Masco Corporation

Good morning, ladies and gentlemen. Welcome to MASCO's second quarter conference call. My name is Dorothy, 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 Chayka, Vice President, Treasurer, and Investor Relations. You may begin.

Thank you, Dorothy, and good morning. Welcome to Masco Corporation's 2021 second quarter conference call. With me today are Keith Allman, President and CEO of Masco, and John Snubice, 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 everyone is staying safe and healthy. We performed exceptionally well in the second quarter, and demand for our products was strong. This resulted in our fourth consecutive quarter of double-digit sales growth and sixth consecutive quarter of both margin expansion and double-digit earnings per share growth. I'm extremely proud of our entire team as we successfully navigated numerous supply chain challenges to enable this growth. For the quarter, sales increased 24%. Excluding acquisitions, divestitures, and currency, sales increased 18%. Operating profit increased 27%, and margins expanded 60 basis points to 20.1%. principally due to strong volume leverage. Earnings per share increased an outstanding 34%. Our overall performance demonstrates the strength of our portfolio of lower ticket repair and remodel products that are diversified across geographies and channels, serving both the consumer and the professional. Turning to our plumbing segment, sales increased 48%, excluding currency, led by exceptional growth from our North American and international faucet and shower businesses and our spa business. International plumbing grew 50% in the quarter, excluding currency, as Hansgrohe's sales rebounded sharply in nearly all of its markets. Strong operational execution and new products such as Hansgrohe's Rainfinity shower systems led to share gains in many of these markets. New product introductions will continue as we launch the award-winning Axor One collection in the second half of the year. This collection was designed by Barbara Osgerby, an award-winning, internationally acclaimed London-based industrial design studio. This continues Hansgrohe's legacy of combining leading contemporary design with innovative functionality. North American plumbing posted strong growth of 47%, excluding currency in the second quarter, led by approximately 75% growth at Watkins Wellness and robust double-digit growth at Delta. Delta Faucet delivered another record quarter with growth across all channels and particularly strength in the professionally oriented trade channel. We continue to invest in new products in North American plumbing as well. And two days ago, we introduced a Frank Lloyd Wright collection by Breezo that furthers the brand's commitment to distinctive design and innovative products. Lastly in plumbing, at the beginning of July, we acquired Steam Mist, another bolt-on acquisition for Delta. Steam Mist is a leading manufacturer of residential steam bath products. that will complement our strong trade in e-commerce product offering and is consistent with our bolt-on acquisition strategy. In our decorative architectural segment, sales declined 5% against a healthy 8% comp for the second quarter of 2020. While bath and cabinet hardware, lighting, and pro paint grew in the quarter, demand moderated for DIY paint. Material availability and other supply chain issues also impacted our overall coatings business, as nearly all of our resin suppliers were operating under a force majeure declaration during the second quarter. Because of these issues, sell-through on our coatings products was better than sell-in, and inventories in the channel were reduced during the quarter. Due to lower than expected second quarter sales, and our expectation that material availability issues will persist but slowly improve, we are lowering our DIY sales expectation from flat to down low single digits for the full year. However, with the acceleration we saw in our propane business in the quarter, we are incrementally more optimistic and are raising our expectations to low double digit growth from high single digit for the full year for our propane business. For the decorative segment overall, we now expect growth to be in the range of 2% to 5% for the full year. With respect to innovation in the decorative segment, we continue to invest in new products and are excited to launch a new high-end line of paint in the third quarter at the Home Depot called Bear Dynasty for both DIY and pro painters. Dynasty is our most durable, stain-resistant, scuff-resistant, one-coat-high paint ever. It's low VOC, GreenGuard and LEED certified, fast drying, and has an antimicrobial, mildew-resistant paint finish. This is yet another example of how our innovation teams continue to focus on the voice of the customer to deliver leading innovation and value for both the consumer and the professional. Moving on to capital allocation, we continued our aggressive share buyback during the quarter by repurchasing 6.6 million shares for $447 million. As part of the accelerated share repurchase agreement that we executed during the quarter, we will additionally receive approximately 900,000 shares in July to complete that agreement. bringing our total shares repurchased year-to-date to 13.1 million shares for $750 million. This is approximately 5% of our outstanding share count at the beginning of the year. Underscoring our strong financial position and confidence in the future, we now anticipate deploying another $250 million in the second half of the year for share repurchases and acquisitions for a full year total of approximately $1 billion. Finally, like I did last quarter, let me give you an update on what we are experiencing with inflation and supply chain tightness. We continue to see escalating inflation across most of our cost basket, including freight, resins, TIO2, and packaging. Inbound freight container costs nearly tripled during the quarter. We now expect our all-in cost inflation to be in the high single-digit range for the full year for both our plumbing and decorative segments, with low double-digit inflation in the second half of the year. Inflation and codings will likely be in the mid-teens later in the fourth quarter. To mitigate this inflation, we have secured price increases across both segments and are taking further pricing action across our business to address these continued cost escalations. We're also working with our suppliers, customers, and internal teams to implement further productivity measures to help offset these costs. Despite the increased inflation, we still expect to achieve price-cost neutrality by year end. While cost inflation has clearly been an issue, material availability has also impacted our business. Our teams have done a tremendous job of qualifying new suppliers, developing material substitutions, and shifting production to adapt to this dynamic environment and to serve our customers. However, these raw material constraints have limited our ability to build inventory of many of our products in the channels that we serve. We anticipate material availability to slowly improve in the second half of the year, and we expect to replenish inventory to the appropriate levels over this time. The demand for our products remains strong, and with an improved outlook for plumbing based on the continued strength of both our North American and international operations, we are increasing our full-year expectations of earnings per share to be in the range of $3.65 to $3.75 per share, up from our previous expectations of $3.50 to $3.70. With that, I'll turn the call over to John for additional detail on our second quarter results. John?