The operator welcomes listeners to Masco Corporation's Second Quarter Conference Call and introduces the speakers, Keith Allman and Rick Westenberg. The company's earnings release and presentation slides are available on their website. The speakers will make forward-looking statements and reference non-GAAP financial metrics, which will be reconciled to GAAP. CEO Keith Allman expresses satisfaction with the company's performance halfway through the year.

Despite a difficult economic environment, the company has achieved strong financial results by focusing on operational excellence, brand, service, and innovation. The company's repair and remodel product portfolio has helped drive profit margin expansion. In the second quarter, sales decreased 2%, but gross profit and margin increased due to cost-saving initiatives. The Plumbing segment saw a 2% increase in sales, with North American sales up 5% and International sales down 1%. Operating profit and margin were in line with the previous year, thanks to pricing discipline and operational performance. The company's performance in the Plumbing segment has been strong, with a focus on leveraging their operating system and executing strategic priorities. Delta Faucet was also recognized with an award from J.D. Power.

The company has received the Power Customer Service distinction for the third year in a row, highlighting their commitment to exceptional customer service. In the Decorative Architectural segment, sales decreased by 7% with a decline in DIY paint sales but growth in pro paint sales. The company has a strong partnership with The Home Depot and is investing to drive further growth. Capital allocation has resulted in $206 million being returned to shareholders through dividends and share repurchases. The company's outlook for 2024 is for sales to be roughly flat in the second half of the year, within their previously guided range of plus or minus low single digits.

The company has raised its full-year operating margin expectation due to a strong first half performance in the Plumbing segment. They remain confident in their ability to drive margin expansion through their operating system and cost structure. Adjusted earnings per share for 2024 are now expected to be in the range of $4.05 to $4.20 per share. The company believes in the strong long-term fundamentals of the repair and remodel markets and will continue to invest in their brands, capabilities, and people to outperform the competition and deliver double-digit EPS growth. Sales in the second quarter decreased 2% year-over-year, but excluding the impact of currency and acquisitions, sales only decreased 1%.

In the second quarter, international sales decreased by 1% in local currency, but operational efficiencies and favorable price/cost performance led to a 140 basis point increase in gross margin. Operating profit was slightly down due to lower sales, but margin remained strong at 19.1%. Plumbing sales increased by 2%, with flat volume indicating stabilization. North American sales increased by 5% due to acquisitions, while international sales decreased by 1% due to mix. Segment operating profit and margin were in line with the prior year.

In the second quarter, the company's operating profit was driven by cost savings and favorable pricing, offset by unfavorable mix and higher employee-related costs. Decorative Architectural sales decreased due to lower volume and prices, with DIY paint sales being the main contributor. The company expects DIY paint sales to decrease mid-single digits for the full year. The pro paint business is expected to increase low single digits. The company's balance sheet remains strong with a low debt-to-EBITDA ratio and $1.4 billion in liquidity. They have also repurchased shares and paid dividends to shareholders, and plan to continue deploying funds towards share repurchases or acquisitions.

In 2024, Masco expects flat sales in the second half of the year and for the full year to be within the previously guided range of plus or minus low single digits. The operating margin for the year is expected to be approximately 17% to 17.5%, with most of the expansion occurring in the fourth quarter. In the Plumbing segment, sales are expected to be plus or minus low single digits, with an operating margin of approximately 19%. In the Decorative Architectural segment, sales are expected to be down low single digits, but the operating margin is expected to be approximately 18%. The 2024 EPS estimate has been narrowed to be in the range of $4.05 to $4.20 per share.

The speaker discusses additional financial assumptions for 2024 and opens the call for questions. The first question is about the guidance for a low single-digit decline in the Decorative segment for the year, with a specific focus on the DIY paint subsegment. The speaker clarifies that this subsegment is more sensitive to economic conditions and has been under pressure due to price increases. The company expects it to be down, but the guide for the year is based on three fundamental factors.

The company's comparables softened in the first half of the year, but there are expected tailwinds in the second half. SG&A spend will be used to drive demand through advertising, and the company's full-year guide indicates a low single-digit decline in the DAP segment, with pro paint up and DIY paint down. The company has performed well in the volatile market and is well-positioned for when demand returns to normal levels.

The speaker discusses the performance of the company's two segments, Plumbing and DIY Paint. They note that both segments have shown strong performance, with Plumbing seeing an acceleration in organic growth in both the U.S. and international markets. The speaker also mentions that they have seen signs of stabilization in the international market, particularly in key markets like Central Europe and China. The team at Hansgrohe is praised for their success in taking market share in the international market.

The company has been performing well compared to its competitors in terms of gaining market share and organic growth. This is due to a combination of factors such as a recovering market, strong initiatives for share gains, and some pricing benefits. The North American team has been particularly successful with their focus on influencer advocacy and product launches. The company has also seen growth in their spa business, aided by the acquisition of Sauna360. The company's margins reflect their success in operating their system and they have a pipeline of continuous improvement activities in place.

The company is working on improving variable cost productivity by taking shifts offline and potentially working overtime. They are optimistic about future earnings and shareholder value. In terms of tariffs, the company has reduced their exposure by 30% and has demonstrated the ability to manage through previous changes. They have incentive systems in place to address any potential tariff changes and are starting from a better position than before.

The company plans to continue using their successful strategies from the past, but with more efficiency and speed. They are focused on meeting consumer needs and finding innovative solutions, rather than narrowing or broadening their product portfolio. They are also prioritizing environmental concerns and working on sustainable solutions, such as water conservation.

The paragraph discusses Masco's focus on customer-backed innovation and reducing complexity in order to meet unmet customer needs and increase margins. The company's key strengths are identified as its brand, service, and innovation, as well as its strong customer and channel knowledge. The company has pruned its portfolio to include businesses with similar margin profiles and is able to leverage its expertise in supply chain management across these businesses. The question posed is about the sensitivity of Masco's EPS guidance to changes in the top line.

The speaker is confident that the company will achieve its margin targets even if sales are at the lower end of the range. This is because the company has made improvements that are sticky and the team has executed well. They have a demonstrated ability to price products fairly and have a strong brand, innovation pipeline, and relationships with channels. The company has tempered its expectations for the second half of the year but is confident it will end within its EPS guide range. The speaker then comments on June exit rates, saying that Plumbing may have been positive and that Pro Paint is performing well despite overall economic softness.

The speaker discusses the complexity of analyzing business performance based on quarter-to-quarter comparisons, and explains that the company's projections take into account the exit rates and run rates at the end of the quarter. They also attribute the strength of the professional segment to the nature of the consumers who use it and the company's share gains. The speaker believes that the pro segment and high-end assortment are performing better due to the less sensitive and more affluent nature of these consumers. The analyst asks a follow-up question about what is driving the strength of the pro segment.

DIY volumes are currently below pre-COVID levels, while pro volumes are above. The overall volume is consistent with pre-pandemic levels, but the mix has changed. There was significant growth in the pro sector from 2020 to 2023, offsetting the DIY headwind. The company has been able to maintain margins and is well-positioned for when the market turns to growth again. Looking at the company's performance from pre-pandemic to now, there was a significant bump in demand during the pandemic, but it has since gone below the historical run rate. Adjusting for inflation, the company has seen a significant pricing increase during the pandemic.

The speaker discusses the deferral of demand in the DIY space and how it has affected their business. They mention their state-of-the-art paint plant and plumbing manufacturing plant, which are both doing well. They also mention a negative mix in the plumbing segment due to trade down in the assortment and geographic mix.

The speaker states that in China, the Hansgrohe and Axor brands tend to cater to higher-end consumers. They do not expect a significant impact on the mix for the year. The speaker also discusses channel performance and mentions that they saw solid growth in the wholesale trade and retail sectors in the first half of the year. They expect this trend to continue in the second half, with stable performance and favorable pricing. When asked about their outlook on repair and remodel, the speaker states that they are not leaning towards either the upside or downside, and are calling for flat to low single-digit growth. They also mention that they did not see significant volatility in commodity costs in the second quarter, and in the first half of the year, commodities were a slight tailwind for their performance.

The company has seen an increase in metal and paint prices, which may have a negative impact on their profits in the second half of the year. Despite this, they expect to see margin expansion and have raised their operating profit margin expectations. It is difficult to accurately determine the company's performance compared to the overall DIY market due to the multiple channels and subsegments involved.

The company is performing well in the first half of the year and is holding its share in the market. This is due to their strong partnership with The Home Depot and the success of their Behr brand. The DIY channel is currently facing challenges, but the company is prepared to take advantage of any turnaround. They have also gained share in the pro side of the business and have room for growth in the market.

The speaker discusses the impact of existing home sales on Masco's business, stating that while more sales are better for their paint business, the overall impact is low. They also mention the correlation between consumer confidence and existing home equity, and their portfolio's resilience through cycles. In regards to DIY paint, they mention a more sensitive consumer and a double-digit sales decline in the second quarter. They do not provide specific numbers for price and volume, but state that they expect both to be drivers in the back half of the year.

During a recent conference call, Keith Allman and Rick Westenberg discussed the state of the DIY market. Allman stated that he did not see any significant difference in the DIY perspective between this quarter and the previous one. Westenberg added that DIY was down high single digits in the first half of the year, with both price and volume being headwinds. He also mentioned that there was a relationship with The Home Depot that resulted in price decreases due to commodity cost decreases in the previous year. However, they expect improvement in DIY paint in the second half of the year, with a projected mid-single digit decrease for the entire year. The analyst then asked about channel inventories in the Plumbing sector.

The speaker, Keith Allman, states that there are no notable restock or destock dynamics to be aware of in the company. He also discusses the recent actions taken to stabilize the lighting business, which has shown improved sequential growth. He mentions that the top line performance is expected to align with industry expectations, and there have been positive changes in the plumbing segment as well. There were no noticeable differences in pricing between wholesale and retail channels.

The speaker discusses the company's cost savings and initiatives that have helped improve performance. They mention using the Masco operating system to measure and drive performance through continuous improvement. They also mention using Kaizen events to tackle specific gaps.

The company measures improvement initiatives in terms of their progress in the five-step process and their impact on size and flow-through. They make sure to validate the benefits and put them into the P&L. These initiatives are small and discrete, but they help develop the business and its leaders. Examples include identifying capacity constraints, balancing shifts, and improving sales force execution. These small steps are important for sustained improvement and avoiding setbacks.

During a conference call, Susan Maklari asked Keith Allman about Sherwin-Williams' capital allocation strategy and the potential for mergers and acquisitions. Allman mentioned that the company is still looking for opportunities in the paint and plumbing industries, but there hasn't been much change in the market due to low interest rates and valuations. He also stated that their strategy remains focused on paint and plumbing and finding businesses that can benefit from their network. When asked about offsetting input inflation, Rick Westenberg mentioned that they plan to use pricing in the Plumbing segment to counteract the increase in commodity prices and ocean freight.

The company is taking low single-digit price increases for its Plumbing segment and will continue to leverage this. As for the coatings segment, the company will balance its price with commodity costs and net price with retail partners. The team has also worked on operational efficiencies and cost reduction to offset commodity headwinds. The company expects to deliver the margins it has guided to in the second half of the year. The operator then thanks everyone for joining the call and concludes the discussion.

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