Masco Corporation

Good morning, ladies and gentlemen. Welcome to Masco Corporation's fourth quarter and full year 2025 conference call. My name is Dani, 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 will now turn the call over to Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Thank you, Operator, and good morning, everyone. Welcome to Masco Corporation's 2025 fourth quarter and full year conference call. With me today are John Newdy, President and CEO of Masco, and Rick Westenberg, Masco's Vice President and Chief Financial Officer. Our fourth 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 in our risk factors and other disclosures in our Form 10-K 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 John.

Thank you, Robin. Good morning, everyone, and thank you for joining us. Please turn to slide five. I want to start today by highlighting some of our key accomplishments from 2025, which we achieved while navigating a dynamic and challenging environment. Following that, I'll turn to our financial results for 2025 and share our expectations for 2026. Starting with our plumbing product segment, we continue to demonstrate our market leadership, even as we work to mitigate the impacts of higher tariff costs. Delta Faucet was awarded the Home Depot Kitchen and Bath Partner of the Year. This award recognized the strength of our brand, customer service and innovation. Delta also continued to achieve notable market share gains in the e-commerce channel, driven by our industry-leading capabilities that deliver solutions for consumers. At Hansgrohe, we continue to be a global leader, products with industry-leading designs hans growey also continues to demonstrate leadership and commitment to sustainability having recently received multiple awards for corporate strategy and production initiatives of the german sustainability projects 2025 award ceremony at watkins wellness our integration of sauna 360 into our existing dealer network has generated double-digit sales growth in a market with ongoing opportunities for increased household penetration We also introduced our cold plunge products, further expanding our presence in the consumer wellness market. In our decorative architectural segment, the strength of our brands continue to resonate with our customers. Behr was once again rated number one in interior paint, number one in exterior paint, and number one in exterior stain in a third-party study, demonstrating the exceptional quality and strength of our leading Behr brand. Our continued strategic alignment and partnership with the Home Depot led to our recognition as supplier of the year for the paint department in the United States and Canada and interconnected partner of the year in Mexico. Our annual pro sales are approximately $950 million, and our share of the propane market has grown over 200 basis points since 2019. We've continued building capabilities to enhance the buying experience for our pro customers, including expanded delivery options, loyalty programs, and a growing sales force, which allow us to further capitalize on the sizable growth opportunity in the propane market. I want to thank all of our employees for the resilience, commitment, and leadership which made these accomplishments possible. Now onto our results. Please turn to slide six. Beginning with our fourth quarter, results overall were largely in line with our expectations as we continue to navigate a dynamic geopolitical and macroeconomic environment. Net sales decreased 2% or 3% in local currency, primarily due to lower volumes. Operating profit was $259 million and operating profit margin was 14.4%. Earnings per share for the quarter was 82 cents per share. Turn to our segments, plumbing product sales increased 3% local currency. North American sales increased 4%, driven by favorable pricing. Delta faucet again delivered strong performance, particularly in the trade and e-commerce channels. International plumbing sales increased 1% in local currency, driven by Germany, partially offset by the weaker market in China. Operating profit for the segment was $204 million. Operating margin was 16.3% and included the impact of higher tariff and commodity costs. Turning to our decorative architectural segment, sales decreased 15% in the quarter. Overall, paint sales decreased double digits due to lower volume, including the impact on the favorable inventory timing in Q4 of 2024 and the impact related to the customer transition of our primer and 2025. Excluding these impacts, overall paint sales decreased mid-single digits. DIY paint sales decreased high single digits and pro paint sales grew low single digits. Operating profit for the segment was 76 million dollars and operating margin was 13.9 percent. Please turn to slide seven as we review our full year performance. Despite a dynamic geopolitical and macroeconomic environment for most of the year, we delivered solid profitability and remained disciplined on capital allocation. Net sales decreased 3%, or 2%, excluding the impacts of currency and the divestiture of Kichler. Operative profit was $1.3 billion, and operating profit margin was 16.8%. Earnings per share for the year was $3.96 per share. We delivered a return on invested capital of 41%. Our strong cash flow allowed us to return $832 million to shareholders through dividends and share repurchases. Near the end of 2025, we began taking decisive actions to further position our business for long-term value creation. We established an executive committee with dual corporate and business unit representation to fully leverage our enterprise strengths, which will enable us to continue to deliver strong execution and accelerate growth moving forward. We also began implementing various restructuring actions to a greater extent than in the past to further streamline our business, reduce headcount, and optimize operations. We incurred approximately $18 million in charges related to these actions in the fourth quarter of 2025, and we expect to incur approximately $50 million in additional charges in 2026. We anticipate the savings generated from these actions will fund additional growth initiatives and contribute to future margin expansion. As we move into 2026, we're announcing the integration of Liberty Hardware and the Delta Fossil Company. With over half a Liberty sales brand at Delta and a complimentary product portfolio, this realignment enhances our consumer-driven strategy to leverage our brands, capabilities, and scale across our organization. As a result of this integration, Liberty hardware, which was previously reported in the decorative architectural product segment, will be reported within our plumbing product segment moving forward. Turning to our expectations for 2026, we believe sales across the global repair and remodel markets will be roughly flat. This includes an expectation that both our North American and international markets in aggregate will also be roughly flat. Our expectation for our own sales in 2026 is to be flat to up below single digits. This estimate includes our expectation that we will continue to outperform the market in 2026. We expect margin expansion in 2026, driven by continued mitigation of higher tariff and commodity costs, cost savings resulting from restructuring actions, and ongoing operational efficiencies across our business. We expect plumbing margins, inclusive of the Liberty Hardware business integration, to be approximately 18%, and decorative margins to be approximately 19%, resulting in a mass cooperative margin of approximately 17%. Turning to capital allocation, our strategy remains consistent. First, reinvest in our business to accelerate growth and market share gains. Second, maintain a strong investment grade balance sheet. Third, target a 30% dividend payout ratio. And fourth, deploy our remaining available free cash flow, which we expect to be approximately $600 million in 2026, for share repurchases or value accretive acquisitions. I am pleased to share that our Board approved a 3% increase to our dividend for 2026, raising our annual dividend to $1.28 per share and marking our 13th consecutive annual dividend increase. Additionally, our Board authorized a new $2 billion share repurchase program, underscoring Masco's resilient business model and strong financial position, and the Board's confidence in our future performance. Our M&A strategy remains consistent. We continue to selectively pursue opportunities with strong strategic fit and attractive returns, focusing on bolt-on acquisitions with our plumbing, wellness, and coatings businesses. Based on our expected operating performance and capital deployment strategy, we anticipate earnings per share for 2026 to be in the range of $4.10 to $4.30 per share. While the housing market remains pressured in the near term, we are confident that the fundamentals supporting mid- to long-term home improvement demand are quite strong. U.S. homeowner equity levels are at a record high of more than 80% since 2019, providing greater capacity for home renovation projects. Homes continue to age, with more than 55% of U.S. homes now over 40 years old, an age that typically requires an elevated repair and remodel spending. Additionally, a large cohort of homes built in the early 2000s is now entering the prime remodeling age of 20 to 40 years. Significant pent-up demand for larger renovation projects continues to build. As consumer sentiment improves, interest rates decline, and existing home turnover increases, we expect this pent-up demand to become a tailwind for our business. With these strong fundamentals and the actions we are taking to optimize the business, We believe we are well-positioned to deliver above-market, top- and bottom-line growth. We plan to achieve this through our consumer-driven strategy that leverages our industry-leading brands, expanded commercial capabilities, and enhanced operational excellence. We look forward to discussing this strategy and our long-term goals in greater detail at our upcoming Investor Day on Wednesday, May 13th in New York City. Please save the date, and we look forward to seeing you there. Now I'll turn the call over to Rick to go over our fourth quarter and full year results and 2026 outlook in more detail.