Masco Corporation

Good morning, ladies and gentlemen. Welcome to Masco Corporation's third quarter 2022 conference call. My name is Alex 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 star two. I'll now turn the call over to David Chiker, Vice President, Treasurer and Investor Relations. You may begin.

Thank you, Alex, and good morning. Welcome to Masco Corporation's 2022 Third 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 third 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 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 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. In the third quarter, Sales matched prior year with significant pricing actions of 9%, offsetting volume declines of 6% and currency headwinds of 3%. Demand moderated more than expected in the third quarter, with most categories experiencing declining volumes year over year. Our operating profit was impacted by these lower volumes, higher operational costs, and unfavorable foreign currency. Partially offsetting these headwinds, SG&A as a percent of sales improved 110 basis points to 15.6% as we continued to manage our SG&A and discretionary spending. Operating margin was 15.9% for the quarter, and earnings per share was 98 cents. Turning to our segments, plumbing grew 5% in local currency against a 15% comp with 4% growth in North America and 5% growth in international. Our spa business and international plumbing delivered positive volumes for the quarter. International plumbing sales were led by strong growth in China as we continue to gain share. European markets in the quarter were flat in local currency against a double digit comp in the third quarter of 2021. While incoming orders have moderated in Europe, we saw good demand in several markets, such as China, India, and the Middle East, demonstrating the benefit of selling to over 100 countries. We were price-cost positive in the third quarter in plumbing, and we expect that relationship to continue to improve in the fourth quarter, as our pricing actions are in place and we continue to anniversary the higher costs from last year. In our decorative architectural segment, sales grew 1% led by propane sales, which increased mid-teens against a more than 45% top in Q3 of 2021. More than offsetting sales declined to DIY paint, lighting, and hardware. Propane volumes increased low single digits as we continue to see good demand from propane contractors. We are retaining the significant share gains we have achieved over the past 12 months, and we continue to increase the rollout of additional capabilities and services, along with our channel partner, to strengthen our value proposition to the propainter. This strong performance is a testament to the satisfaction that propainters have with our high-quality products, competitive pro offering, and our partnership with the Home Depot. We are pleased with our performance in propane and will continue to capitalize on the significant growth opportunity. Moving on to the overall demand picture, POS and incoming orders slowed more than expected late in the third quarter across most of our product categories, and we anticipate this slowdown to continue into the fourth quarter. In the third quarter, we also experienced higher operational costs, mostly in plumbing, that will continue into the fourth quarter. These operational costs include higher than expected freight and material costs due to persistent inflation, as well as production and absorption inefficiencies associated with changing volume levels. Lastly, the U.S. dollar continues to strengthen, which will result in lower revenue and operating profit dollars than we previously forecasted. Because of these dynamics, We are lowering our earnings per share expectation for the year to $3.70 to $3.80 from our previous expectation of $4.15 to $4.25. We are enacting plans to address lower volumes and elevated operational costs. While market conditions are softening, we believe we are well positioned to outperform in more challenging times and deliver long-term shareholder value. Our portfolio of lower ticket repair and remodel oriented products serves both DIY and pro customers, and we have product, channel, geographic, and price point diversification to provide stability and resilience through a cycle. We've taken significant pricing actions and will continue to recover cost inflation experienced in 2021 and 2022 as certain commodities and costs pull back from their highs, such as copper, zinc, and ocean freight. We continue to invest in our leading brands and innovation to capture share. We have experienced, agile management teams that have successfully navigated uncertain economic environments before, and we have a strong balance sheet, cash flow, and liquidity that can be used to our advantage. This confidence in our business is exemplified by the new two billion dollar share repurchase authorization approved by our board of directors this authorization is a continuation of our capital allocation strategy first and foremost reinvest in our business to drive profitable growth second maintain a strong investment grade balance sheet third pay a relevant dividend with a targeted 30 payout ratio and fourth Deploy excess free cash flow to share repurchase or bolt-on acquisitions. We have consistently executed on this strategy to drive long-term shareholder value and will continue to do so. I'll now turn the call over to John for additional detail on our third quarter results and full year outlook. John?