Masco Corporation

Good morning, ladies and gentlemen. Welcome to the NASCO third quarter 2020 earnings call. My name is Maria, 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, please press the pound key. I will now turn the call over to David Shika, Vice President, Treasurer, and Investor Relations. You may begin.

Thank you, Maria, and good morning. Welcome to Masco Corporation's 2020 Third 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 Third 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 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've reconciled 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 are staying healthy and safe in these difficult times. Please turn to slide four. During the third quarter, demand for our products was extremely strong as consumers continued to reevaluate how they use their homes in the face of ever-changing responses to the pandemic. With more time at home, and more disposable income due to reduced discretionary spending on leisure travel, entertainment, and gas for commuting, to name a few, consumers are investing in their homes. I'm very proud of our strong execution as we met this increased demand and served our customers while maintaining our top priority of employee safety. This resulted in tremendous performance on both our top And bottom lines, sales for the quarter increased 15%, excluding the impact of currency. Operating profit increased $127 million, or 43%, and operating margins expanded 400 basis points to 21.4%. We delivered strong incremental margins, 48%, as a result of our ability to profitably leverage the robust volume growth and to pull the right cost reduction levers. Earnings per share grew 73% to $1.04 per share. Turning to our segments, excluding currency, plumbing sales increased 12%. North American plumbing sales grew 14%, led by extremely strong performance at Delta. which drove greater than 20% growth across each of its retail, e-commerce, and trade channels. Trade sales in North America were particularly strong in the second half of the quarter, with Delta achieving record trade sales in both August and September. Delta was recently recognized as the Home Depot Marketing Partner of the Year. This is an annual award across all of Home Depot's suppliers and speaks to our commitment to partner with our customers to drive growth through innovation, omni-channel expertise, and strategic thought partnership. Our spa business also rebounded nicely in the third quarter and achieved growth, despite still dealing with government limitations on the number of employees in its factories. Record levels of demand and backlog for our spas continued as consumers looked for ways to enhance their at-home living and backyard experience. Our international plumbing business also posted strong growth of 9%, excluding currency, led by growth in Germany and China. While Europe as a whole rebounded in the third quarter, certain markets remained challenged, such as the UK and Spain. In our decorative architectural segment, sales grew an exceptional 19% as we drove growth in all product categories, including paint, bath and cabinet hardware, and lighting. Our DIY paint sales remained very strong in the quarter with growth in the upper 20% range. ProPaint declined mid-single digits, a significant improvement from last quarter. Paint demand has remained robust as it is a simple, economical project that homeowners can do themselves to improve the appearance of their home. Across all of our business units, it was an exceptional quarter. I would like to again thank all of our employees for their tremendous efforts in serving our customers and keeping each other safe. Now, moving into our fourth quarter outlook. we anticipate demand to remain strong and expect fourth quarter sales growth excluding currency to be approximately eight to 10% in both segments. Additionally, we expect fourth quarter operating margins for our plumbing segment to be approximately 19% and operating margins for our decorative segment to be approximately 17%. Together, This would put Masco's operating margin at over 17% for the quarter, a year-over-year expansion of approximately 150 basis points. As it relates to SG&A as a percent of sales, we anticipate further investment in our brands, innovation, and service to ensure we continue to deliver long-term, sustainable value creation. 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 United States and the world. Lastly, I'd like to update you on our capital allocation. While there remains uncertainty in the incurred environment, based on our strong balance sheet and liquidity, we do plan on resuming our share repurchase program in the fourth quarter. While the amount of repurchases will be subject to many variables, our initial plan is to deploy approximately $100 million towards repurchases in the core. And finally, 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 with the right strategic fit and return during these uncertain times. With that, I'll now turn it over to John for additional details on our third quarter results. John?