Masco Corporation

As a reminder, today's conference call is being recorded for replay purposes. To ask a question, please press star and 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 Renée Benedict, Director of FP&A and Investor Relations. You may begin.

Thank you, Jerry, and good morning. Welcome to MASCO Corporation's 2023 Third Quarter Conference Call. With me today are Keith Ullman, President and CEO of MASCO, and David Czajka, MASCO's Vice President, Treasurer, and Investor Relations. 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 risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties and 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'll now turn the call over to Keith.

Thank you, Renee. Good morning, everyone, and thank you for joining us this morning. Before we get into our results, I want to take this opportunity to welcome MASCO's new CFO, Rick Westenberg, who joined the team on October 16th. Rick is an accomplished executive with more than 25 years of experience, including nearly 15 years leading global finance organizations. We're excited to have Rick on board and look forward to him participating in our fourth quarter earnings call in February. I would like also to take this time to thank Dave Czajka for serving as interim CFO over the last several months. Dave quickly stepped into the position and successfully led our finance team during this transition, and we greatly appreciate his support. With that, let's turn to our third quarter results. Please go to slide five. In the third quarter, we demonstrated our ability to execute and the earnings power of our business model, despite a challenging environment which saw a top line decrease 10%. Volume was down 12%, partially offset by pricing actions and favorable currency impacts of 1% each. While sales were down $225 million, our continued focus on driving cost savings initiatives and a favorable price-cost relationship resulted in an operating profit decline of only $2 million in the quarter. This strong execution resulted in operating profit margin expansion of 170 basis points to 17.6% and a decremental margin of only 1%. Our earnings per share for the quarter grew 1% to $1 per share. Turning to our segments, plumbing sales declined 11% in local currency with North American and international plumbing each declining 11%. In North American plumbing, overall demand remained soft with the wholesale and e-commerce channels performing moderately stronger than the retail champ. In international plumbing, demand trends weakened in our key markets of Europe and China, in line with our expectations. We continue to expect our overall international plumbing market to be down high single digits for the full year. Despite the top line decline, we successfully drove plumbing margin expansion of 230 basis points, to 18.9% in the third quarter. This strong margin performance was driven by pricing actions, commodity and freight deflation, and significant cost savings initiatives, particularly in our North American plumbing business. We also completed the strategic bolt-on acquisition of Sauna 360, a leader in the sauna, steam, and infrared wellness industry. This acquisition complements our spa business, expands our wellness product offerings, and leverages Watkins' expansive dealer network. Turning to our decorative architectural segment, sales declined 10% in the quarter. DIY paint sales declined low double digits. Propane sales declined low single digits against a mid-teens comp in the third quarter of 2022. On a three-year stacked basis, our propaint comp is over 65%, demonstrating the significant market share we have captured with propainters through the strength of the Bayer brand, quality of our products, and our commitment to exceptional service. Together with our partner, the Home Depot, we believe we have a significant opportunity to continue to grow share in the propaint market. Additionally, we are honored that Bayer was recognized as the Home Depot 2023 Marketing Innovation Partner of the Year. This recognition is a testament to our creative marketing campaigns and our 45-year partnership with the Home Depot. Turning to capital allocation, we continued to generate significant free cash flow during the quarter and maintained a strong balance sheet. As a result, we executed on our balanced capital deployment strategy and returned $109 million to shareholders through dividends and share repurchases, including buying back 800,000 shares for $45 million in the quarter. Now turning to our outlook for the remainder of 2023. With our strong execution, we now anticipate earnings per share for 2023 to be in the range of $2, excuse me, $3.65 to $3.75 per share up from our previous guidance of $3.50 to $3.65. While the near-term demand for the repair and remodel market remains uncertain, we will stay focused on controlling what we can by closely managing costs, minimizing the impact of lower volumes, and driving our margins back to at least 2019 levels of 18% each segment. We believe our portfolio of low ticket repair and remodel products, our market leading brands and innovation, and our geographic diversification positions us for growth and stability through cycles. As we look over the longer term, we believe the fundamentals of our repair and remodel markets are strong and supportive of long-term growth. These include high home equity levels, the age of housing stock, and homeowners staying in their homes longer. We remain committed to investing in our brands, capabilities, and people to drive strong growth when market conditions improve. With favorable fundamentals and the continued successful execution of our growth strategy, along with our free cash flow and disciplined capital deployment, we are well positioned to drive value creation for the long term. On our fourth quarter call, we will provide our 2024 outlook as well as an updated view on the margin expansion potential of our business over the longer term. I'd like to conclude with a thank you to our employees for their hard work and dedication to driving operational excellence and delivering for our customers and shareholders. Now I'll turn the call over to Dave to go over our third quarter results and 2023 outlook in more detail.