Masco Corporation

Good morning, ladies and gentlemen. Welcome to Masco Corporation's 3rd Quarter 2024 Conference Call. My name is Ludi 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 the star followed by the number 1 on your telephone keypad. To withdraw your question, please press the star followed by the number 2. I will now turn the call over to Robin Sandervan, Vice President, Investor Relations and FP&A of Masco Corp. You may begin.

Thank you, Operator, and good morning, everyone. Welcome to Masco Corporation's 2024 Third Quarter Conference Call. With me today are Keith Allman, President and CEO of Masco, and Rick Westenberg, Masco's Vice President and Chief Financial Officer. Our third quarter earnings release and 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 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 will now turn the call over to Keith.

Thank you, Robin. Good morning, everyone, and thank you for joining us today. Please turn to slide five. For the third quarter, we delivered strong operating results as we focused on driving the full potential of our portfolio through leading brands, innovative products, and exceptional customer service. Net sales were in line with the prior year as we saw demand continue to stabilize most notably in our plumbing segment. Our gross profit margin rose 90 basis points to 36.7% as a result of our ongoing initiatives to drive operational efficiencies and achieve cost savings. Our solid execution resulted in operating profit of $360 million, an increase of $12 million or 3% over the prior year. Our operating profit margin expanded 60 basis points to 18.2%, marking the sixth consecutive quarter of year-over-year margin expansion. In addition, our earnings per share grew 8% to $1.08 per share. Moving to our segments, plumbing sales increased 2% overall and 1%, excluding the impacts of acquisitions and currency. In local currency, North American plumbing sales increased 2% overall and 1%, excluding the impact of acquisitions. In international plumbing, sales increased 3% in local currency, led by growth in our key markets of Europe and China. Operating profit for the segment was up $17 million to $242 million. Operating margin expanded 100 basis points to 19.9%. driven by higher volumes and our continued focus on productivity, efficiency, and cost savings initiatives. Additionally, we continue to demonstrate our leadership in water quality and innovation through new product launches that leverage our channels and brands. We launched a tankless reverse osmosis water filtration system this quarter across our Delta and Breezo brands. This system is certified to filter out more than 90 contaminants from your drinking water and is both easy to install and maintain. At Hansgrohe, we launched the powder spray faucet, where micro-fine water cascades from beneath the faucet spout for easier washing of foods like fruits and vegetables at a lower flow rate for water conservation and less cleanup. Hansgrohe also received the Superbrand Germany Award in the quarter, This prestigious award recognized Hansgrohe's dedication to excellence, quality, and service to our customers. Finally, we reached the one-year anniversary of our acquisition of Sauna360 during the quarter. We are proud of the work our team has done to successfully integrate this business, which includes the recent launch of TLO-branded saunas into our existing Watkins dealer network. Moving to our decorative architectural segment, we announced earlier this quarter the completion of the sale of Kichler Lighting. We are confident that this transaction to further streamline our portfolio will drive greater value for Maskell shareholders as we focus on the strategic initiatives of our core plumbing and decorative architectural businesses. Sales in the decorative architectural segment decreased 3% in the quarter or 1%, excluding the impact of currency and divestitures. Overall paint sales were down low single digits. DIY paint sales remained challenged, decreasing mid-single digits, while pro-paint sales continued to show strength, growing high single digits. Operating profit for the segment decreased $6 million to $138 million, while operating margin remained strong at 18.1%. We were pleased once again this quarter with our performance in propane. We're proud of our continued sales growth with the propainter, and we are continuing to invest to drive additional growth going forward. We have an incredibly strong relationship with the Home Depot, which dates back over 40 years. For multiple decades, we have partnered with the Home Depot to distribute our products in their over 2,300 stores. We continue to partner with them on strategic initiatives centered on the strength of our brand our unmatched service, and the award-winning quality of our products to drive share gains in both DIY and propane categories. Turning to capital allocation, we continued to generate strong free cash flow during the quarter and maintained a solid balance sheet. As a result, we executed on our capital deployment strategy and returned $255 million to shareholders through dividends and share repurchases. We plan to deploy the net cash proceeds from the sale of Kichler Lighting consistent with our capital allocation framework. Therefore, we now expect to allocate approximately $750 million in total to share repurchases or acquisitions in 2024. Now a few comments on our full year outlook. Overall, sales for the total company were within our expected range for the first three quarters of the year. However, The divestiture of Kichler will impact the remainder of our year, and the DIY paint market remains challenged. Therefore, we now anticipate that sales for the full year will be down low single digits, compared to our previous expectations of plus or minus low single digits. However, due to the strength of our operational performance year to date, we now expect that our full year operating margin will be approximately 17.5%. which is at the top end of our previously guided range of 17% to 17.5%. We now anticipate adjusted earnings per share for 2024 to be in the range of $4.05 to $4.15 per share, compared to our previous expectations of $4.05 to $4.20 per share. We continue to believe that the long term fundamentals of our repair and remodel markets are strong and that structural factors, such as the age of housing stock, consumers staying in their homes longer, higher home equity levels, and household formations for millennials will drive increased repair and remodel activity in the mid to long term. We believe we are well positioned to capitalize on future volume growth as our capacity, efficiency, productivity, and cost structure are set up to drive favorable incremental benefits from additional volume. With these favorable fundamentals, the continued successful execution of our strategic initiatives across our portfolio, and our disciplined capital deployment, we are well positioned to outperform the competition and deliver double-digit EPS growth through cycles for our investors. Now I'll turn the call over to Rick to go over our third quarter results and 2024 outlook in more detail.