Masco Corporation

Good morning, ladies and gentlemen. Welcome to Masco Corporation's fourth quarter and full year 2021 earnings call. My name is Renz, 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 Mr. David Czajka, Vice President, Treasurer, and Investor Relations. You may begin.

Thank you, Renz, and good morning. Welcome to Masco Corporation's 2021 Fourth Quarter and Full Year Conference Call. With me today are Keith Ullman, President and CEO of Masco, and John Snubice, Masco's Vice President and Chief Financial Officer. Our fourth quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we 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 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 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. 2021 was another challenging year, but once again, we demonstrated the strength and resilience of MASCO and our 20,000 employees across the globe. I'll start this morning with some brief comments on our fourth quarter. Then I'll turn to our full year results and our view on 2022. Turning to slide five, our top line increased 9% in the fourth quarter. This strong growth was led by our paint business, which delivered exceptional results and continued to gain share in both the pro and DIY markets. Our operating profit declined in the quarter due to higher commodity and freight costs as inflation reached low double digits. As a reminder, we discussed in our third quarter call that inflation would have the greatest impact on our P&L in terms of price-cost lag in the fourth quarter of 2021. Partially offsetting this inflation in the fourth quarter was good expense control, as SG&A in dollars was approximately flat, while the percentage of sales improved 140 basis points. Our earnings per share for the quarter was 67 cents. Turning to our segments, plumbing grew 5% local currency with 6% growth in North American plumbing and 3% growth in international plumbing. North American plumbing performed well in the quarter as we continued to see good demand for our faucets and shower products, particularly through the e-commerce channel. Our spa business also continued to see strong demand for its outdoor wellness-oriented products that have a tremendous appeal to today's homeowners. In international plumbing, Hansgrohe drove growth in many key markets, including China and the U.K. In our decorative architectural segment, Bayer continued its tremendous performance with mid-single-digit growth in DIY paint and over 50% growth in propane. We continue to see good demand for both DIY and propane, and our operational excellence has enabled us to gain share in this supply-challenged market. our lighting and bath hardware businesses also contributed to growth and margin expansion in the quarter. Now let's review our full year performance. Please turn to slide six. For the full year, total company sales grew 17% and operating profit increased 11% with an operating margin of 17.4%. Strong volume growth and pricing realization was partially offset by high single-digit inflation and a return to more normalized investments in marketing and personnel to support our growth. Our plumbing segment grew an outstanding 22%, excluding currency, led by strong growth at Delta, Hansgrohe, and Watkins. Our plumbing business is well-positioned to continue to outperform the market with its leading brands, new product introductions, and operational excellence, and enters 2020 with healthy backlogs. In our decorative architectural segment, full-year growth was 6% against a 12% comp as our business grew mid-single digits with DIY down mid-single digits and Pro up over 30%. Pro Paint now accounts for approximately 30% of our paint business. Bear enters 2022 with a lot of momentum. Our relationship with our channel partners is extremely strong, and we are committed to mutual growth. Our Bayer brand was recently named the most trusted paint brand by an independent third-party market research firm. Our pro-paint business continues to gain share in the market and outperform the competition. And our recently launched dynasty behind paint is performing exceptionally well. And as we exit 2021, we have one shelf space in a number of adjacent paint categories, such as aerosols, interior stains, and caulks and sealants, all of which will help to drive growth in 2022 and further demonstrates the strength of our brand and partnership with our customers. Turning to capital allocation, our strong cash position and cash generation is allowed us to deploy nearly $1.3 billion in capital during the year. We repurchased a billion dollars of our stock at an average price of $58.31 per share. This represents approximately 7% of our outstanding shares. We increased our annual dividends 68% and paid approximately $211 million in dividends to shareholders. We completed the acquisition of Steam Mist for approximately $56 million, and we finished the year with over $925 million in cash and net leverage of 1.3 times, providing us ample financial flexibility and firepower. Our strong operating profit growth, combined with our significant capital deployment, resulted in exceptional financial results. We increased earnings per share by 19% to $3.70 per share. We delivered adjusted free cash flow of approximately $900 million with a conversion rate of 90% despite an increase in working capital due to inflation and supply chain tightness. And we achieved a return on invested capital of approximately 47%. I want to thank all our 20,000 employees across the globe for their outstanding efforts throughout 2021 to deliver these exceptional results. No summary of 2021 would be complete without mentioning the significant ongoing supply chain and inflation challenges. Once again, I'd like to thank our tremendous suppliers who worked with us through these unprecedented challenges of 2021. As we exited 2021, supply chain challenges have marginally improved. However, Shipping delays and labor constraints remain a challenge. We experienced high single-digit inflation overall in 2021 and expect inflation to remain persistent and to increase in 2022 as higher raw material, freight, and labor costs flow through our P&L. Importantly, however, we exited the year on a price-cost neutral basis except for additional increases in freight and logistics that occurred during the fourth quarter. We have initiated actions to cover these additional logistics price costs with price. The price-cost impact in Q1 will be significantly improved as compared to the fourth quarter of 2021. Now turning to 2022, I'd like to share with you our view of the markets where we compete. For the North American repair and remodel market, we expect market growth to be in the mid-single-digit range. For the paint market, We expect the DIY paint market to grow mid-single digits and the pro-paint market to grow low double digits. And for our international markets, principally Europe, we expect a low single-digit growth environment. These expectations across all markets include significant price. The repair and remodel market remains strong and leading home improvement indicators are robust. Home price appreciation was 18% in December, and existing home sales increased over 8% compared to prior year. Each of these metrics has a strong correlation with our sales on a lagged basis. Based on these assumptions and our expectation that we will continue to gain share and outperform the market, we anticipate NASCO's growth to be in the range of approximately 4% to 8%, excluding currency, for 2022. We expect margins to expand modestly to approximately 17.5% despite a significant margin headwind from pricing to recover costs and normalization of investments in the business as we continue to grow. Turning to capital allocation, our strategy remains unchanged. First and foremost, we will invest in our business to meet the current and future demand for our products. As we announced last quarter, we are expanding our production capability in Europe with a new faucet and shower plant for hounds growing. Additionally, we are adding manufacturing and distribution capacity to our spa and paint businesses to support our strong growth. These investments will likely increase our capital expenditures to just above our normal level of approximately 2% to 2.5% of sales on average. keeping in mind that CapEx was only about 1.5% in 2021. In terms of returning cash to shareholders, based on the strength of our business model and cash generation capabilities, our board declared a quarterly dividend of $0.28 per share, a 19% increase, which would bring our annual dividend to $1.12 per share in 2022. we'll deploy our free cash flow after dividends to share repurchases or acquisitions. Based on our strong liquidity position and our projected free cash flow, we expect to deploy at least $600 million to share repurchases or acquisitions in 2022. Lastly, there is no change to our M&A strategy. We continue to review and selectively pursue opportunities that have the right strategic fit and the right return for mask-ups. With our expected operating profit growth, strong pricing to recover costs, and continued capital deployment, we anticipate earnings per share to be in the range of $4.10 to $4.30 per share, representing a 14% growth at the midpoint. Now, I'll turn the call over to John to go over the fourth quarter, full year, and 22 outlook in more detail. John?