Masco Corporation

Good morning, ladies and gentlemen. Welcome to the Masco Corporation first quarter 2025 conference call. My name is Joelle, and I will be your conference operator for today's call. As a reminder, today's conference 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 will now turn the call over to Robin Sondervan, Vice President, Investor Relations, and FP&A, you may begin.

Thank you, Operator, and good morning, everyone. Welcome to Masco Corporation's 2025 First 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 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 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 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. I want to start today by talking about some significant changes that have occurred since our last quarterly call. One of these changes was the announcement of my decision to retire as President and CEO of Masco, and the appointment of John Newdy as our incoming President and CEO. It has truly been an honor to lead Masco for over a decade, and I'm so very proud of all our employees and the work we've accomplished together. We've built and refined our core portfolio of leading brands, to focus on innovative repair and remodel products. We've embedded the Masco operating system throughout the entire company, which has allowed us to significantly expand our operating profit margins. And finally, we've delivered long-term value to our shareholders, achieving compound annual earnings per share growth of more than 12% over the last five calendar years. I'm confident that Masco is in great hands going forward under John's leadership. John has been on our board of directors since 2023, and I've seen firsthand his strategic vision, his commitment to customer service, and his recognition of the strength of our Masco team in delivering superior results. I am currently working very closely with John in order to ensure a seamless transition, and we are excited about officially welcoming him to the Masco team at the beginning of July. We also experienced significant changes in the geopolitical and macroeconomic environment, including the enactment of new and broad reaching tariffs. The extent of the tariffs currently imposed on imports from China is substantial and will increase our overall costs considerably, particularly in our plumbing segment. Our experienced teams are actively taking steps in an effort to mitigate these increased costs. Our mitigation efforts are extensive and include pricing actions, additional cost savings initiatives, and ongoing changes to our sourcing footprint. As we have done in the past, we are rapidly responding to the shifting economic landscape. However, a high level of uncertainty remains around how these changes and associated higher prices will ultimately impact demand trends across our industry moving forward. Therefore, we will not be providing full-year financial guidance this quarter. However, we do want to dimension how we are thinking about the impact of tariffs and the related mitigation actions in 2025. First, based on the tariffs enacted this year, we expect in-year costs of approximately $400 million prior to mitigation efforts. Second, based on our extensive mitigation actions, we currently estimate that we can offset approximately 200 to $250 million or roughly 50 to 65% of these costs during the current year. We currently anticipate mitigating the remaining net tariff costs by the end of 2026. Finally, while it is reasonable to assume a potential softening of demand in the near term, we are not yet able to estimate the timing or extent of the impact on volumes that may result from the direct or indirect impacts of these additional tariffs. Rick will provide additional details in a few minutes about these expected in-year and annualized impacts from the inactive tariffs and our related mitigation actions. Our teams have demonstrated their capability to manage through these environments in the past. from the COVID pandemic to unforeseen supply chain challenges to previously enacted tariffs. Therefore, we are confident that we have the right teams and plans in place to work quickly toward mitigating the various impacts arising from the recently enacted tariffs. Amidst all these changes and the work we are doing to address their impact on our business, we remain focused on our core strengths. our market-leading brands, our exceptional customer service, and our innovative product portfolio. This quarter, we introduced several innovative new products and received a variety of awards across our businesses, a few of which are highlighted on slide five. Beginning with North American Plumbing, Delta Faucet showcased multiple new and award-winning products at the Kitchen and Bath Industry Show held in February. including the Pivot Pro 3-in-1 Combination Shower, the ShowerSense Digital Shower, and the Breezo Frank Lloyd Wright Kitchen and Bath Collections. Additionally, Delta Faucet received multiple awards in recognition of their outstanding service to their customers, including the prestigious J.D. Powers Customer Service Excellence Award, which they received for the fourth year in a row. In our spa business, Watkins Wellness launched two new cold plunge products. Cold plunge is the ideal compliment to our existing spa and sauna portfolio, as customers can enjoy the multiple benefits of integrating both cold and hot therapies into their wellness routine. In our international plumbing business, Hansgrohe continued to demonstrate their leadership at the ISH Sanitation and Heating Show held in March. Two of their new premium products, Rain Dance Alive and Avalegra, received IF Design Gold Awards in the sanitary category. Since 2015, Hansgrohe has won more IF Gold Awards than any other manufacturer. In our decorative architectural segment, Bayer was voted the most trusted paint and stain brand among consumers in the United States and Canada by BrandSpark, demonstrating the continued strength and exceptional quality of our leading Bayer brand. With that, I'll now discuss our first quarter results. Please turn to slide six. In the first quarter, our top line decreased 6%, partially due to our divestiture of Kichler in the prior year. Excluding this divestiture and the unfavorable impact of currency, sales decreased 3%, primarily due to lower volumes in the decorative architectural segment. Gross margins increased 20 basis points to 35.9%. Operating profit was $288 million and operating profit margin was solid at 16%. Earnings per share for the quarter was 87 cents. Turning to our segments, plumbing sales increased 1% in local currency. North American plumbing sales also increased 1% in local currency, driven by higher volumes in our spa and sauna business and favorable pricing, partially offset by lower volumes in our retail channel. International plumbing sales were flat in local currency, as higher volumes in Europe and slightly favorable pricing were offset by unfavorable mix. Operating profit for the segment was $219 million and operating margin was 18.5%. We are pleased with our overall performance in the plumbing segment this quarter as sales were slightly higher than anticipated and operating margin was in line with our expectations. Turning to our decorative architectural segment, sales decreased 16% or 8% excluding our divestiture of Kichler. Overall paint sales were down high single digits and included a partial reversal of the inventory timing benefit that impacted Q4 of 2024. Excluding this impact, overall paint sales were down mid single digits and DIY paint sales were down high single digits while pro paint sales were up mid single digits. Operating profit for the segment was $96 million and operating margin was 15.6%. We are seeing ongoing demand pressure across the industry in DIY paint, driven by dampened macroeconomic environment, and expect that this will continue as the year progresses. However, we continue to grow in the pro paint category, driven by the quality and performance of our products, the strength of our partnership with the Home Depot, and our expanded services and support for our pro customers. This has led to ongoing share gains as we continue to capitalize on the sizable growth opportunity in the propane market. As we look across both segments for the balance of the year, we anticipate demand softening as consumers spend more cautiously amidst this uncertain economic backdrop. However, As I mentioned earlier, the extent and duration of this impact cannot yet be determined until there is more clarity on the tariff policies and the overall macroeconomic conditions. Once that occurs, and as additional information becomes available, we will be able to provide further financial guidance at that time. Masco is a resilient company, and the long-term fundamentals of the repair and remodel industry remain strong. our product portfolio is well positioned to deliver meaningful results as we execute on our strategic initiatives and maintain our disciplined capital deployment. As I reflect on my tenure as CEO of Masco, it's the strength of our people and our teams that has allowed us to outperform the market and drive long-term shareholder value creation, especially in dynamic times. Our people are at the heart of what we do each day, and we remain focused on driving results through our leading global brands, innovative products, and customer service. With that, I'll turn the call over to Rick for further details around our first quarter, expected tariff impacts, and related mitigation actions. Rick?