Masco Corporation — 2024 Q1

I'm not quite tracking with you, Anthony, in terms of volumes improving. Tell me what you mean by that?

Well, I'd tell you that we've -- when we look at the rate of volume decline that we're seeing across our business and specifically in DIY paint, we continue to see that the market is down a little bit. We haven't really seen a restoration of volumes. I don't know if you're implying sequentially or if you're looking at year-over-year.

Anthony, the only thing I would add is there's nothing really noteworthy in terms of trends. I think it's more seasonality. But in terms of our DIY performance as well as our Pro volume or sales performance, it was roughly flat year-over-year on a Q1-to-Q1 basis. And as we indicated in terms of the calendar year outlook, which is probably more meaningful on a calendar basis, we do expect DIY to be down low single digits, but Pro to be up low single digits. So that provides some context in terms of what we're expecting this year.

Yes. I think in terms of what we're seeing on a sequential basis on a year-over-year but a sequential basis, as you articulated, I think that's driven largely by the geographic performance. So it wasn't really until Q2 of last year where we saw more of a slowdown in our international market. And so as we look on a year-over-year basis, our North America Plumbing was down 1% or 2%. But our International Plumbing was down about 5% on a currency-adjusted basis. So I think that's perhaps explaining the dynamics that you're seeing.

Yes. When we look at our rate of decline in Plumbing it really shows a moderation in terms of what I would call stabilization, probably a better word, particularly in North America. The slowdown last year happened, as Rick said, a couple of quarters later in our International business. So our -- in North America, our trade business is doing quite well. And overall North America is stable. We feel it's safe to say that we've hit the bottom in North America, a little bit different story internationally. More stability in Germany, certainly, but there's still some variability in China. So it's maybe a little bit too early to call to say that we're seeing that hit bottom in North America. So we're expecting our international sales to be down a little bit more in terms of the total market this year than we would in North America.

Really no change. We've performed this quarter as expected. We're holding our guidance and believe that we will start to see an uptick in the second half in the overall market. But -- no real changes as we see it in terms of how the consumer is behaving. Certainly, there's volatility left and that we're calling for flat, plus or minus low single digits. And our market is driven primarily by consumer confidence. So we're watching carefully where the rates go, what happens geopolitically. There's a lot of dynamics here, but fundamentally, how we view the market has not changed. And by and large, first quarter came in right where we expected it to come in.

Yes. No, I follow your math, John. It wasn't quite that significant, but Kichler and Liberty were down a bit more than our overall portfolio. And some of that's driven based off of decisions that are made. For example, Kichler has done a really nice job at taking some restructuring actions with regards to cost and price, but also portfolio exiting some lines of business that weren't as profitable. So that's driving a little bit of the year-over-year comp. And as we look for the rest of the year, I think what we will expect to see in terms of those business lines is more in line with the R&R industry as we kind of lap some of the comps.

Yes. No, Matt, I appreciate the question. And we are pleased with our performance. It was a strong performance in Q1. And we've -- as you indicated, we've reiterated our guidance for the year as well as our first half and second half performance. I think it's important to note that we do still expect to see overall margin expansion in each of our segments in for Masco overall for the calendar year.

Not a real big impact in price/cost in Plumbing in the quarter. Again, as Rick said, we're pleased with the margin performance. The team has done a real phenomenal job of lining up a pipeline of productivity initiatives, and this is something that's been going on for several quarters now and part of the reason why we have the confidence of the overall margin increase year-over-year. So it's really not a question of what's not going to continue moving forward. We're holding our guide. The business performed well, not a whole lot of impact either way from the price/cost relationship. It's just good solid execution, and we expect that to continue.

Well, I think we've -- Mike demonstrated an ability to manage commodity changes. Who knows where they will go. We're seeing a little bit of variability. We're watching crude oil. There's some freight components in terms of incremental costs as we ship around the Red Sea. There's pending labor negotiations in the East Coast. So those are the types of things that we watch, and we're uncertain where those may go and if they will result in headwinds, but I think we've demonstrated the ability to manage those with our pipeline of productivity initiatives and cost out as well as the strength of our brands and innovation and ability to get price where we need to.

Sure. I think the important -- the most important view that we have is that our capital allocation strategy has not changed. I think we're anticipating in the range of $600 million this year of availability for acquisition from cash flow available for acquisitions or buyback. And we see those as fungible, and we're not going to hoard cash, and we're going to manage that very consistently with how we have in the past, and that's resulted in good shareholder value creation.

No, not really. We're pleased with the first quarter performance, as I said in my prepared remarks, but it's on plan. That's what we anticipated. We're 1 quarter into the year. We're 1 quarter in marching towards our 2026 margin guidance. So we're not -- we're not really -- no change at this point. Things are going well. We're executing well. We realize that we're in a volatile environment and that flexibility and reactivity is important, and we're continuing to drive that with our leadership team.

Sue, it's Rick. Yes. From a working capital perspective, we continue to be disciplined on working capital. It's probably well documented. We had a bit elevated of working capital in 2022. We brought that back in line in 2023. And our expectation is that we'll continue to keep working capital at a normalized or in-line basis as we work through the course of the year. So there will be seasonality.

Yes, Adam, what I would say is, again, we're pleased with Q1 performance. As it pertains to the rest of the year, I would say, for Plumbing price, we're expecting a low single-digit tailwind or favorability for the year overall and commodities to be relatively neutral. As Keith mentioned, there's some -- obviously, as we all recognize, variability in the commodity markets and in the freight market. So that's a little bit TBD as the year plays out. But at least from a price perspective, low single-digit favorability.

Yes, it was pretty minimal during the quarter. It was a slight headwind in our International business, just really, as Keith mentioned before, China is still pretty volatile and that tends to be a more profitable market. So if that is down, which it was, it's geographic mix, but it wasn't very meaningful for the overall business.

It's really as we expected. Don't comment so much on inter-quarter as there's obviously a lot of variability with regards to current year in quarter or prior year end quarter, system fill for new product launches and all those sorts of things. But I would say it's as expected and really no comment beyond that in terms of what's happening inside the quarter.

Sure. Yes, that was certainly a significant acquisition for Home Depot. And I think that really illustrates their focus, which we've been keenly working with them on the paint side with regards to the Pro, but they continue to be focused on the Pro, and that's consistent with our strategy, and we continue to work very closely with them particularly in our paint business to go after that Pro. And when you look at our stacked comp over the last several years of some 60% in Pro paint, that's indicative of not only the capability of our Behr brand and our service proposition, et cetera, but absolutely of our relationships and their focus on that Pro. So that's key.

In terms of the overall International market, as I said, Garik, it's lagging a little bit in terms of finding the trough, if you will, versus North America. So we're expecting the International market to be down low to mid-single digits. Hansgrohe and that team there has done a phenomenal job and there's no question, while it's certainly difficult to pin down in a particular quarter, the size of the market when you're in well over 100 countries. But clearly, we're outperforming our major competition in Europe and continuing to gain share.

Yes, we've had some price that we took last year and then I would say kind of targeted pricing this year in Plumbing, I'm talking specifically. It's been a mixed bag as it relates to commodities in Plumbing. Container costs have decreased slightly, but are certainly elevated ongoing risk, as I talked about, in the East Coast port negotiations, the Red Sea, a number of other areas as it relates to freight. At quarter end, I think copper was up about 3% from where it ended last year and is currently above $4 again. Zinc prices are starting to come up. So there's volatility there.

Yes. Keith, it's Rick. So with regards to our -- on the paint side of the equation from a commodity standpoint, we saw some favorability in Q1 year-over-year is pretty modest, but really sequentially flat. And really for the year, for the calendar year, we don't see a significant impact as of today with regards to commodities on a year-over-year basis in the coatings business. As I think it was mentioned, we've seen some increase in oil prices, which obviously impacts resins. There's some pressure in the TiO2. So good start to the year, but really stability and some potential upward pressures, but we're monitoring it very closely.

Yes, there's a delay, obviously, as Keith's alluded to, because it's not an immediate impact. And -- and so we're -- again, we're monitoring it, but it's not something that we currently in terms of our expectations for the year, we're not baking in any significant benefit or headwind with regards to commodities for the year.

The way we view pricing is really a function of the strength of our brands and where commodities go as it relates to our ability to drive cost improvement. And there's really no difference in pricing as we think about that strategy as it relates to various channels, and we're going to stay consistent with that. Beyond that, I'm not going to get into specific customer discussions or the like as it relates to pricing. But fundamentally, we look at the -- our capabilities to drive productivities, the strength of our brands and our innovation. And over time, we've demonstrated the ability to get effective pricing over cycles.

Yes, Sam, we think there is opportunity to continue to gain share. Our relationship with the Home Depot is outstanding. We're focused on DIY paint. We're focused on Pro. And obviously, our Plumbing businesses. Depot is a big customer for us in plumbing, and we're looking at ways to continue to drive solutions for the consumer that result in share gain, both in terms of shelf and in overall volume. So that's something we always work on and we'll continue to do.

Stephen, you might be on mute.

Yes. Good question, Stephen. The specific initiative -- they cover -- I'm hesitating just because the team is doing such a good job across multiple fronts, and it's not just in North America. It's also International with Hansgrohe and across our Plumbing platform. But there's a bucket of initiatives in our pipeline around purchasing and how we buy and who we buy from and how we can coordinate and consolidate our buy, and that's certainly been beneficial.

It's a mix. Certainly, having efficient direct and indirect labor and that human capital side is part of it. Certainly, providing leadership and expectations and coordination with the technical or the human capital on the engineering side is a big component of it. And technology is a piece. And we're a leader, particularly in Plumbing, in the online and the e-commerce space.

It's really hard to get a handle on that, frankly. When you look at a year or 2 years ago when we have such significant inflation, the elasticity data really didn't apply, and it wasn't nearly as consistent. And it varies by technology, it varies by price point, it certainly varies by in some cases, countries.

Yes. I don't know if we cited a specific number. We did say that there was growth in revenue in Delta, really aided by our sales performance in the wholesale channel. What I would say is from an overall standpoint, it's -- our guidance for the year from a Plumbing perspective is up or down low single digits.

I think pretty consistent, Rafe. I think in that 30% to 35% for plumbing, a little bit lower than that for decorative, that's been consistent with how we've performed, and I wouldn't anticipate any change in that. So -- and then, of course, on the downside, we managed the decrementals, and we've had some really strong performance in terms of having those decrementals be less than those incrementals, which is indicative of how the teams are managing the volatility, but no real change from what we've seen historically as it relates to the drop down on incremental volume.

How we work with our channel partners to drive demand is across the whole continuum of having the right price of continuing to drive down our costs through productivity initiatives, to keep a solid pipeline of innovation, I went through some of that earlier in my prepared remarks of what we're doing to make sure that we have that desired place on the shelf and that top of mind performance in the consumer.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a wonderful day.