The paragraph introduces a conference call for Masco Corporation's first-quarter 2025 financial report. The call is hosted by Joelle, the conference operator, and features speakers Robin Zondervan, Vice President of Investor Relations and FP&A, Keith Allman, President and CEO, and Rick Westenberg, CFO. The earnings release and presentation slides are available on the company's website. Participants are encouraged to limit their questions during the Q&A, and risks associated with forward-looking statements are noted. The discussion includes non-GAAP metrics, and reconciliations are provided online. Keith Allman begins by addressing significant changes since the last call.

The paragraph discusses the retirement of the President and CEO of Masco, who will be succeeded by John Nooty. The current CEO reflects on their achievements, such as enhancing the company's brand portfolio and increasing profit margins. They express confidence in John's leadership due to his strategic vision and focus on customer service. The company is also addressing challenges posed by new tariffs on Chinese imports, particularly affecting their plumbing segment, by implementing cost-mitigation strategies like pricing adjustments and changes in sourcing. A seamless leadership transition is being prioritized, with John officially taking over in July.

The paragraph discusses the uncertainty surrounding the impact of recent changes and higher prices on industry demand trends, leading to the company's decision not to provide full-year financial guidance. The company expects in-year tariff costs to be approximately $400 million, with mitigation efforts potentially offsetting $200 to $250 million of these costs. The remaining tariff costs are anticipated to be mitigated by the end of 2026. While a short-term demand softening is possible, the extent and timing are uncertain. The company has effectively managed past challenges and is confident in its team's ability to address the impacts of the new tariffs. Despite these challenges, the company remains focused on its core strengths, such as market-leading brands, customer service, and innovative products, highlighting recent achievements and awards.

The paragraph highlights the achievements and activities of various segments within a company. Delta Faucet introduced several new products at the Kitchen and Bath Industry Show and received multiple customer service awards, including the J.D. Powers award for the fourth year running. Watkins Wellness launched two cold plunge products, complementing its spa and sauna offerings. Internationally, Hansgrohe showcased new products at the ISH show, earning IF Design Gold Awards. Behr was recognized as the most trusted paint and stain brand in North America. The company's first-quarter results showed a 6% decline in top-line revenue due partly to the previous year's divestiture of Kichler, with sales decreasing 3% when accounting for currency impacts. Despite this, gross margins rose slightly, with a strong operating profit of $288 million and earnings per share at $0.87.

The paragraph discusses the performance of two business segments. In the plumbing segment, local currency sales increased by 1% in North America due to higher volumes in the spa and sauna business and favorable pricing, though decreased retail volumes impacted results. International plumbing sales remained flat. Operating profit for the segment was $219 million with an 18.5% margin. In the Decorative Architectural segment, sales decreased by 16% due to a divestiture, with overall paint sales down due to a partial reversal of inventory timing benefits. DIY paint sales declined, but pro paint sales grew, driven by strong partnerships and product quality. Operating profit was $96 million with a 15.6% margin. Despite challenges in the DIY market due to economic conditions, there is ongoing growth in the pro paint category.

The paragraph discusses the uncertainty in determining the impact of tariff policies and macroeconomic conditions on Masco's financial guidance. It emphasizes the company's resilience and strong fundamentals in the repair and remodel industry, with a well-positioned product portfolio. The outgoing CEO, Keith, reflects on the company's success due to its strong teams and leadership. Rick Westenberg acknowledges Keith's 27-year career and contributions, expressing gratitude and wishing him well for the future. Rick then shifts focus to discussing Masco's financial results, excluding one-time items.

In the first quarter, sales decreased by 6%, or 3% when excluding the effects of the Kichler divestiture and unfavorable currency impacts. The divestiture decreased sales by 3% year-over-year. North American sales in local currency dropped 7%, or 3% excluding the divestiture, while international sales remained stable. The gross margin increased to 35.9%, and SG&A expenses decreased by $9 million due to the divestiture, though marketing costs increased. The operating profit was $288 million with a margin of 16%, affected by lower volume and higher marketing expenses. Earnings per share were $0.87. Plumbing sales dipped 1% but rose 1% when adjusted for currency impacts. North American plumbing sales went up by 1%, driven by e-commerce growth and spa/sauna dealer performance. International plumbing sales matched the previous year, with growth in Germany and Europe offset by weakness in other regions, particularly China. The segment's operating profit margin stood at 18.5%.

In the first quarter, operating profit was affected by an unfavorable mix and higher trade show costs, though cost savings and a favorable price-cost relationship provided some offset. Decorative architectural sales and total paint sales both declined, partly due to inventory impacts and market softness, especially in the DIY segment. Operating profit stood at $96 million with a 15.6% margin, primarily impacted by lower volume and inventory timing. The company's balance sheet remains strong, with gross debt to EBITDA at 2.1 times, and $1.2 billion in liquidity. They returned $196 million to shareholders and plan to invest $175 million in capital expenditures, pay a $1.24 dividend per share, and use free cash flow for share repurchases or acquisitions.

The company is not providing 2025 financial guidance due to market uncertainty from tariffs but aims to clarify its tariff exposure and mitigation strategies. Current import exposure to China tariffs is reduced by 45% since 2018, with an annual impact expected to reach $675 million before mitigation. The company aims to mitigate costs through price increases and cost reductions, estimating a net impact of $150 to $200 million in 2025 after mitigating roughly 50% to 65% of the tariff costs. Strategies include price hikes, cost-cutting, and altering sourcing approaches.

The paragraph discusses the company's efforts to mitigate the impact of currently enacted tariffs, aiming to reduce their effects by 60% to 75% by the end of 2025, with further efforts continuing into 2026 through changes in sourcing strategies. It notes the uncertainty surrounding the impact of tariffs, potential price-related volume changes, and the broader macroeconomic environment. Future updates will be provided as more clarity is gained. The speaker thanks their team for their hard work amid these challenges, expresses confidence in their ability to manage the situation, and invites questions. The operator then explains the process for participating in the Q&A session. Michael Dahl from JPMorgan is introduced for the first question, and he welcomes John to the company while requesting insights into top-line trends for the first quarter and April.

In the conference call, Keith Allman discussed the current trends in the company's DIY paint and plumbing segments. He noted strong performance in e-commerce and international plumbing, especially in Germany, despite challenges in China’s higher-end market affecting geographic demand. The U.S. is experiencing some softening in both trade and retail channels for plumbing, while the professional paint segment is performing well and gaining market share, supported by high net promoter scores.

The paragraph discusses the current state and future expectations of the DIY paint market, which is experiencing a consistent softening. Despite some pockets of strength and growth, overall consumer sentiment is tentative due to geopolitical and macroeconomic volatility. Michael Dahl inquires about mitigation efforts regarding tariffs, specifically focusing on price increases as a primary action. He asks for clarification on the potential impact of these price increases on key plumbing products, and whether there have been instances of demand elasticity or inelasticity in response to such increases. Rick Westenberg responds by stating that their mitigation strategy includes pricing, cost reduction, and changes in sourcing.

The paragraph discusses the focus on pricing and cost reduction strategies for 2025, emphasizing that most actions will revolve around these areas. Sourcing changes are ongoing but will require more time to implement. The company is responding to tariffs that started in early 2025, with pricing adjustments reflecting these changes. However, due to uncertainties like pricing elasticity, macroeconomic conditions, and consumer sentiment, the company has chosen not to provide financial guidance. Despite these challenges, the company remains confident in its brands, products, and team's ability to navigate the situation. The conversation then shifts to a new question from Stephen Kim of Evercore ISI.

In this paragraph, Stephen Kim expresses concerns about potential impacts from tariffs on DIY paint sales and asks about consumer behaviors like stockpiling certain products in anticipation. He notes that DIY paint seems more affected compared to other products like professional paint. Keith Allman responds by downplaying the likelihood of significant stockpiling, citing consistent point-of-sale data that does not suggest such behavior, despite not having specific consumer data to confirm this.

The paragraph discusses trends in the DIY paint market, highlighting a decline as baby boomers opt for professional painting services due to age, while millennials, although more engaged in DIY projects, have not fully compensated for this shift. It mentions the sensitivity of DIY consumers to price and economic conditions, contrasting with the more robust demand from higher-end consumers in other areas, such as premium plumbing brands. The paragraph concludes that in economic downturns, a focus on affordable repair and remodel products that offer significant value is crucial.

The paragraph features a conversation between Stephen Kim and Keith Allman, discussing the impact of economic conditions on consumer behavior and pricing strategies. Stephen Kim questions Keith about the potential for a shift towards a richer product mix due to price elasticity affecting lower-end consumers more immediately. Keith acknowledges that although premium consumers are maintaining their purchasing habits, economic difficulties often lead to consumers trading down to lower-priced options. He confirms that the company has been working to manage margin performance through pricing segmentation and channel strategies, highlighting the need for dynamic pricing in an unpredictable market environment.

The paragraph discusses the company's approach to adapting to market changes, specifically anticipating a shift towards lower-priced products, with some uncertainty about private label trends due to Chinese market influences. The focus is on being flexible with pricing strategies, alongside other measures like reducing costs, negotiating with suppliers, and altering business operations to maximize profits. The company believes in a comprehensive strategy combining different initiatives, emphasizing the importance of agile pricing, efficient execution, strong leadership, effective systems, and a diverse product portfolio to navigate these dynamic times.

The paragraph features a discussion on a company's adaptability and resilience in facing macroeconomic challenges, emphasizing their robust product portfolio and experienced team. They highlight their success in handling past difficulties like COVID-19, price escalations, and supply chain disruptions, gaining market share particularly in the paint sector. The conversation transitions to the new build channel, where Sam Reid from Wells Fargo inquires about competitive pressures and pricing strategies, especially with regards to pricing realization potential from tariffs in comparison to retail and trade channels. Keith Allman responds, emphasizing that the company's focus is predominantly on the repair and remodel market, which constitutes over 85% of their business.

The paragraph discusses the company's selective approach to targeting new customers who value its innovation and service offerings, without divulging specific pricing strategies. The emphasis is on the organization's pricing capabilities, driven by dynamic systems, a skilled sales force, and the strength of its brands and innovation. Keith Allman expresses confidence in the company's ability to meet challenges. The conversation shifts to brand performance, where Sam Reid inquires about the performance of brands like Delta and Brizo, which cater to different consumer segments. Keith Allman notes strong performance in e-commerce and international plumbing businesses.

The paragraph highlights a discussion involving executives from Masco about market performance and changes in sourcing strategies. They mention gaining market share in e-commerce and international plumbing, with areas like higher-end showrooms performing well in certain international regions. However, they note some pressure in retail, particularly in the DIY paint sector. The conversation shifts to Rick Westenberg discussing their long-term efforts since 2018-2019 to reduce tariff exposure to China by relocating their sourcing footprint to other regions. This journey predates recent tariffs, and the company plans to continue these strategic changes without revealing specific details.

The team is working cost-effectively to manage the effects of increased tariffs on China by diversifying their supply chain, which extends into next year. They have a strong manufacturing and distribution presence in the US with most sourcing done domestically but maintain a global supply chain for resilience and diversity. The company is prepared to adapt to shifting tariff policies, with ongoing evaluations of geographical impacts to reduce exposure to China and strengthen their supply chain. In response to a question, Rick Westenberg mentions that current volume trends are consistent with what was observed earlier in the year, aside from changes potentially influenced by the tariff announcement on April 2nd.

The paragraph discusses the company's current situation regarding e-commerce strengths and challenges in the DIY paint sector, and the uncertainty in the market post-April 2nd announcement, which has affected consumer confidence. Due to this uncertainty, the company has refrained from providing an outlook for the year. In terms of inventory, they have observed typical seasonal trends, with no significant changes in channel inventories and noted a partial reversal of beneficial inventory pulled forward in the previous year. During a Q&A session, Anthony Pettinari's discussion with Rick Westenberg revealed that paint sales decreased by high single digits in Q1, suggesting there may be more inventory adjustments in the second quarter.

The paragraph discusses the financial performance and outlook of a company, particularly focusing on changes in inventory and sales figures. The company's decorative architectural product sales decreased by 16% year-over-year, with half of this decline due to the Kichler divestiture and the other half due to volume issues, including a 4% reduction from partial inventory unwind. Inventory levels remain higher compared to the previous year, posing a potential challenge moving forward. Additionally, selling, general, and administrative (SG&A) expenses saw an increase, mainly due to higher marketing costs associated with trade shows like KBIS in Las Vegas and ISH in Frankfurt. In the plumbing segment, there was a $9 million year-over-year reduction.

In the paragraph, Matthew Bouley from Barclays asks about the company's plan to mitigate a financial impact, specifically the $675 million or just the $400 million of in-year costs. Rick Westenberg explains that for the current year, the company anticipates mitigating 50% to 65% of the $400 million impact, reaching 60% to 75% by the end of 2025 through pricing and cost actions. By the end of 2026, the company aims to address the full $675 million impact. However, these plans do not account for potential volume changes, either direct or indirect.

The paragraph features a discussion between Matthew Bouley and Keith Allman regarding the company's future mitigation strategies and margin targets for 2026. Keith Allman expresses confidence in achieving the set margin targets despite pulling financial guidance due to current uncertainties. The conversation then shifts to Mike Dahl, who congratulates someone presumably retiring and asks for more clarity on the company's exposure to tariffs, particularly related to sourcing from China, Vietnam, Southeast Asia, and Mexico, given the uncertain tariff environment.

The paragraph involves a discussion between Mike Dahl and Rick Westenberg about the impact of tariffs on PepsiCo's products, focusing mainly on imports from China, which account for the majority of the tariff impact. The annualized cost impact from tariffs on Chinese imports is significant at $625 million out of a total $675 million. Tariffs on steel, aluminum, and other items add an additional $50 million. Rick notes meaningful exposure to Mexico due to facilities that import to the U.S., while exposure to Canada is less significant. Most of their products qualify for USMCA exemption. Mike's follow-up question seeks clarification on whether the financial guidance took into account tariffs and whether the outlined costs were incremental. Rick confirms that Mike's understanding is correct.

In the paragraph, it's mentioned that during a previous call in February, guidance had accounted for a 10% China tariff. Since then, additional tariffs of 135% to 145% (minus the initial 10%) have been imposed on China. Furthermore, there are new tariffs of 25% on steel and aluminum and 10% on global recyclables, which are considered incremental to what was discussed in February. After providing this update, Mike Dahl thanks the speakers, and Robin Zondervan offers closing remarks, expressing gratitude to the participants and concluding the call.

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