The operator welcomes everyone to Masco Corporation's fourth quarter and full year conference call and introduces the speakers, Renee Benedict (Director of Investor Relations and FP&A), Keith Allman (President and CEO), and Rick Westenberg (Vice President and CFO). The call will be recorded and there will be a Q&A session after the presentation. The speakers will discuss the company's future performance and address any risks and uncertainties. Non-GAAP financial metrics will also be mentioned and reconciled with GAAP. Keith Allman then begins his remarks.

The speaker thanks everyone for joining the meeting and announces the appointment of Robin Zondervan as the new Vice President of Investor Relations. They then give a brief overview of the fourth quarter and full year results, highlighting a 2% decrease in top line and a $38 million increase in operating profit. They also mention the stabilizing of markets and a 230 basis point improvement in operating profit margin. The speaker then discusses the performance of their plumbing segment, with sales in line with the previous year and strong growth in the wholesale channel.

In the fourth quarter, international plumbing performed better than expected due to stabilizing demand in Europe and China. The company's investments in global plumbing brands, innovative products, and customer service are yielding positive results. However, the decorative architectural segment saw a decline in sales due to a soft DIY paint market. Despite this, the propane business showed a three-year stacked comp of 60%, demonstrating the strength of the Behr brand and the quality of their products. Overall, Masco had a successful year in 2023, with improvements in gross margin, operating margin, and earnings per share. The company also had a high return on invested capital and strong free cash flow conversion, allowing them to return $610 million to shareholders and complete a bolt-on acquisition.

The company has achieved strong earnings growth and thanks their employees for their performance. They are well positioned for future growth through market share gains, margin expansion, and disciplined capital deployment. The company expects flat sales in 2024 but will continue to improve margins through various strategies. Capital allocation strategy remains unchanged.

The company plans to reinvest in their business to maintain their leadership positions and win in the marketplace. They will also invest in growth initiatives and facilities, while maintaining a strong balance sheet and increasing their dividend. They expect strong free cash flow and plan to use it for share repurchases or acquisitions. Their M&A strategy remains the same and they anticipate earnings per share to be between $4 and $4.25 in 2024. They will continue to execute well and achieve margin expansion through 2026.

Masco expects to increase margins for their plumbing and decorative segments by 2026 through leveraging volume, pricing discipline, and operational improvements. They anticipate a stabilization of demand in 2024 and a return to typical growth rates in 2025 and 2026 due to structural factors such as low mortgage rates, an increase in homes reaching prime remodeling ages, and high home equity levels. They plan to continue investing in their brands, capabilities, and people to outperform the competition and drive shareholder value. The new CFO, Richard Westenberg, is excited to be part of the company and is presenting the results for the fourth quarter, full year, and 2024 outlook.

The speaker discusses the company's adjusted performance for the quarter, excluding one-time charges. Sales decreased by 2%, but gross margin expanded due to operational efficiency and price-cost performance. Operating profit and margin also grew, leading to a 28% increase in EPS. For the full year, sales decreased by 8%, with North American and international sales both decreasing. However, operating margin expanded and EPS increased by 2%. In the plumbing segment, sales increased by 1% due to pricing and acquisitions, but were offset by lower volume and mix.

In the fourth quarter, North American plumbing sales increased 1% in local currency, but decreased 1% excluding acquisition. International plumbing sales also decreased 3% due to weak demand in Europe and China. Segment operating profit increased by 34% and operating margin expanded by 400 basis points, driven by pricing actions, lower costs, and cost savings initiatives. For the full year, plumbing sales decreased 8%, with lower volume and mix offset by net pricing and acquisitions. North American plumbing sales decreased 8% in local currency, while international sales decreased 6%. Decorative architectural sales also decreased 7% in the fourth quarter, with paint sales declining mid-single digits. Operating profit was in line with 2022 performance, with lower volumes and pricing offset by cost savings and lower material costs. For the full year, sales decreased 9%, driven by declines in both DIY and pro paint businesses. This was in line with expectations as the company cycled over strong growth in 2022.

The company has seen significant growth in pro paint sales over the past three years, leading to a strong operating income and improved balance sheet. They have also been able to improve their working capital and generate strong free cash flow, allowing them to return a significant amount of money to shareholders. Looking ahead to 2024, the company expects flat sales but an increase in operating margin, with a focus on investing in future growth and maintaining cost discipline. They anticipate a slight decline in sales in the first half of the year, with growth in the second half, and expect low single-digit sales growth in the plumbing segment for 2024.

The company expects to see a margin expansion in their plumbing and decorative architectural segments in 2024, driven by pricing discipline, operational efficiency, and cost savings initiatives. Sales are expected to be flat or slightly down in both segments, with the DIY business decreasing and the pro paint business increasing. The company plans to reinvest in capital expenditures and pay dividends, and also allocate funds towards share repurchases or acquisitions. The estimated EPS for 2024 is $4 to $4.25, with additional financial assumptions provided on Slide 16 of the earnings deck. During the Q&A session, the first question was about the company's ability to outgrow its markets in the long term.

The speaker states that they have not changed their opinion on the company's ability to gain market share. They expect to outperform the market and expand margins due to their strong brands, service proposition, and global teams. The margin expansion is expected to be more modest in 2024, but will accelerate in 2025 and 2026 due to innovation and cost reduction projects.

The speaker, Keith Allman, is discussing the projected growth rate for the company in the years 2024-2026. He mentions a drop in incremental revenue and a plan to remain relatively flat in 2024 before experiencing a more typical growth rate in 2025-2026. He also notes that the company's margin expansion has been improving in recent quarters, but it may flatten in the first half of 2024 due to pricing adjustments needed to offset cost inflation.

In 2024, the company expects to see operational improvements and a slight headwind in pricing in the paint business, but a slight tailwind in the plumbing business. Margin improvement will come from efficiency improvements and will be aligned with sales growth. There may be some softness in the first half of 2024, but growth is expected to pick up in the second half. The drop down impact will be more prominent in 2025 and 2026 as growth returns to normal levels. There has been volatility in the R&R end markets, potentially due to weather, but the company expects growth to pick up in the second half of 2024.

Keith Allman and Richard Westenberg discuss the current demand for the company, stating that it is stabilizing and in line with their expectations. They mention that there has been some volatility, but they are seeing signs of stabilization and positive trends in certain areas, such as wholesale plumbing and China. They also mention that hardware and lighting within the dec-arc business were impacted by market softness in 2023, but they are confident in their long-term margin targets for the business.

In the paragraph, the speaker discusses the performance and expectations for the company's lighting and hardware businesses, Kichler and Liberty. They mention taking pricing and cost actions to offset inflation and a projected performance in line with the overall R&R market. They also mention a potential decrease in sales and margins in the first half of 2024, with better performance in the second half. The speaker then addresses a question about the company's targets for 2026, stating that the margin improvement will be driven by a combination of initiatives, including volume leverage, productivity, and cost efficiency measures.

The paragraph discusses the factors contributing to the company's margin expansion. These include incremental volume, investments in innovation, the Masco operating system, brand building, pricing power, and initiatives to improve labor productivity and variable costs. The main driver of margin expansion is the drop down in incremental volumes, but other factors such as disciplined pricing and cost control also contribute to the overall growth.

The speaker discusses the decorative margins and operating leverage in the plumbing and decorative segments between 2015 and 2021. They note that the incremental margins are higher in plumbing and lower in decorative, specifically in paint due to different pricing dynamics. The speaker agrees with the questioner's understanding of the situation. The next question asks about the price-cost spread in plumbing and decorative in the fourth quarter and any updates on brass carryover.

The speaker discusses the cost inflation and pricing trends for the company's plumbing and decorative architectural products segments. They expect low single digit pricing as a tailwind for plumbing, but a headwind for decorative products in 2024. The company has a 20% margin target for 2026 for plumbing and a range of 19-20% for decorative products. The next question is about the macro environment and its potential impact on the business in the current year.

The speaker discusses the potential impact of decreasing interest rates on the home improvement market and how it relates to consumer confidence and existing home sales. They explain that while existing home sales are important, they are not the main driver of the market and that consumer confidence and home price appreciation have a greater impact. They also mention the progress made in working capital over the past year.

In response to a question about the company's ability to continue driving benefits from the year 2023, Richard Westenberg, a representative from the business unit, notes that they were able to bring working capital down to 16% of sales, which contributed over $200 million in cash flow. Going forward, they plan to hold working capital in a disciplined manner and have a modest increase in working capital as a percent of sales in 2024. They also mention that paint pricing was lower in 2023, but expect a very modest price increase for the year.

The paragraph discusses the impact of material costs on the paint sector in Q4 and for the full year. It also mentions a slight price increase in 2023 and a potential price decrease in 2024 due to expected deflation in input costs. The speaker, Rick, who has been with Masco for four months, expresses excitement about the company's portfolio and operations. He also highlights the importance of continuous improvement, operational efficiency, and cost reduction, as well as leveraging the company's scale to drive productivity and efficiency. He specifically mentions the plumbing business as an area for potential cost-saving opportunities.

Richard Westenberg, CEO of a company, answers a question about input costs for the company's segments in 2024. He explains that they expect input costs to not have a significant impact in 2024, with a modest decline in plumbing and relatively flat commodities for paint. He also mentions that they are seeing a little bit of deflation in paint inputs, but not a significant benefit. In terms of free cash flow, the company typically targets 100% conversion on that income, but the current conversion rate is at 90%.

The speaker, Richard Westenberg, responds to a question about the drivers of investment and non-working capital line items for the company. He mentions that they expect some build in working capital in 2024 and that capital expenditures will be down year-over-year. He also mentions that the company's capex guidance for 2024 is $200 million, while their D&A is $160 million, which is a contributor to their 90% guide. Another participant asks about any supply chain issues or incremental costs in the plumbing segment, to which Keith Allman responds that they are seeing elevated costs for shipping containers due to the Red Sea shipping issues, primarily for their European business, but they have already factored this into their guidance for next year.

Richard Westenberg and Truman Patterson discuss the impact of elevated costs on the company's service levels, noting that they have been able to maintain their service levels despite the increased costs. They also address the company's 2024 revenue guidance, with Keith Allman explaining that their focus on lower-priced, lower-ticket repair and remodeling projects makes their portfolio more resilient compared to higher-priced, higher-ticket items. Allman also mentions the company's ability to meet their commitment of double-digit EPS growth through cycles, which he attributes to the reconfiguration of their portfolio.

Keith Allman, the speaker, discusses the company's plans to continue investing in gaining market share in various product categories, geographies, and channels. They are particularly focused on the showroom channel in plumbing and have invested in involving showroom associates to create advocacy for their products. The company has also seen success in the pro paint category, with 60% growth in the past three years and industry-leading net promoter scores. Overall, the company expects to continue outperforming the market and expanding margins in the coming years.

During a conference call, Keith Allman, CEO of Masco Corporation, discussed the company's margin targets for 2026. He mentioned that they have various levers to pull on the cost side if the remodeling market does not recover as expected, such as variable cost productivity, fixed cost productivity, and disciplined pricing and cost management. Allman emphasized the company's commitment to hitting their margin commitments and maintaining their credibility with investors. A question was also asked about one of the company's larger businesses.

Keith Allman, CEO of Masco, discusses the company's spa business, which has a strong global market share and is expected to continue growing due to an aging population and increased focus on mental and physical health. Allman praises the team and products of the spa business and declines to give specific details on its growth. The call concludes with thanks from Masco and the operator.

This summary was generated with AI and may contain some inaccuracies.