Masco Corporation

Good morning, ladies and gentlemen, and thank you for standing by. You're very welcome. Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the MASCO first quarter 2020 earnings call. My name is Carmen, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. To ask a question, please press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. I will now turn the call over to David Czajka, Vice President, Treasurer, and Investor Relations, so you may begin.

Thank you, Carmen, and good morning. Welcome to Masco Corporation's 2020 First Quarter Conference Call. With me today are Keith Allman, President and CEO of Masco, and John Snevice, Masco's Vice President and Chief Financial Officer. Our first quarter earnings released in the presentation slides that we will refer to today are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at 313-792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risk and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We describe these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission. Our statements will also include non-GAAP financial metrics. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I'll now turn the call over to Keith.

Thank you, Dave. Good morning, everyone, and thank you for joining us today. I hope everyone out there is safe, healthy, and managing through this difficult time. I'll begin my comments by discussing the actions we are taking in response to the COVID-19 pandemic. I'll then touch on our strong first quarter results and conclude with how we're looking at our business through the remainder of the year and beyond. please turn to slide four. Our top priority is the safety and well-being of our employees during this unprecedented time. In early March, we formed a cross-functional COVID-19 task force to coordinate our response across the organization. We've employed best practices and have followed guidance from the World Health Organization and the Centers for Disease Control and Prevention, including working remotely, staggering shifts, modifying work areas to ensure proper social distancing, enhancing cleaning practices, and taking measures to ensure that sick employees stay home. We've also been focused on community outreach. Supporting the communities in which we live and work has always been at the foundation of MASCO's culture. Several MASCO business units have assisted local charities and frontline health care professionals by purchasing and donating protective equipment such as masks and sanitizers and by making in-kind product donations. In addition, we've committed a million dollars to nonprofit organizations that are helping to meet the urgent needs of our communities near our business units. Other efforts include exploring the manufacture of face shields and coverings, and certain valves and brass components for ventilators, and producing and delivering in a matter of days washing units and examinations and closures to protect medical personnel treating COVID-19 patients for a 500-bed interim clinic in Germany. These are just a few of the many efforts and activities going on across our company. I am extremely proud of our employees. They have worked very hard to keep each other safe and to serve our communities. Our second priority has been to ensure we are meeting the needs of our customers and end consumers during this difficult time while maintaining the highest levels of employee safety. Our businesses continue to provide essential products, though certain facilities have been shut down for the month of April and will continue to be shut down to some extent in May. Additionally, Limits on the number of customers in big box retail stores, restrictions on the sale of certain categories in various states, and closures of distribution outlets will reduce sales for our products in Q2, but have limited impact in Q1. Let me briefly discuss our first quarter results. Please turn to slide 5. For the quarter, sales increased 5%, excluding the impact of currency. Operating profit increased $22 million, principally due to strong volume leverage in North American plumbing and in our paint business. And earnings per share grew 24% to 46 cents per share. Turning to our segments, excluding currency, plumbing sales grew 3%, driven by Delta's record sales quarter, as they drove strong volume across all channels of distribution. During the quarter, We also invested in our connected home strategy that we spoke about at our investor day with a small acquisition of a technology company that has developed an interconnected showering system that monitors and controls the temperature and flow of water. This system is an adaptable solution for a wide range of showering products and is the featured technology in Hansgrohe's smart shower system that debuted at the ISH show in Frankfurt last year. In our decorative architectural segment, strong paint volume drove both top and bottom line performance. As shelter-in-place orders were issued throughout March, we saw a significant acceleration in the sales of Behr paint as more and more do-it-yourselfers took advantage of the time at home to undertake painting projects. Recently, Behr's leading brand and quality position was reaffirmed by a third-party testing organization as we once again achieved the highest rating and two out of the top three spots with our Behr Marquee and Behr Ultra paint brands. Our leading paint quality and value, along with our partnership with the Home Depot, positions us well to continue to capitalize on this resurgence of DIY paint demand. We also completed the sale of our cabinetry business unit in the quarter, delivering on our portfolio transformation that we announced just over a year ago. We actively deployed the proceeds of that divestiture through open market share repurchases and an accelerated share repurchase transaction for a combined total of just over $600 million. at an expected average price of between $39 and $40 per share, depending on how many incremental shares we receive at no additional cost to us when the ASR concludes. So let's now discuss how we're approaching the current environment and how it impacts our outlook. Please turn to slide six. From a business standpoint, in addition to our commitment to safety of our employees, we are focused on two things, maintaining our strong liquidity and ensuring we are positioned to win in the recovery. Our liquidity remains strong at $1.8 billion at the end of the first quarter. We are actively reducing our costs and conserving liquidity by cutting discretionary spending, implementing a hiring and wage freeze, delaying discretionary capital expenditures, and suspending our share buyback activity indefinitely. Our goal is to ensure we are able to support our customers in any scenario in the most cost-efficient way possible. While we are focused on short-term cost control during this pandemic, we remain committed to driving long-term growth and will continue to invest in brand, innovation, and service to ensure we win in the recovery. We are in dynamic and uncertain times, and accurately predicting the depth and duration of the impact of this pandemic is difficult at best. However, I'd like to share with you how we are currently thinking about the second quarter, understanding that we have withdrawn our formal guidance for 2020 and 2021. With the numerous shutdown and shelter in place orders, we anticipate second quarter sales to be down in the range of 20 to 25%. This assumes that in the United States and Europe, our closed facilities begin reopening throughout the month of May, and that there are no further restrictions enacted in additional states or geographies. With the sudden nature of the shutdowns and restrictions on distribution, Our decremental margins will likely be in the 40% to 45% range in the second quarter and will improve throughout the year to a full-year decremental of roughly 35%. These decremental margins are a result of the inefficiencies of the rapid shutdown and operating in reconfigured plants due to safety precautions we have enacted. Additionally, we anticipate healthy demand upon reopening. Transitioning now to our supply chain, at the beginning of the quarter, the main concern about COVID-19 was its impact on our Asian supply chain. While our factory and third-party suppliers in China were shut down for the majority of the first quarter, our factory and nearly all of our third-party suppliers are now operating at or close to 100%, which we hope is a good sign for the rest of the world. As we manage through the near-term, ever-changing environment, we are working closely with our leaders across the organization to assess the impact on 2021. And we are determining how to best position Masco to win as we move through the recovery. We believe our work over the past few years to refocus our portfolio on lower-ticket, less cyclical, repair-and-remodel-oriented products and our strong position in DIY-oriented products, positions MASCO particularly well to weather this storm and to outperform during the recovery. With that, I'll now turn the call over to John for additional detail on how our first quarter and the trends we're seeing so far in Q2. John?