Masco Corporation

Good morning, ladies and gentlemen. Welcome to Masco Corporation's second quarter 2022 conference call. My name is Bailey 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 star then two. I will now turn the call over to David Chaika, Vice President, Treasurer, And Investor Relations, you may now begin.

Thank you, Bailey, and good morning. Welcome to Masco Corporation's 2022 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 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. Please turn to slide five. We continue to execute in this challenging environment, and I'm pleased with our performance in the first half of the year. In the second quarter, our top line increased 8% with growth driven by pricing and to a lesser extent volume in both segments. Our operating profit was impacted by higher supply chain costs, planned marketing expense increases, and unfavorable foreign currency. Commodity and other inflation was mid-teens in the quarter, but we expect this to be a peak level as we anniversary inflation that began last year, and we are beginning to see declines in certain input costs in the spot market. Importantly, with our continued pricing actions, we have begun to recover the price-cost lag that we experienced in the back half of 2021. Additionally, we continue to leverage our SG&A as SG&A as a percent of sales improved 90 basis points to 15.3%. These actions contributed to sequential margin improvement of 140 basis points to 17.6% for the quarter. Earnings per share for the quarter was $1.14, which matched prior year's earnings. Turning to our segments, plumbing grew 7% in local currency against a 48% count. with 7% growth in North American plumbing and 8% growth in international plumbing. North American growth was led by our spa business that continues to capitalize on strong demand for its products. International plumbing markets remain solid, with strong growth across Europe and in China during the quarter. In our decorative architectural segment, sales grew 15%, as Bayer continued its strong performance with low teens growth in DIY paint and approximately 40% growth in propane. DIY paint growth was mostly due to price as we continue to see DIY paint volumes normalizing. We expect full-year DIY paint volumes to be in the range of 2019 volumes. Propane volumes remain strong as we continue to gain market share in this market. demonstrating the compelling offering that we have developed along with the Home Depot. I'm also very pleased that for the ninth year in a row, Behr was named the number one rated interior paint by a leading third party testing agency. In addition to the top spot, Behr took all of the top four rankings. This is a testament to the quality and value proposition that bare paint brings to both the DIY and propane markets as paint quality, including ease of application, durability, coverage, and value are extremely important selling points for both the DIY and pro customer. Turning to capital allocation, we repurchased $550 million of our stock during the quarter through open market repurchases and an accelerated stock repurchase transaction. This brought our total share repurchases to over $900 million for 2022, or nearly 7% of our shares outstanding at the beginning of the year. This likely completes our repurchases for the year, as we will use our free cash flow to repay the $500 million term loan we used to fund the ASR. Now let me address what we are seeing in terms of demand in our markets. Largely as expected, demand or actual sellout for many of our products moderated during the second quarter. Across most of our categories, we expect volumes to be down modestly in the second half of the year with growth driven by pricing. On the cost side, certain input costs such as labor and freight remain elevated. Additionally, Labor and freight availability continues to be inconsistent, making it challenging to operate efficiently. Lastly, the U.S. dollar continues to strengthen, resulting in lower operating profit dollars than we forecasted. With these considerations in mind, we are narrowing our earnings per share expectations for the year to be between $4.15 to $4.25 per share from our previous expectations of $4.15 to $4.35. We are closely monitoring market dynamics and will take action if demand falls below our expectations. That said, we believe there are numerous positive structural factors related to housing that will be supportive of increased repair and remodel activity over the next few years, even if there is a short-term economic slowdown. We are on the edge of the large 75 million-person millennial cohort forming households and entering the housing market. 2.7 million more homes will reach the prime remodeling age of 20 to 39 years old over the next three years. The COVID-19 pandemic has clearly increased the desire for more enjoyable living spaces, which has led to increased home demand and remodeling expenditures. And consumers and homeowners have strong balance sheets with more than $2 trillion in savings and home equity values at all-time high. All of these structural forces provide tailwinds for our repair and remodel business. Now I'll turn the call over to John for additional detail on our second quarter results and full year outlook. John?