Masco Corporation

Good morning ladies and gentlemen. Welcome to Masco Corporation's first quarter 2023 conference call. My name is Michelle 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 the number two. I would now like to turn the call over to David Czajka, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you, Michelle, and good morning. Welcome to Masco Corporation's 2023 First 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 first 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 I 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 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. Please turn to slide five. I'm pleased with the start of our year and want to thank our employees and supplier partners for executing well in an environment that remains challenging. We are focused on winning in the recovery. by continuing to engage with our customers, launch new products, and expand the breadth of our brands. At the same time, managing our costs in these uncertain economic times. In this period of volatile macroeconomics and slowing demand, our top line decreased 10% in the first quarter against a strong 12% comp. Volume was down 14%, partially offset by pricing actions of 6%. While operating profit declined in the quarter, primarily due to the lower volume, higher input costs, and continued investments for future growth, our strong execution delivered a decremental margin of approximately 20%. Our earnings per share for the quarter was 87 cents. Turning to our segments, plumbing sales declined 8% in local currency, with North American and international plumbing declining 10% and 3%, respectively. Both our North American and international plumbing businesses continue to further strengthen their industry-leading brands, customer service, and new product development. In North American plumbing, Delta Faucet launched new products at the kitchen and bath industry show, such as the Delta ShowerSense digital shower and the Delta steam shower, each offering consumers a more customizable shower experience. In our spa business, Watkins Wellness launched a complete redesign of its top-selling Hot Springs High Life offering. These spas have exciting new features to enhance the consumer experience that we believe will help Watkins outperform the competition, even in a challenging market. In our international plumbing business, Hans Grohe launched new products at ISH, the world's leading plumbing trade show, including a new product portfolio of sanitary ceramics, and bathroom furniture paired with their premium faucets and showers. Additionally, they introduced the next generation of their in-wall iBox valve, which allows installers to connect any type of plumbing fixture without the need for major construction work. OddsGrowE also displayed their focus on the environment, with a concept study of a bathroom that consumes 90% less water and energy highlighting their commitment to the development of innovative and sustainable products. With our strong brands, geographic diversity, and innovative products, our plumbing segment is well positioned to continue to gain global market share. Turning to our decorative architectural segment, sales declined 10% in the quarter against a strong 17% count. ProPaint declined mid-single digits against a tremendous comp of over 50% in the quarter of 2022. And DIY paint sales declined high single digits. In the quarter, Bayer continued to launch new products and services and received recognition for their industry-leading customer satisfaction. We gained shelf space with our adjacent paint categories, such as aerosols, interior stains, caulks and sealants, and applicators as these programs expanded into additional stores. We launched Behr Dynasty Exterior for the summer painting season, expanding the lineup of our number one rated Dynasty paint line. And we continue to invest in people and capabilities to better serve the pro painter by adding additional sales reps, increasing job site delivery capabilities, and expanding our loyalty programs. Lastly, In a recent third-party paint satisfaction study, Bayer earned the number one rating in the exterior paint category and the number two rating in interior paint, demonstrating the strength of the Bayer brand, quality of our products, and our exceptional service performance. Turning to capital allocation, with our strong free cash flow and balance sheet, we returned $121 million to the shareholders through dividends and share repurchases as we bought back 1.1 million shares for $56 million in the quarter. Now, turning to our outlook for the remainder of 2023. While we delivered solid first quarter results, we remain cautious and continue to expect softening demand trends in 2023 as our markets adjust to increasing interest rates, persistent inflation, and tighter consumer spending. In this uncertain environment, we are focused on adjusting our costs and minimizing the impact of margins from lower volumes. We have enacted select hiring freezes and have reduced staffing, with headcount down approximately 5% year over year. We announced the closure of one of our plumbing manufacturing facilities and we have delayed the opening of our new spa plant as we continue to balance investing to win in the recovery with cost reductions. With the actions we are taking to address this dynamic environment, our continued strong capital deployment, and the uncertain macroeconomics, we continue to anticipate earnings per share for 2023 to be in the range of $3.10 to $3.40 per share. While near-term market conditions remain challenging, we believe the long-term fundamentals of our repair and remodel markets are strong. Those cyclical factors, such as home price appreciation and existing home turnover, will likely remain a headwind for 2023. We believe structural factors, such as consumers staying in their homes longer, the age of housing stock, and high home equity levels, will drive increased repair and remodel activity in the years to follow. I'd like to remind you of the strength of MASCO and the power of our focused business model. Our portfolio of low-ticket repair and remodel products with market-leading brands and product and geographic diversification provides growth and stability through cycles. We arguably have the strongest portfolio of brands in the building products industry, with Delta and Hodge growing in the plumbing industry, and Bayer and Kills in paints and primers. Our products are found everywhere consumers want to shop. We are able to leverage consumer and customer insights across all channels. This drives powerful innovation as evidenced by our 25% vitality index and leading customer satisfaction as evidenced by numerous customer satisfaction and service awards. And through the execution of our MASCO operating system, we look to drive operating margin expansion across productivity and volume leverage. As demonstrated in the first quarter, we will continue to invest in our brands, capabilities, and people to outperform the competition in both the near and long term. With favorable fundamentals for our portfolio of low-ticket repair and remodel-oriented products and our continued focus on executing our growth strategy, Together with our strong free cash flow and capital deployment, we are positioned to drive shareholder value creation for the long term. Before I turn the call over to John, I wanted to take a moment to thank him for his over 27 years of service to MASCO. He has been an invaluable partner, not only to me, but the entire organization, our board, and the investment community during his tenure with the company. He will be missed, and we wish John all the best in his future endeavors. John will be leaving us at the end of May, and we are in the process of selecting his successor. We have strong internal candidates and have engaged a search firm to assist in conducting a thorough external search as well. While we complete this process, Dave Chayka, MASCO's Vice President, Treasurer, and Investor Relations, has been appointed as our interim CFO. Dave has over 20 years experience with the company, starting in our M&A department and progressively adding additional responsibilities, including treasury, risk management, financial planning and analysis, and investor relations. Additionally, prior to MASCO, Dave was a vice president in the commercial banking industry and an officer in the US Navy. Now, for the final time, I'll turn the call over to John to go over our first quarter results and 2023 outlook in more detail. John?