Masco Corporation

Good morning, ladies and gentlemen. Welcome to NASCO's second quarter 2020 earnings call. My name is Beverly and I'll be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. To ask a question, please press star, then the number one on your telephone keypad. To withdraw your question, please press the pound key. I will now turn the call over to David Taika, Vice President, Treasurer and Investor Relations. You may begin.

Thank you, Beverly, and good morning. Welcome to Masco Corporation's 2020 second 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 second quarter earnings release and 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've described these risk 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 now turn the call over to Keith.

Thank you, Dave. Good morning, everyone, and thank you for joining us today. I hope you and your families and loved ones are healthy and safe. This is certainly a difficult time for all of us. Despite the numerous challenges created by the COVID-19 pandemic, I am proud that the MASCO team has demonstrated support for one another, support for our customers, and support for the thousands of communities we serve. Our team has risen to the challenge and I'm grateful for their dedication. Similar to the responsiveness that MASCO has shown throughout the pandemic, We are not standing on the sidelines in the fight against racial injustice and inequality. We are concerned about systemic racism, passionate about creating lasting change, and committed to doing our part. Over the last five years, our enterprise-wide diversity and inclusion strategy has included actions within our company and our communities. We fully recognize that we have more work to do. but we've laid a solid foundation that will enable us to accelerate progress in the future. At MASCO, we are committed to creating an environment where all employees are included. All employees are treated with dignity and respect, and all employees have an opportunity, an equal opportunity, to thrive. Now turning to our quarterly results, please refer to slide four. We executed extremely well in the second quarter and demand for our products improved as restrictions on production eased and our distribution channels reopened. This strong demand resulted in a record sales quarter for our paint business and along with our focus on cost control resulted in better than expected decremental margins in our plumbing segment and strong incremental margins in our decorative segment. Combined, Sales for the quarter decreased 3%, excluding the impact of currency, significantly outperforming our expectations. Operating decreased just $5 million, while operating margins expanded 50 basis points to 19.5%. Net income from continuing operations increased 3%, and earnings per share grew 14% to 84 cents per share, highlighting the strength of our capital allocation and portfolio moves. Turning to our segments, excluding currency, plumbing sales declined 13%. Sales varied widely across our businesses in plumbing, mainly driven by the extent of production facility and distribution closures. Our spa business experienced the largest sales decline in the segment due to facility closures. However, Production resumed quicker than expected during the quarter, and we were able to achieve a sales decline of less than half of what we originally forecasted in this business. We continue to see record levels of demand and backlog for our spas, which speaks to our industry-leading brands and to the desire of consumers to enhance their at-home living experience. Our international plumbing business saw significant improvement throughout the quarter. Germany, our largest market, saw positive sales growth in June, while other European countries, such as the UK and Italy, have been slower to reopen. Our North American plumbing business also saw significant improvement throughout the quarter, with Delta achieving a record sales month in June, with strong strength in its trade, retail, and e-commerce channels of distributions. our stronger than anticipated sales performance in plumbing, together with our disciplined cost control, resulted in decremental margins of 28%, significantly better than expected. In our decorative architectural segment, extremely strong paint volume drove both top and bottom line performance. DIY sales were up high teens for the quarter and even stronger in May and June. Sales declined low double digits for the quarter, but we did see notable improvement in June. With our leading bear brand, we are well positioned to continue to capitalize on the strength of the DIY market, and we remain committed to invest, along with our partner the Home Depot, in the large pro opportunity. As we discussed last quarter, we are in dynamic and uncertain times. and accurately predicting the depth and duration of the impact of this pandemic is difficult at best. While we have withdrawn our full-year guidance, here's how we are currently thinking about our expected third quarter performance. We anticipate third quarter, including currency, to be in the range of flat to up 10%. With plumbing sales in the range of down 5% to up 5%, and decorative architectural sales growth to be in the range of 17, excuse me, seven to 17%. Third quarter operating margins for both the company and each of our segments are expected to be similar to last year. Importantly, this outlook assumes no further shutdowns of facilities or points of distribution, which is obviously a concern as COVID cases spike in many parts of the country. While the third quarter appears to be robust based on the demand we are seeing and the backlog for our products, we have concerns that demand could lessen in the fourth quarter if government stimulus reduces and if the economic impact of the pandemic worsens. Additionally, while we are focused on short-term cost control during this pandemic, we remain committed to driving long-term growth and we will continue to invest in brand, innovation, and service to ensure we win in the recovery. Lastly, I'd like to update you on our current thoughts on capital allocation. We have suspended our share repurchase activity indefinitely due to the uncertainty of the current environment. I'll remind you that we repurchased approximately $600 million of our shares prior to suspending our activity at an average price of $39.30 per share. There is no change to our thoughts on M&A. We remain active in the M&A market and have the balance sheet and liquidity to execute transactions during these uncertain times. Lastly, expressing confidence in our future prospects and the strength of our balance sheet, our board announced its intention to raise our annual dividend by 4% to 56 cents per share beginning in the fourth quarter. This marks our seventh consecutive year of an annual dividend increase. With that, I'll now turn it over to John for additional detail on our second quarter results. John?