, I was curious as to whether you thought that that could actually lead to maybe a richer mix.
Speaker Change: But it sounds like what you're saying is that maybe that might happen in the near term.
but then on a longer-term basis.
Speaker Change: You actually think that the lower end, which is maybe more need-based, is going to be more resilient.
Speaker Change: So I want to make sure I'm understanding that what you're describing there is a bit of a dichotomy from a timing perspective.
Speaker Change: and then that kind of lead into my broader question, which is about how dynamic you can be with pricing.
Speaker Change: You know, we're not used to situations where you're sort of, you know, needing to increase price and then maybe...
Speaker Change: Take it back and all that, but we're living in a world right now where the primary driver to your need to raise prices actually quite unpredictable and so I'm curious...
Speaker Change: if you could talk about your ability to be dynamic with your pricing as we may be heading
Speaker Change: While we are seeing the premium consumer hanging in there, I do believe, and we did see a little bit of a mix hit this quarter, and I do believe in tough economic times, generally speaking, there will tend to be a trade down.
Speaker Change: We've worked hard as we've discussed in the past and in the past in prior calls.
Speaker Change: to use our operating system to reduce the margin performance across both.
Speaker Change: Pricings segmentation in the assortment as well as various channels so that we are...
Speaker Change: More agnostic to shifts across channels or across price segments, but there will be, I believe, a mix shift down. Now in this environment, an interesting...
Speaker Change: The thing to consider is while I believe there will be and we are seeing a mix shift down in prior...
Speaker Change: Cycles like this, I've seen the private label portion of the assortment.
Speaker Change: takes some share. We generally perform pretty well because we're across all the segments.
Speaker Change: But it's a little, it will be, I believe, a little bit different dynamic due to the high concentration of China buy in that private label piece of the assortment. So I do think there will be within
Speaker Change: Segments of the assortment, there will be a trade down with the caveat of I'm not so sure about what's going to happen on the private label side.
Wooden with response to...
Speaker Change: Pricing and being able to be dynamic with the pricing you're exactly right and that is...
Speaker Change: What we are driving our leadership teams towards is the ability to not only understand our assortment and to have a keen data set.
Speaker Change: where that sweet spot is between price and volume. Obviously, this is a multi-pronged approach.
We do not believe that pricing alone.
Speaker Change: is the best, most competitive tool set to manage through these dynamic times. We think it is a combination of pricing, cost out, supplier negotiations, and footprint changes. [inaudible]
Speaker Change: So we're driving across that whole basket of initiatives, but the ultimate objective here is to reach the...
Speaker Change: Profit maximization point as it relates to the combination of all those factors.
Speaker Change: Buying and Price being primary. So the ability to be dynamic with our pricing to be able to execute, to understand the max, the best price to be at, and to be able to execute that quickly.
Speaker Change: Both ways, both up and down, together with a very strong drive on the class doubts we think is the right dynamic. And again, in these kind of times,
Speaker Change: It's really about the people and it's about the systems we have in place and the portfolio that you're dealing with and we are dealing with what I believe to be the best possible portfolio of products and businesses that we could have going into an environment like this because we set out to build that less cyclical, more resilient, high margin. [inaudible]
Speaker Change: We're also dealing with an extremely experienced team. We recovered from COVID and we brought higher margins to our investors.
Speaker Change: when we had unheard of price escalations, we were able to manage that with higher margins, more price, and took market share.
when we were dealt with...
Absolutely unheard of supply chain challenges, whether you talk about...
Speaker Change: a ship blocking the Suez Canal, or a freeze in southern Texas, Texas that practically took down the petrochemical industry to a paint-colourant plant exploding.
Speaker Change: We were the most dynamic in that environment, and we took significant market share and paint, for example, through those. So, we're a battle-tested teen, and while it's nobody wants this sort of macroeconomic challenge
Speaker Change: We're ready for both with our assortment and with our dynamic pricing capability and with our dynamic supply chain.
Speaker Change: Got it, that's a luck and yeah, appreciate all the color, thanks. Thanks.
Speaker Change: The next question comes from Sam Reid with Wells Fargo. Your line is now open.
Sam Reed: Have you had to adjust your go-to-market strategy with respect to price and maybe just contrast price realization potential from tariffs and new build versus some of your more traditional and retail trade channels?
Speaker Change: You know, are you expecting to get more price realization in retail and trade versus pay the builders given the dynamic? Thank you very much.
We're a repair and remodel company.
Speaker Change: I think our mix is north of 85% of repair and repair model and we approximately and we pick and choose the new build customers that we go after that value the innovation and the service
Speaker Change: Basket that we bring to them. So that's that that is not a part of our our focus in terms of
Speaker Change: A specific pricing strategy in how we're looking to price across channels and ability to get price and how hard or easy it is across different channels. I'm not going to get into that. We're not going to get into our specific...
Speaker Change: Pricing Strategies for Obvious Reasons, but I will tell you that we have, it's not only just the dynamic capabilities in our systems to get price, it's also our talented sales force and our commercial folks.
Speaker Change: and it's the value we bring with our strong brands and innovation pipelines to give us that.
Speaker Change: Must have position on the shelf, so to speak. So it's a whole collection of what Masco brings and we're going to continue to drive that and I feel good about our capabilities entering into these challenges.
Speaker Change: Now that's helpful, Keith. And then maybe switching gears, and you sort of alluded to this in your response to Steve, but maybe just to put a finer point on this.
Speaker Change: Yeah, just want to sink through brand performance quarter today, so you know you sell brands like Delta.
Speaker Change: You know, which maybe are a little bit more over index to home center, she sells brands like Briso, then index to higher income consumers.
Speaker Change: This carries that there's been any noticeable differential in terms of performance across those brands quarter to date. You know, as the consumer has digested
The Early Effects of Tara, thanks.
Well, as I said earlier, we're seeing some strong performance.
Speaker Change: in e-commerce and in our international plumbing businesses. It's tough, as I've always said, to really nail down specifically the market size quarter to quarter, but when we look across our businesses versus...
Speaker Change: and Performance versus Competition. I'm very comfortable in saying we're gaining share in e-commerce and we're gaining share in...
Speaker Change: International Plumbing and they're doing a great job there with regards to, you know, in the showroom and the higher end we've got pockets of our higher end still hanging in there in geographies internationally where we tend to have a higher mix they're still hanging in there well so less affected and we are seeing some pressure as i mentioned. [inaudible]
in retail and specifically in the DIY paint area.
So that's helpful. I'll pass it on. Thanks.
Speaker Change: Your next question comes from Anthony Pettitterry with City. Your line is now open.
Anthony Petiteri: Good morning, and Keith, congratulations for everything you've done at Masco in the next chapter.
Thanks.
Speaker Change: Rick, you talked about changes in sourcing and I'm wondering if you can talk about kind of how you're attacking this maybe versus the last round of tariffs and I guess the first Trump administration or maybe even during the pandemic, is this moving out of China into Asia or Mexico and Canada or back to the US? Yes.
Speaker Change: and if you can just talk about sort of the activities involved and has some of the sort of low hanging fruit in terms of resourcing and ticked or how do you think about it?
Sure, good morning, Anthony.
Speaker Change: So, as you alluded to, we've been on a source footprint journey for a number of years, really dating back to 2018-2019.
Speaker Change: and we've successfully reduced our exposure or tariff import exposure to China by about 45 percent.
Speaker Change: and that journey continues, even predating the tariffs that were enacted this year. The team had been working very methodically to migrate our footprint to different jurisdictions. I'm not going to get into the specifics of the strategy. [inaudible]
Speaker Change: But it has been something that the team has continued to do in a very cost-effective way. [inaudible]
Speaker Change: Clearly given the increase in tariffs specifically on China, we've accelerated or are accelerating those efforts as we articulated. It is something that we're working through this year but we'll stem into next year as well.
Speaker Change: As it pertains to the U.S., we do have its worth noting a very strong and robust footprint in the U.S. We've got 29 manufacturing facilities in a similar number of waterhouses and distribution centers and the majority of our sourcing.
Speaker Change: for the U.S. market is in the U.S., but we have a diversified and... [inaudible]
and extensive supply chain. [inaudible]
like many multinational companies, it's...
Speaker Change: It's international in terms of sourcing and similar to ours, it is.
Um...
Speaker Change: and from our perspective, we're focused on a resilient, diversified...
Speaker Change: and Robust Supply Chain, and we'll factor that in as we continue to make moves.
Speaker Change: In terms of the specific geographies, that's something that we continue to evaluate running scenarios as a pertains to what may happen in the future. Quite frankly, that's part of the challenge in terms of the uncertainty and the dynamic environment of the terror policy as it stands today.
Speaker Change: But Russ is sure the team is working very assertively in terms of not only reducing our exposure to China, but making sure that we've got a robust and resilient supply chain going forward.
Speaker Change: Okay, that's very helpful. And then just to follow up, you talked about I think able to man by channel. I'm just curious, did you see consumers or channel partners really pull back hard following the tariff news itself, which I think was April 2nd, or is the volume impact that you're talking about maybe more anticipatory or something that you sort of expect to occur? [inaudible]
Keith Allman: The volume trends I think that Keith articulated are really what we've seen here today. So as they're articulated in Q1, our opening remarks in terms of our strengths from an e-commerce perspective.
as well as a pro-paint, endpoint, international plumbing.
Um...
and our continued.
Keith Allman: Industry, weakness, and DIY pain are ones that we've seen kind of year to date. Really, we haven't seen...
and a meaningful inflection point as it pertains to post. [inaudible]
Keith Allman: The April 2nd Announcement. I think it's just introduced a amount of uncertainty.
Keith Allman: and volatility in the market as it pertains to expectations and consumer confidence as we've all seen.
Keith Allman: and that's something that is really highly uncertain in terms of how it's going to play out, but it's still early days, and we're monitoring and tracking the situation very closely. But given the uncertainty, that's why we've elected not to provide an outlook not only on the market, but in terms of our financial expectations for the year. [inaudible]
Keith Allman: In terms of inventory, if that was what you were getting at, what we've seen is what I would classify as typical seasonal trends on inventory.
Keith Allman: We did have some beneficial inventory that we pulled forward last year in Q4 that we talked about on the last call.
Keith Allman: We saw a partial unwinding of that, this quarter, but I would say no significant changes as it relates to inventories in the channels.
Okay, that's very helpful, I'll turn it over.
Speaker Change: Your next question comes from John Lovallo with UBS. Your line is now open.
John Lovallo: Good morning guys, thanks for taking my questions. The first one is on the partial reversal of the inventory timing that you talked about on paint side. It seems to imply that there's some more that needs to be worked through. Could you just help us kind of quantify the impact that's expected in the second quarter? Yeah.
John Lovallo: Sure, John . So, just to maybe dimension the reversal that we saw in Q1.
John Lovallo: So the way I would think about it is a couple of folds. One is our paint cells and Q1 were down in high single digits adjusted for
John Lovallo: The reversal of the favorable inventory built in Q4 in our key channel partner.
John Lovallo: We were down mid-single digits, so the difference between high and mid-single digits, the other way to triangulate it.
John Lovallo: is we were down 16% year-over-year in terms of reductive architectural product sales, half of that related to our
Partial Unwind of the Inventory [inaudible]
John Lovallo: as it pertains to what we see going forward. It's not an exact science, obviously inventory varies
John Lovallo: But what I would say is that inventory levels in the channel are still higher year-year. We've a big chunk of that reversed in Q1, but there is...
John Lovallo: presumably potentially more, quote unquote, normalization to be expected. We're not going to size that at this point, but there's still something that we think is still potential headwind going forward, and that's reflected in terms of our expectations. Thank you very much.
Speaker Change: Understood. The follow-up would be then just on the SGNA side, the 19.9% is a percentage of sales, you know, understanding that there's some loss of leverage there and you talked about higher marketing costs.
Speaker Change: I guess I wanted to focus on the higher marketing cost. Can you quantify what that was in the quarter and the ability to kind of pull those out here as we move forward?
Speaker Change: Sure, John . Yeah, the higher marketing costs are principally related to the higher trade show costs in Q1 that we communicated in our Q4 call in February that we expected to see in Q1. And so...
Speaker Change: That's how the cave is shown in Vegas, but principally the biannual [inaudible]
ISH Show in Frankfurt.
Speaker Change: and so from a standpoint of year-over-year, that's a big driver in terms of...
Speaker Change: Marketing Costs. In terms of sizing, I guess how I would characterize it is, in terms of our plumbing segment, we were down $9 million a year over a year, and we would say a majority of that could be a number of factors, but a majority of that could be attributed to the higher trade show cost. And that's the FAQ-1 phenomenon. Thank you very much.
Got it. Thanks very much.
Speaker Change: Your next question comes from Matthew Bouley with Barclays. Your line is now open.
Thank you.
Speaker Change: Sherman, it's Rick, so it pertains to the mitigation actions as we articulated this year in year we would anticipate that our actions would mitigate about 50 to 65% of the in year 400 million impact.
Speaker Change: But by the end of the year, by the end of 2025, we would expect that run rate mitigation to be closer to 60-75% as pricing and other cost actions take hold.
Speaker Change: To answer your specific question as it pertains to 2026, our actions are targeting to mitigate the remainder of the annualized impact of $675 million by the end of 2026.
Speaker Change: Now, as a caveat, that is really the raw numbers. We aren't factoring in or anticipating or guiding towards.
Speaker Change: An expectation of what the volume impacts could be, the director and draft, but as it pertains to our mitigation actions we are targeting to mitigate the full 675 by the end of 2026.
Speaker Change: And then in terms of the proportion of the mitigation efforts in 26, we would anticipate that to lean more heavily into the sourcing footprint changes more so.
Speaker Change: then Pricer Cost would of course continue to drive cost and there will be targeted pricing actions across the assortment undoubtedly but the majority of it would come in 26 from resourcing footprint.
Speaker Change: Yeah, got it. Okay, perfect. Thank you for that color. And then, secondly, you know, obviously, you guys took down the slide around the kind of 2026 margin targets, which seems entirely unsurprising. If 2025 is a starting point is unclear, but just to ask the question and put it out there, do you view any kind of change to the structural profitability potential of the business, or is it just simply the former? Remember, where there's...
Speaker Change: Margin targets that we set out in 2026 so for us it's not so much a question of if we can drive to those it's when and looking at the uncertainty that we're facing now that's why we pulled our financial guidance but no we're confident in the ability of this business continue to drive improved margin performance.
Got it. Thanks, Keith. Good luck, guys. Thank you.
Mike Dow: Your next question comes from Mike Dahl with RBC. Your line is now open.
Speaker Change: Keith, tech of a career, congrats and congrats on being able to step away and enjoy the next phase.
Mike Dow: I wanted to drill down on the actual number around the tariffs. It seems like the majority of your
Mike Dow: Exposure that you're outlining is coming from China, but you know you do have exposures in Vietnam and Southeast Asia and in Mexico so maybe could you do us? [inaudible]
Mike Dow: A little more clarity on your cost of goods exposure to those areas just since the tariff environment is...
Mike Dow: Uncertain where we ultimately land and with Mexico specifically, yeah, how much of your product being shipped to the US is currently exempt under USMCA.
Tremiket's Rick,
Mike Dow: is the articulation as we've outlined. Our biggest exposure from a tariff perspective is our imports from China, as evidenced by the fact that the current annualized impact based off of the currently enacted tariff. [inaudible]
Mike Dow: 625 of the 675 relates to China. I think that evidence is evidence of the disproportionate exposure to China.
Mike Dow: In terms of our other exposures, we're not going to quantify them, certainly not at this point. I think in terms of dimensionality, as we did share that, in terms of the other tariffs that were enacted on stealing aluminum and the 10% reciprocal tariffs that amounted or totaled...
Mike Dow: As it pertains to Mexico and Canada, we've articulated this on a prior call. We do have a meaningful exposure from Mexico in poor perspective.
Mike Dow: principally related to our walk-ins wellness business because we have a couple of facilities in Mexico that import into the U.S. And so that's something that we're tracking very closely. Canada is as meaningful, but something that we're monitoring closely. And to answer your last question in terms of U.S. MCA exemption, the vast majority of our products qualify for U.S. MCA exemption. Thank you.
Okay, thanks Rick, that's helpful. My follow-up question is just-
Speaker Change: As a point of clarification, I think your higher guidance just assume the 10% tariffs on China and that you would effectively fully mitigate those so when we're thinking about building the year
Mike Dow: You know, is it really just like this entire amount that you're outlining is effectively incremental? So the 150 to 200 million of the cost that you can't offset in your that is entirely incremental plus whatever the volume that
Mike Dow: So incremental to that has been 135% to 145 minus 10% in terms of incremental Chinatarras.
Mike Dow: The 25% still on aluminum tariffs and the 10% global reciprocal tariffs are all what I would consider incremental. So what we do what we had contemplated and had known quite frankly on our February call.
Okay, thank you.
Robin Zondervan: They are known for the questions that this time I will now turn the call over to Robin for closing remarks.
Robin Zondervan: We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a great day.
Robin Zondervan: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.