MASCO CORP /DE/ Q3 FY2024 earnings call

• Overall Performance: Net sales in line with prior year, gross profit margin rose 90 basis points to 36.7%, operating profit $360 million (up $12 million or 3%), operating margin 18.2% (up 60 basis points), EPS grew 8% to $1.08 per share.
• Plumbing Initiatives: Launched Tankless Reverse Osmosis Water Filtration System across Delta and Brizo; Hansgrohe launched PowderSpray Faucet; reached one-year anniversary of Sauna360 acquisition with Tylö saunas in Watkins dealer network.
• Decorative Architectural: Completed sale of Kichler Lighting, focusing on core Plumbing and Decorative Architectural businesses; pro-paint sales strong, DIY paint challenged.
• Capital Allocation: Generated strong free cash flow, returned $255 million to shareholders, plan to deploy Kichler sale proceeds for share repurchases or acquisitions, expecting ~$750 million total in 2024.

Plumbing

• Sales increased 2% overall and 1% excluding acquisitions and currency. In local currency, North American Plumbing sales increased 2% overall and 1% excluding acquisitions; International Plumbing sales increased 3% in local currency.
• Operating profit for the segment was up $17 million to $242 million. Operating margin expanded 100 basis points to 19.9%, driven by higher volumes and productivity/cost initiatives.

Decorative Architectural

• Sales decreased 3% in the quarter, or 1% excluding the impact of currency and divestitures. Overall paint sales were down low single digits; DIY paint sales decreased mid-single digits, while pro-paint sales grew high single digits.
• Operating profit for the segment decreased $6 million to $138 million, while operating margin remained strong at 18.1%.

• Full-year sales now anticipated to be down low single digits vs previous plus or minus low single digits.
• Full-year operating margin expected to be approximately 17.5%, at the top end of prior range 17%-17.5%.
• Plumbing segment: Full-year 2024 sales expected plus or minus low single digits vs prior year, operating margin ~19%.
• Decorative Architectural segment: 2024 sales expected down mid-single digits, operating margin ~18%.
• 2024 adjusted EPS expected in range of $4.05 to $4.15 per share.

• Market volatility and uncertainty impacting sales, particularly in DIY paint.
• Commodity and freight costs, including copper and zinc, posing headwinds with a lagged impact on P&L.
• China market challenges affecting international sales.

Q: Susan Maklari from Goldman Sachs asks about DIY paint weakness, election impact, and margin.

A: Keith Allman responds that DIY paint trends were consistent, election impact is about ability to respond, and margin performance is due to operational excellence and cost initiatives.

Q: Andrew Azzi from JPMorgan asks about R&R market growth and pro paint business.

A: Keith Allman states R&R fundamentals are strong, pro paint business is ~$900 million and growing above market.

Q: Atish Shah from Evercore ISI asks about Kichler divestiture impact on margin and paint mix.

A: Rick Westenberg says Kichler divestiture is accretive, and no significant mix hit in paint.

Q: Trevor Allinson from Wolfe Research asks about DIY paint market reset and China import exposure.

A: Keith Allman expects DIY paint to return to growth, Rick Westenberg says Kichler divestiture reduced China import exposure by ~40%.

Q: Matthew Bouley from Barclays asks about Plumbing margin and 2025 pricing.

A: Rick Westenberg discusses commodity and freight headwinds and margin offsetting, Keith Allman says 2025 R&R outlook will be discussed in next call.

Q: Phil Ng from Jefferies asks about Plumbing market recovery.

A: Keith Allman says international Plumbing strong, US retail strong, trade challenged but stable.

Q: Keith Hughes from Truist asks about M&A and Kichler divestiture proceeds.

A: Rick Westenberg says focus on bolt-on acquisitions in core segments, Kichler closed September 18th, proceeds for share buybacks.

Q: Garik Shmois from Loop Capital asks about pro paint shelf space and Wellness business.

A: Keith Allman says pro paint share gain due to offering, not shelf space; Wellness business stable with Sauna360 acquisition.