MAS - Earnings call transcript Q3 2018

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Operator

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2018 Conference Call. My name is Zetania and I will be your operator for today's call.

As a reminder, today's conference call is being recorded for replay purposes. I will now turn the call over to David Chaika, Vice President, Treasurer and Investor Relations.

begin. may You

David Chaika

Vice good quarter and Allman, to Corporation's Sznewajs, Masco and Financial Thank call. morning. With third Masco's John and conference of Keith and me XXXX Chief CEO Officer. you Masco; Welcome President today President are

quarter the presentation earnings to will slides under website and on available are our release Investor third we refer Our today Relations.

question open question now, questions. Please can't to one with Following at follow-up. analyst take call XXX-XXX-XXXX. our limit please for your remarks, me directly the call we we one will If yourself

factors Form Our statements cause our disclosures to views statements and future to and our Form risk forward-looking XX-K the about Exchange that from Securities actual subject XX-Q our other and our constitute forward-looking statements. statements. We risk these today in will materially are our could include describe filed performance, Commission. risk and differ which that results and uncertainties with we the our uncertainties in These

include statements non-GAAP Our financial also measures. will

operating turn to We reconcile references our Investor noted. to that, share our GAAP available measurements to which presentation as adjusted earnings over now are Relations. otherwise profit in be under slides, per Our I'll on and unless these the the adjusted, and call website earnings release Keith. With will

Keith J. Allman

driven Kichler top Good increased our acquisition you, Thank our In impact strong Dave. X% this business operations, Lighting and us turn in for third excluding earlier year. our growth American joining the Plumbing today. currency, line thank Please of quarter, you by morning, of our everyone, Cabinet and X. to North the slide

XX.X% margin to million X%. currency, sales in and the of price divestitures, we disciplined higher impact control. and volume, grew the due cost Operating profit Excluding and quarter grew $XX operating achieved acquisitions

Our EPS per XX% increased share. $X.XX to

X% in points. and growth quarter of Plumbing segment a X% to currency, Plumbing all Delta outstanding by channels American price X%. across our sales with or local strong growth driven North segment grew had Turning our performance, record

price and upper products, strong point bathing fixtures Our entry-level our experienced Peerless all toilets, Brizo products, growth.

to due refreshes offering channel in an Additionally, and Watkins retail channel. expanded its dealer model in performance its continued product strong the

Plumbing Europe. continued international Plumbing currency, Central Decorative partially this American declined offset This in primarily North grew X% in local was to Architectural due was China. In softness XX%. by While in sales strength segment, our quarter, strong

sales paint Excluding in pro and our Kichler decorative a with acquisition largely by in paint. of offset X%, single-digit Lighting, strong high performance growth in hardware, DIY decline grew

The value than having we the exclusively sold DIY advantage at was softer paint competitive our While paint Home believe quality, highest positions expected, Depot us market best of the well.

Cabinet our of our of and $XX the dealer million Cabinetry, and annual fourth XX% have during the plan and program growth to was on on Moving quarter. channels. excluding and to run achieve segment repair led growth This sales initial by both in the divestiture business well, Menards we delivered gone roll-out remodel rate are robust months retail The Moores. the an

costs, mix both top the up we quarter. line business and in will logistics increase into an the continue pleased we unfavorable experienced Menards we of fourth our with slightly experienced ramped While are Cabinetry, in as which likely performance

Turning our business U.S. to X% mostly Windows, sales due softness in difficult the to UK were XX% comp and the down in market.

strategy. and and to share total the our million, current reduction, repurchases in million Kichler cash share free our demonstrating Based allocation market allocation, approximately $XXX capital bringing bringing generation we to million million liquidity, the total continued X.X quarter, to and in activity debt to million. million plan share by addition allocate conditions acquisition expected Moving the up $XX million. $XXX approximately year-to-date XXXX the activity on to is to our in $XXX flow our fourth repurchase our now for This allocated repurchase the strong allocated quarter $XXX repurchase we share shares to balanced capital $XXX to repurchase to repurchasing share

anticipated earnings volumes and largely our XXXX in for and lower updating for to of international are than we per to lower expectations due Lastly, coatings share in $X.XX our the Plumbing DIY Cabinetry. $X.XX. to expected be margin the businesses modestly This is range

potential like the John, to tariffs. performance turn I'd to detail, will call go including John? our financial in operational Now, over over who and from the impact

John G. Sznewajs

and Keith, morning, you, Thank everyone. good

inventory Dave recognition step-up comments for prior period Kichler reflect other adjusted and on the items. of been accounting adjusted pension one-time purchase the accounting comparisons of rationalization will mentioned, my focus performance most the the acquisition related reminder, as of have As and excluding impact to rules. adoption any to Also, revenue a charges, new

Turning to growth in top a the per or basis, line solid X% slide local share currency. X, sales On quarter. increased and earnings in third X% we reported delivered

Excluding acquisitions sales or X% in divestiture, currency. and increased X% local

outlook quarter the quarter or many We Foreign solid remodel $XX acquisitions. XX% and X% our we industry-leading repair by excluding repair American experience third local our currency translation products. believe North healthy, revenue approximately our negatively increased sales for impacted for and demand demand of million. remains currency, to the and in continue In remodeling

repair/remodel a XX% In total of local reminder, represents our sales. in decreased quarter. sales currencies, approximately As the X% international activity

the Kichler. driven in in Excluding strong operations, offset of partially international sales in and market were Moores, particularly acquisition XXX growth points, to XX.X%, Europe, the softness margins by divestiture X%, Gross of UK the largely international due down continued Central basis China. by decreased our

as basis of points to sales profitable to making improved Our investments while continue XX our SG&A, as XX.X%, drive leverage percent we to strategic SG&A a growth.

of million $XXX increased Our with operating margins profit X% operating XX.X%. to

last on inefficiencies were continued Windows our As third and call, in costs the ERP business. we quarter in by impacted operating margins discussed quarter's

from Plumbing price strong and products North Cabinets, unfavorable resulted point mix. growth American We which in also lower in experienced

Our to third EPS was $X.XX, XXXX. a XX% improvement the quarter of compared

described, markets distribution, $X.XX updating estimated in DIY well change international pressures to that Keith Principal our $X.XX. cost the are we mentioned, that this Cabinetry. EPS as annual Keith items and continued softness primarily affect logistics as As range in are and in paint to Plumbing

X, X%. slide sales segment increased our to Plumbing Turning

Excluding shower faucet, and our the and solid This currency businesses. increased driven impact X%. growth by North performance spa acquisitions, American sales of was in

unfavorably translation impacted sales by million in approximately currency the $X quarter. Foreign segment's this

American sales channels. demand we retail, in our brands local e-commerce for our North experienced dealer industry-leading and grew currency, wholesale, strong Our across X% as

delivered As sales Keith mentioned, a quarter. Delta record

Additionally, business dealer our spa brands competition, continued its innovative and products strong the network, industry-leading growth. to Wellness Watkins leveraged outperform new to drive as

local This in as international decreased partially expected. markets Plumbing were than growth sales softer in China. Our currency, by was offset strong X% European

were strong China of and As a sales experienced up reminder, against growth our in in tough double-digit Germany third as quarter XXXX. we international comp a the

anticipated. were by a in ERP new is due price/cost margins The price/cost operating in profitability, implementation of resulting realization and Mix increased and sales of bathing largely retail. at lag also principally system. impacted point the price products less lower to win segment Europe impacted lower due price to margins volumes our Turning in Peerless faucet in than toilets Delta's and lag retail at program to

the in softness markets, margins down full-year, operating to For international expect recent for to be segment our the given slightly this we XXXX. compared Plumbing as

Decorative Turning Architectural to slide X, Products segment grew the XX%.

grew Kichler, of sales acquisition X%. the Excluding

this single-digit in e-commerce was decline a business. in Liberty, This continued approximately paint was driven and single-digit the sales partially offset impacted Behr's performance This retail unfavorably Behr's a translation growth by channels growth in currency builders' growth by our low at in high million sales by $X paint hardware DIY Foreign segment's pro quarter. business, business.

the pleased with to progress margins of while sales to quarter approximately X%, be XXXX its to XXXX, expense declined third integration continue to margin operating depreciation the $XXX be are Compared the higher lower that Kichler, we the to operating We from Kichler, income including the annualized increased the with of are for resulted of and expected making acquisition. largely amortization due million. and XX.X%, profile

in upper expect end margins we be our this full-year, of to to the XX.X% the range. segment For XX.X% in

sales in As a faces quarter difficult grew XXXX. comparison a quarter, reminder, fourth XX% the of segment the fourth segment in this as

remodel increased slide we X, our through to favorable quarter in was by and repair Cabinetry business This and in strong the segment, in Turning as excluding performance of Moores brands, driven sales industry-leading our increased volume impact growth XX% double-digit divestiture. experienced the the price. our

existing home experienced dealer center in solid and the quarter. Our business growth

pleased Menards Segment gain due performance. we principally $X offset increased the addition, increased logistics by quarter partially continues mix. our million, initial are to program's this volume, in program at increased by In to cost product with profitability and traction and

expect X% growth to For Moores X% excluding sales we to continue the divestiture. the full-year,

expect we into expect margins in basis However, we we XXX decline due quarter. now the pressures operating experienced and that and for full-year continue cost approximately the to QX to logistics to fourth mix points

decreased products difficult continued X%. a due XX, to as UK. to In to mix Windows third quarter to toward favorable sales in sales Turning discussed and pricing segment second we XX% window on quarter the and premium the was market continued prior from Segment of year related as in door $X the comp as and offset America, Milgard's last warranty North quarter, profitability In lower our inefficiencies the primarily facing costs, million our sales incremental a matched address the softness continued we despite by slide decreased experience shift U.S., service of to approximately volume, we year. third call.

this margins we XXX full-year, to segment's points currency divestitures, compared operating to to and basis X% to be XXXX. excluding the expect sales approximately continue For growth down X% with

million approximately largely well sheet $XXX as availability slide a XX, balance quarter our to to $XXX points year Working of prior Turning full as basis acquisition. Kichler the revolving credit increased versus XXX of due facility. to the impact with sales on the we as capital percent ended million liquidity, of XX.X%,

times. percent the pleased balance we For debt a overall X.X be of now approximately with at EBITDA the working capital as to our Further, of strength our to net stands we as sales sheet, full-year, expect XX%. are

in share the $X.X allocation, repurchasing more in to million repurchases, dividends fourth million. continued will shares and $XXX the we flow bring X.X to of million, our deployment to creation approximately to capital acquisitions, million and deploy value During to expected year-to-date strong $XXX by total at free focus This in we bringing capital our debt balanced $XX XXXX. quarter approach buybacks approximately XXXX cash third our share expect on than valued billion. With reduction our quarter, total shareholder

slide potential the of tariffs for you as I head help XXXX. to Before call Please turn Keith, turning back the over financial want to the impact to into XX. we frame

in $XXX rise and subject on approximately this that this goods as see put XXX such million this import to X, with to roughly amount is under this if productivity keep less in we of would other manageable inflation material you of effectively a as planned repositioning rounded and This sold. As of or XXXX. on through that supply measures. numerous supplier volume, perspective, XX% cost finished tariffs approximately of of Please believe we currency the million this is to fall We and $XXX additional amount a increases, internal the To than is annual other can raw goods dealt and negotiations, the mind X.X% cost January mix. components tariffs. variables of our of slide, inflation chain approximation in combination price amount

plans but elements each actions a on lag tariff of may there XXXX. We and initiated and these be in in recognize here mitigation have implementation XXXX, already between

We expect affected. little XXXX tariff on the of timing products and positions quarter of the impact due fourth implementation these of the the our inventory tariffs to in

can the tariffs. most is by segment that You see Plumbing impacted our the

private Many As the much facilities Texas. products have faucets California, Tennessee, and competitors in China. source product Indiana, such and we than a of showers Carolina manufacturing have assortment North significant from as broad nearly and XXX% their plumbing industry label leader, more

would competitive now a these turn that, over call competitors. With advantage Keith. to I'll against have back So, we the

Keith J. Allman

our nearly earnings in been and we per industry-leading dynamic should housing growth. rate is executing has increase, XX% homes Thank large and Home The households. has for challenges stock are year and spending material than at remain generation the homes. stock grow U.S. the long-term challenges. four-year top that drive consumer high. older strong and come, the years line bottom remodel as to a and We're high. believe XX-year are these formations per you, is for cost growth. raw have years XX-year address millennial year-over-year. share XX supportive continues the remodel housing newer brands, market innovation inflation pipelines and more and and XX% and of and confidence on a spite a low driving household focused now growth leveraging our Demographics channel X% expect logistics a the and spending, strong correlation We we repair old, remains approximately at is home at repair fundamentals of expertise, GDP solid tariff of a over housing XXXX started at John. Unemployment to to of to with age price of appreciation, which and forming as average repair has remodel remains

and see in to sales products. a strong has our many of of continue remodel growth believe greatest economy We correlation our repair the product that strong with categories and

to between our continue call against share cash favorable acquisitions and with fit create strategies fundamentals our and to will execute right dividends we'll balanced approach and will deploy in return, disciplined flow that, now repurchases strong our We open market shareholders. With these a value for and Q&A. the for the

Operator

comes line Evercore of Kim ISI. question the Stephen Your of from first

Stephen Kim

business Thanks to helpful. I seems for The ask outlook very very I off the question It start U.S. thanks was much, all a to and guys, information. wanted just the generally. reasonable. guess about

continued R&R, the – the about drive matters strength is talked You economy in most. what would factors certainly, that and the fact

been about However, have because was don't rates, would slowdown things an they concerns who some space curious a that mortgage see is and low want rising a low if that effectively one the our to – believe of ado product you mobility, their rate on bit specifically aspect rate And stay will home generally that's your talk they than see other has the that on impacting to who that of or you dynamics up. whole are affecting that the little not to could folks their over in in when been like I choosing a more Do move give recently mortgage your think you to you think is this could this the people you years. the few much issue? that, you issue nothing? demand next company, spend R&R Do that about move reasons if remodeling about for there on are talk look just how company

Keith J. Allman

take which Stephen, trends. as of is affordability. price home pinch these doubt, we we the talked place a Without and concentration, of XX% we've putting advantage our is a think the where that in a bit puts can appreciation in our revenue, R&R about a us rates on rising of increase

they'll it need look people be at However, in rate, higher to of their mortgage et the to home, happens when because dynamic stay new the major in stay a – cetera, countercyclical oftentimes is trend remodel. what they another the choose when now move overall a you somewhat it's between pull see trigger a what R&R when and that to – of house of and they at construction on their affordability, home,

dampen price we the home to home can little where like home – tightly much of appreciation, a So, R&R price very the appreciation spend. correlations appreciation see, one is on correlated, on tend construction, best that price movement bit a new to

R&R increase, people prices the home as project. on feel about an better So, pulling ticket

their house people better As in stay R&R to longer, spend. tend an feel they about

it's look we because we when strong. think the overall, consumer's strong market, and it's So, at remodeling fundamentally consumer-driven and repair the

Stephen Kim

a would it outdoor of Was be jobs. paint I you Northeast probably of let's primarily how know unbelievably you this to be very of some about a Cabinets, the been was how outdoor paint, in at the Would do experience Dec that may to slowdown impacted I difficult curious weather – It been differently. to a have softer – sort that quarter. felt And wet the like dynamic sales talked it. I different this see as have in here kind lot operate you much being was follow-up, it's least? quarter. as this it Got that, painting in in relative up beneficial did wrapped you because Architecture? with around say, segments more to to of might to as Decorative respect might Arch, And curious

Keith J. Allman

We well our the for look as yeah, when Coast when longer, impact really wet home ticket East to material at But versus in boy, of specifically, we longer, is and generally that at it's we look around a strong if terms strong. it it But segment big didn't look relates impact. a pretty not it's as We're the a of segments, was regard when really was very see the we are people staying ticket. West DIY we consistent. really the was expectations, to to you data it Really, In on tend and in at And in think not With and there's we out we segment a across don't ticket weather, at But heat it the to segment relates August/September trigger difference country, DIY item. okay. your staying and the to therefore, market call all their small bodes committed as segment. you to bigger map, that. well. the hot pulling do look the will, change homes material question

little that bit yeah, probably So, of had impact. an a

Stephen Kim

you. thank Okay,

Operator

Clark next of Your question comes Doug from Goldman Sachs.

Doug Clark

question between Hey, kind my expect and/or right-size of curious of quickly XX% tariffs, pricing of that a that and be for of would other provided place takes the and terms thanks that terms first good how all it you the I'm actions taking detail tariff the and on long in the you've to and is there. extent imposition could of mentioned. kind you morning. that thanks to for the lag cost in My question time the how you

John G. Sznewajs

might Hey, our or we realization tariffs, quarter regard actions. morning. think two a It's Doug. full John. lag Good there that of With getting the be to in pricing

it we think do can fairly promptly. So, we

the those my here begun in of in quarter. I already As prepared conversations mentioned have some remarks, fourth we

realization. between, lag like about little pretty begun. I of have might said, There those So, we feel conversations how and implementation a bit good a be

Doug Clark

is about curious in U.S. your on Okay, know so side, a and Plumbing with talked manufacturing mentioned particular, Dec the thanks. Any globalized chain? majority in the which the Kichler kind supply ability pricing then, Arch or just I'm you lighting I of of or bit I little kind exposure terms in And to there. of the assume of differences footprint a get

Keith J. Allman

The Dec and manage assortments tariff entire industry. East Kichler. Arch source the right, basically majority and in You're impact of the is the design We Doug. Far from like

we're a else. everybody in there we with from think standpoint, competitive So, right

not So, affect get price. to that should really ability our

John G. Sznewajs

And structured Dec and And Liberty I is to which comment. hardware lighting a just industry. industry we that add is Doug, Hardware, have largely sell. In also the Keith's a builders' would business, Arch, similarly to source

So, same Keith there here. with mentioned apply a and dynamics lighting lot import there's will that of

Doug Clark

All lot. right, great. Thanks a

Operator

Your Deutsche line of Nishu next question comes the Sood from of Bank.

Nishu Sood

Thank you.

On a the have cost tariffs, price a on to this pretty good you ability shown input pass is terms year. folks of XX% a large number. in rising

As how where the might think do across unavoidable, areas – to where raise going you that you where look it's ultimately, are concerned it are tariffs demand? slow prices you

Keith J. Allman

a I we're to unique entire million like hardware to the like This many cases, go seen. in is Well, that dollar say our around here, think that's is competitive just and or analytics entire data Nishu, and situation remains what space, the we is lighting in the question a going up. that the to – majority we're market. seeing data that least, stable about, And in is the talked be of in elasticity

correlation Some would more significant. overall as of the size of the and say, ticket issues relates a it the or to, something or light impact be overall some around

chain, elasticity price. the now, we're our supply focus seen. getting But be accordingly. drive suppliers margin and our managing and on to making watch working and remains moves, going on it price focusing our chain with supply to to productivity, So, We're adjust is

Nishu Sood

Got it. it, got

versus we some on because my in you John, through was the Plumbing. in have prices follow-up of complex the Okay. Plumbing? begun the mentioned, A come metals And come Europe. to of was question this should lot metals I volumes cost, benefits When then, expect lag quarter lower lower in think, prices price to There down. of

John G. Sznewajs

flow generally feel two-quarter through Plumbing Yeah. impact lag statements. base a Nishu, we our P&L the if on financial it's it you metals on our that think how segment, about the through and

sales, to pricing of the in the which and our feel impact first both the trends the XXXX. guess zinc, lower given late primarily quarter so, prices are cost And of here that and of of the we I the start that would quarter impact would in fourth copper the two beginning

Nishu Sood

you. Thank Great.

Operator

John Your from next question America. Bank Lovallo comes of of

John Lovallo

Thanks for as Hey, questions taking guys. my well.

guys on do-it-for-me cycle R&R encouraging. do there you pretty paint are in DIY? question DIY is is the this towards What specifically. on or clearly Is going is U.S, you Is this just First going shift is more in still here? on bullish the the something in – structural think which more

Keith J. Allman

age the cohort household that effect and if Well, quarter-to-quarter some fundamentally, difficult (XX:XX:XX) exactly you of little paint improving. that there. household and renters that look to inevitable I the as But the and years, of look moving it's think the it the and the choppy bit had paint less. at over renters basis. the quality dynamics always at and is children DIY a call of the bit relates we particularly and are formations, a past buyers years. an a increase a towards There's the where paint that you bodes Certainly, inherently as for to to millennials we arrival past tend versus demand into – paint's market is formations, There's over when overall been primer-in-one with underlying is, several We've average DIY. quarter-to-quarter think well paint move think had on an of precision has

John Lovallo

a and businesses, attribute bit the Okay, tough that's you could a call you comp, that maybe Is then, the there did little about that And of helpful. in going to I on what forward there? you was that market. international guys guys recognizing just anything are thinking there think touching out softening

John G. Sznewajs

in they that good over very tough in pause. overall in Brexit the do European bit little starting the we of back And that that just multiple last it as unknowns pulling because the pause. the are seen the think and that. with economy the bit along fact – of was of We've course attribute just businesses I to part the a might contend Europe, comp, strength don't just we think John, and the has with Central see significant it China quarters. It's UK, go been think of any I have a to I And we bit think in issues of the with to a a softening a our market.

John Lovallo

Okay. Thanks, guys.

Operator

question comes Wood next from Your Michael Instinet. Nomura of

Mason Marion

Hi, previously this more you Mike. need gallon on trends is response Mason a Marion future? and for the were pro in growth Are the seeing in in will than the What paint? you you of are competitive to discount more

Keith J. Allman

to call We we're segment. Home outstanding a that's to that think continue painters do good billion very a make who better an in we big additional in very We these got points at The are and we've very service Home Depot, value paint. after, it's And our a to have the better service or to not best get $X is And Depot. market. got proposition we've of solution the that – well targeted and sale have it and shopping a going The improving a to quality, good, and trip your is the

We're to to So, that. our in drive we paint. continue performance like going

continuing gain to brand, the service like of partner we the share. competition, of very, very chances terms quality up we're of and I as the of good question much, against quality it. I the quality when competitors very said, that great and like In have respect there's the yeah, a paint, the competition, we competing. But no our some it's of tough We're you do, about

Mason Marion

than was then, particular the And Cabinet were impressive Thank All you. or in stronger there on strength right, broad-based the others? were great. segments that segment, growth the

John G. Sznewajs

business – two had with served that would very then to quite also the we the But channel in I program on semi-custom new Menards. along say offering. actually strong both retailers growth this dealer our big-box that strong, do has semi-custom the – at traditionally was with our saw our

it's of third So, We does or so store big-box resonates brand KraftMaid the has walk as a they're dealer. that well, advocates into it's local it whether really feel performed designers, great was in really year. how great – here consumers good and it KraftMaid the for whether a us about quarter with

Mason Marion

you. Thank

Operator

or Maklari Good Securities Your Are of Maklari terms you demand the could next you. morning. any Credit in My Credit of of next that question of from question year? overseas of half comes first - especially look to the shifts maybe well. of tariffs cause LLC Suisse. some some Suisse pull-forward Susan around is Thank we suppliers seeing just any Susan sort as as first (USA) disruptions, your

Keith J. Allman

maybe really, step Not way. of you together out, the not it segments? strategy? you supply different the - dealing your changes the as Securities the Suisse chain. mean, Susan, Okay. that sort sort to and across think of you look I we some obviously Susan we mention come well, But the did about material LLC in would (USA) mentioned also on of need What is price as that a then, that Credit in how would And in tariffs should with Maklari part How to see situation. as order pursue first to

Keith J. Allman

in remind footprint significant at could in we're that involve and across and in chain. is a supplier negotiations, looking assembly some our We're certainly our improvements component. at the It a of you I'll in have here. we're looking certainly, our looking It segments, own the productivity particularly supply shops, moving United repositioning Cabinets. Plumbing States we all at of

our to and options option, manufacturing and locations it's So, onshore, or well. suppliers already working another initiated these in all process parts set up we've the going moving with is other of

this. in have We doing experience

XX% brass had from where our leaded the a to non-leaded increase. and legislation back in came that sometime at we had no-lead a we about freight to recall Plumbing You business, may brass, us represented terms that train like in go of and ABXXXX,

chains, manageable, price, importantly, paying So, in terms to to This effectively manage attention it. very how to it. but of drive is and how we're supply how move to

that Maklari set group through pulling to and our meet presidents well. LLC force Credit We - done. it is we're of number we John, levers going (USA) team week. every a you. up. to have Susan we've it of The a experience seriously, all to get and and do tariff very thank have task taking we're myself Securities Okay, but it responding work Suisse We're it

Operator

Your Matthew Barclays. next question Bouley comes from of

Matthew Bouley

for my you Thank Hi. questions. taking

Cabinetry So, pressures in, mix I you've called and both Plumbing. guess, out

products that Thank So, point? just on effect I'd of about accordingly, here. we should price how through that different this this the think cycle Keith, And love price is is profitability your really to assuming greater the something lower seems demand area to at and trade-down your point where be you. hear there whether the kind thoughts customer anticipating you're of points that at

Keith J. Allman

Matthew, I'd really lower by margin trade-down. in seeing good we're start customer that we're it's seeing is product. – not saying wins that a What

So, assortment win sales in and to a does in went bathing force, little good point, less growth we which had aisle. a out, won is program the a reset bit We're we price Peerless. that margin. we have through opening good seeing That's products, the in big-box nice commercial due our work which

about And is assortment, to seeing toilet our happy that. where growth. again So, program, we're the which good a tweak

and then So, up say, up Plumbing of a into on – have and and bathing our the through accessories our we products side, when and platform, continuum our from you high global margin think faucets then shower margin systems. about the lower toilet

good growth on seeing seeing based So, also the at initiatives, growth and target but sales our we're assortment up good we're high-end.

Watkins business, about are selling our spas as with well, in very tickets high-end discretionary, we Plumbing talked Our Wellness. high-end, very

doing is product which for Our line, Hansgrohe, well. the is Axor high-end line product

Our prepared line, in to well. which the we continuing do Brizo product is remarks, about talked

not So, growth. seeing shift. It's bimodal a we're

that. like we So,

business that cabinetry terms training. train will will during get we it and at we in less Cabinetry, associates the as requires But this as of resets, In the Menards initial because sell improve. stock rolling, as the planned, faster significantly

So, mix I'm troubled by shift. not the

assortment a that's of work good think sales I sign and work. good

Matthew Bouley

you. right, Thank All color. helpful that's

just fourth guidance on question, step-up Second the the for year-over-year rather unusual sequentially, you a Plumbing guess full-year slight – would seasonally. that in specifically, still quarter for I it operating segment is the for margins decline which a – in suggest large termed

as point us look about the finer So, to is how give Thank you. can there fourth specifically Plumbing the think margins any you quarter? we on to

John G. Sznewajs

year, was last as displays roughly million. had significant relates at that we the we refresh of the in to spend which in fourth just Yeah. memory, were of it some Matthew, of the Delta, putting amount in to $X some quarter everyone's

And we of year. won't that incurring the spend quarter we'll – be we don't incurring think that be fourth so, in

improvement a QX. should QX that margin to significant to So, sequentially pretty from contribute

Matthew Bouley

right. you much. very All Thank

Operator

JPMorgan. Your comes from of Rehaut question Michael next

Michael Jason Rehaut

Thanks. Good morning, everyone.

First question missed if – and I I earlier. apologize this

could cited by In DIY, you of key what terms of give – if cost. drivers bit softer little reduction, well of of weaker believe three bit drivers represented a kind I being was logistics of reduction. two of the part the degree guidance of the you those magnitude the key international, magnitude the kind terms of influence two as drivers on commodity I higher each a little as – as degree hoping of or in and guidance

John G. Sznewajs

Yeah. Sure, Mike. It's John.

that kind logistics and In international Plumbing terms The various if of continued look way XX% mentioned, – at of some in aggregated that it, the to the and the cost was in think components distribution. you if XX%. the think markets, of balance we paint pressures related you the DIY softness probably we about about

Michael Jason Rehaut

kind so broadly, even Great, September. cited peers the quarter, more a you trends more think about of in as obviously, great. kind during in some occurred the of then, August maybe that during softening lot just your I And have particularly, guess, the sales of quarter, and

terms anything matter if and lines that that than there. witnessed others? product deceleration quarter, might more or kind during any thoughts, of paint get more how witnessed something by if trended prominently segment, the to for your by wanted type that any of come you mind in that's saw Just segment, there of of channels Obviously, than to were But segments that board, across the you others. it

Keith J. Allman

a of through, wasn't when particular segments difference some not the there and we're the look significant segment-specific didn't see or maybe hit as be a heat. timeframe, was it there when a lot selling exception wet – hurricanes was But of speaking, going particular a obviously, in to a didn't are we hit. see Broadly with channel-specific – We coming across quite product. whole we the August/September paint I

John G. Sznewajs

as good either. you the the peaks either wasn't within valleys well. quarter quarter, had through consistency Mike, as through And we the or consider, There quarter pretty

Michael Jason Rehaut

from able us the the for give As looking you've just in? inflation. place you raw a Can material put one versus was more could I pricing full-year overall a curious into combat achieve I if to what been offsets you're at XXXX, standpoint squeeze sense that you other to you've think

John G. Sznewajs

into which say, both of Yeah. previous – we've of the our a Mike, significant business, We're same continue Products, products, year. fairly here. bit so impact seen we inflation as year, question. thinking inflation toward to some a in here of the the the our input in bit of through up course zinc, But our that's we And our seen was And in significantly the and increase but that little resins increased engineered developed experience we year, we paint if think the Cabinet of the did distribution or be the a should in I the and as fairly our on you're and not hardwoods go middle TiOX seeing costs some about Plumbing logistics at about that how course we've on, the same things Cabinet that TiOX it year. Products have perhaps then, continuing including up, and also rate saw copper touched year, on earlier a earlier part in of the inflation some costs. little variety of obviously, through

has hit us. inflation that all So,

inflation – into that bit look we first in little we year, absorbed As a the the across of half.

half second the the going we price/cost half at year. for to second still look though, think the we As we're neutral be

a good we've this we XXXX. on like we're gotten of and in position enter top So, really we feel as

Michael Jason Rehaut

you. Great. Thank

Operator

Capital of Markets. Your next RBC question from comes Dahl Mike

Michael Dahl

and Good questions. about Thanks business for early goes some first to comments question that. my how the around the Menards morning. back My challenges on taking you're logistical experiencing

if And could more what was detail those so, little challenges provide about are. a you exactly I curious

year-end. You say they're through persisting

of magnitude couple kind the next about give the should of how sense we it quarters? think it you of to is your that ability aspect us or just mentioned training Just fix a of the over and challenges

Keith J. Allman

we the They're Mike, communicated wasn't That I separate. link apologize a Menards logistics. between and intention. if

well transportation about before on base Menards. we've it's tied to as to escalation, what calls talked fuel escalation, cost by Cabinet prior And not driver that's the availability. as and logistics cost with So, a driven regards

dedicated impact We on our routes. less have

less it's with where more bit at tends more it's we so, job hit have oftentimes certainly truckload. routes. big less the And when where pressure. bigger of we look in milk have steady like some runs, routes, chunk more a we receive steady It's Plumbing, customers paint, In a site That of where to Cabinets, than our it's businesses and little delivery.

Menards Menards. it's tied So, going broad-based program's not Cabinet well. The logistics pressures, to

Michael Dahl

yes, And you're have color. Keith. that, may Thanks, I that's but misunderstood Okay. helpful right,

question, could Plumbing, switch? a on kind and and going that of on priorities, of low long working production with where to your back that's forward, you going little take that tariffs does other list was the options cost back how to provide second is manufacturer just discussion to the it more make detail if was effectively The strategy of to highlighted to again the shift countries. one – I partners

Keith J. Allman

probably sit It's speaking. roughly number three here today, down just I as in priority

up negotiation supply (XX:XX:XX) talked is working relates have terms is and say, suppliers certainly other our call focus have of Vietnam, with other it capacity couple chain about assembly the suppliers competitive large chain. option. Asia, But States. coming price places, in in-sourcing, there's in a already we our many specifically your with Our supply And a United suppliers, on to to the of then, question into – moving Southeast pricing. I set more let's as up and is it an on

capacity matter there. different existing And a and of doing facilities it's in up those so, some standing things

bit. little I hope that the it. So, nature of that's color helps a

Michael Dahl

Thank Okay. Yes, does. you. it

Operator

comes Wells of from question Stephen next East Fargo. Your

Stephen East

morning. and good you Thank

first the changed looking at the environment, you And strategy, pro et effort? If retailer just on the sort on any just an hub you've cetera. could the Are paint, that's us change look give whether a seeing stores promo the environment, in you on the then, level? of update got DIY at promo or you

John G. Sznewajs

Stephen. Good morning. Sure,

four year. over very multiple in as conjunction In consistently last terms our promotions, a years, of the Home Depot, been promote extremely paint with consistent it's channel times The partner, we

July we're So, to it's Black promotional years... that changed be – and we're you we're Keith, Memorial six – Day. not Spring on we're Labor Xth can't to And tell the Friday, Day, I got eight cadence has boy, of

Keith J. Allman

Yeah.

John G. Sznewajs

to we're been that like at all run, change We've and on going it going forward. look doesn't

consistent. been pro one The do though I promotional that's pro we on rebate. either. a a the the for not is of out the very lot terms In There's promotional environment side, pro again, fund point of would reward activity thing

pro painter – their The on they can the a or that within paint Home volume higher get Depot, that the paint So, offering their discount consumption. achieves bigger

has The that's we've extremely on pro So, been well the working but years that been consistent with the – that as paint been Home over Depot. program

the side. of So, change in paint promotional not a lot environment the on

Stephen East

got then, of question. Okay, you. a combo And sort

you in give and that bit and seeing be John, us what you you then, XQ? And in could versus forward? what a the R&R moving XQ talk was think about new what you could you're in investment it'll little expect construction demand spend First, your

John G. Sznewajs

Sure.

Keith J. Allman

call price, entry-level be about in terms as talked that the here, to the of remarks high-end, demand terms us. seeing of in it traffic. prepared strong for see that continues seeing in demand R&R, construction, meaning and we're I've In the continuum the ticket, last We're good to new and continue of in across terms of then

real feel it. So, about good

That's we softening I of a business. our new saw the think bit side. little XX% construction of on

our us in pipeline growth R&R for the I with think and single-digit it. we're for cards As Studies, we this, we're channel whether it's continued we're only Burns forward mid in that and thinking our work, to and is of that XXXX. it, advantage brands call not thinking ones our Center Harvard John strong, that innovation to Joint thinking look take next year, And positioned or we're – the are

John G. Sznewajs

investment this, me And I've question, but it's then, your right not, on not certain got and let answer the me let and know. spend hopefully question if Stephen, – I'm

are employed the investment that increased the side, about we that a we've folks number investment us the by $X and third Delta participate stores, spend bit the So, on at in had in of in that. in of quarter million hub as ERP little

a because obviously, we amount the a at into probably Plumbing had a a talked in in about – we QX this million of Delta – in in the as QX little store ERP the spend segment. bit well, and Going decline very we investment spend, about in first earlier of of QX, because continued little hiring minor people $X have part of bit started investment bit We'll hub little year.

So, that of anniversarying be will just the that.

the you that So, year-over-year, up slightly it'll asking? Is were about that's it. question but be

Stephen East

going That looking is, yeah. That's what for, forward. had I you was what

thanks. So,

John G. Sznewajs

Okay. Yeah.

Operator

Your of Zelman question Justin Speer from comes next Associates.

Justin Andrew Speer

good morning. Hi,

If about deal tariffs-inspired with coming, cost you about higher, inflation have you amount particularly inflation On move of have the to your the just look side, Products thinking cost with, to Plumbing sizable thinking integrity continuing the your that margin really back commodities of business, and we coincidental event. overall to probably XXXX, business, we it's business. post that collapse but your moved Plumbing after that particularly up not margins saw really

you're going cost to of and to and down effect. the inflation world we're view and your levels Maybe tariffs responding to market concerned help and view – least. us seems the your at those Now to mix your back be view on margin integrity that understand how retrace

Keith J. Allman

Yeah.

the I the tax consumer, will. inflation, on earlier, to seen remains think call is be you said to Justin, I consumer how it going a to of react As this if it,

some In our QX. we the significant growth margin, investment short-term of in here, lapping had that we're in terms

were our on give be we new margin at as drive business, products we good detailed for our next haven't year. for much. or normally parts we're call pipeline. feel down they that That expecting from XXXX, more integrity. our Plumbing margins, outlook about to more Certainly, helps to changed specifically come new outlook where slightly continue innovation really margins long-term But and we'll So, – last our us this do. and into We our

Justin Andrew Speer

a digested costs inflation, tariffs less of the what your guessing in But digest you've XXXX. incremental XXXX snap You indicated Can about the what you're what had you've deal of I'm thinking and across help maybe will net effect about that about maybe that's XXXX see in over things you raw impact understand rolling what today? than be materials brass you're and to and that. line to on net to like with, you as businesses already us the what you're

Keith J. Allman

Yeah.

the and If of the in to sold, that we've around, what think could cost, appears Plumbing the that range little and when continued to resins the cost the easing that of would potentially of goods you of experience our bit. in – we about have at of kind be, pressure tariffs you zinc at particular X% somewhere – a of of we favorable potentially copper in TiOX look then you at about and some and had at of with, some inflation that you then still tailwinds deal think look look X.X% stabilized

So, when you right look at range. X% it's net-net, that around those

Justin Andrew Speer

understand on at low have you And things, that is? least margin B, through, next A, much or high-end, side, mix, – help good, and maybe mix. you best, better, what what margins saying surprised that based is of but from the and I differential can the looked see to pricing expressed operating big shouldn't improved even my question in standpoint, right? And guess don't of you to us think particularly on how be on you're at but what I we terms Plumbing, So, is kind in (XX:XX:XX). how year publicly there define if you versus say the stable if can mix know

Keith J. Allman

Yeah.

capital lower through assortment speaking, margin with on we the to as the the do business. to those different earn That's price. on lower We specificity it of tend points businesses, as you margin know. really relates good the it and lower It's little in walked our be margin, But good tend to does bit haven't still but return invested generally a goods. priced a

price okay. terms up look more talk about here think going the XXXX, tariffs. to we're the certainly of But call. in next commodities. relief in of in we'll focused detail it's We're the we and terms at getting some We've In XXXX, shaping of potentially that how got some on

Justin Andrew Speer

Thank you, guys.

Operator

of Keith question Hughes SunTrust. comes next from Your

Keith Hughes

of that Thanks. the that it much outlined you're in us that Back a importing to is how much is or how the tariffs, how goods components? much give you've slides, of finished feel the dollars

Keith J. Allman

down, We broke of don't level Keith. that have detail

Keith Hughes

ask Well, another let Okay. it way. me

to In domestically, to terms whether of those source ways foreign mitigate chain this, source, again, finished of versus And it to deal either your changing changing other? easier one components goods. that the it's pricing, the another is with supply versus

Keith J. Allman

our it. price to challenge we think different I also it's existing means leverage as we're Well, be execute in and doing with there. a we're reasons. need we're And when very talked There's obvious there's any And challenges the something and much those as by trying move suppliers. we always We're to supplies taking that, negotiations I we're not where suppliers to as way doing with our it lightly for possible, about, organized around. careful

Certainly, suppliers, our had I the involved any we've cycles. cost the change it We've materials, these how over as episodes been was is long-haul that different. that changing structure, to able it no-lead getting And something thing, I i.e., terms changing one where able just that. we've demonstrated we've price, mentioned, se. to particularly going through this. to So, in of we've the the don't got price And these been in same brass, very easier in do keep combination things. quick of to and we know per flush It's know of that's that experience price commodity get

bag and mixed a in different it's So, difficulty. of terms

Keith Hughes

Okay.

this, as that January XX% you're start X. you on going this to come I Just begin... the final taken question to assume, you've is (XX:XX:XX)? Is that process, stance assuming

Keith J. Allman

our on. that's are what That's based correct. our assumption Correct, plans and

Keith Hughes

you. thank Okay,

Operator

comes from question of Ng Phil next Your Jefferies.

Philip Ng

are you favorable, where at to this still is M&A forward, buybacks, guys point? R&R going relates it deployment your Hey, of and valuation given just prioritizing guys. given pretty remains on stock capital How the your outlook as

John G. Sznewajs

investing the business. in biggest Yeah. for the is priority as back Phil, us always,

the comes CapEx the of share one on for that's investing million repurchases of And $XXX this fourth year. to After our it us, prepared so that, is we're right, paramount about list. of our in share remarks, So, signaled we priority growth in repurchases. down quarter and and M&A business number the you're as and thinking on

the up just be active a little share to has bit given priority the price. very continue That said, in pullback that I capital on we So, here tell the list and M&A the deployment would side. inched you

so regular continuing basis, Our time out looking on to at devote there and team as and very is well. that a energy we're to transactions

and bit terms So, we're M&A to of this quarter, point than a downgrading balance, higher in of fourth be it's share not means. going kind M&A, we're the at is repo but a – by little priority not in a any

Philip Ng

Got it. That's helpful.

competitors your of increased activity One out called Cabinets. in promotional

on color you given opportunity in get to Just logistic, curious about that Thanks. of what pricing, how these year? marketplace? And costs transportation next out? to you early have called the your an Is seen some ability any think

John G. Sznewajs

Yeah.

the last fourth quarter off in So, the Phil, in we're offset quarters put been in the we into absolutely, of consistent Yes, price promotional able are increase for to have lot It's to activity a And we on to not seen price here Cabinetry. pretty logistics? several of now. working that the that inflation. get based marketplace

So, that we we confident so. do can feel

Philip Ng

lot. thanks Okay, a

Operator

final B. line of the your comes And from Alex Rygiel question of FBR. Riley

Alex Rygiel

a Thank pricing and back And risk touch relates the to to been as lot gaining the about the manufacturing Could in sort you all of coming from that we've for I you out than across tariffs. tariffs and products? competitors that apologize much your share market cost of are it opportunity there moving deeper a hole upon talking around. are But you you. see

Keith J. Allman

– by been strength has which for building is Chinese segment. if import, you direct Cabinets, varies competitively. take It Sure. But Chinese example, XXX% import,

on that we helpful XXX% can When label Plumbing there North So, which some is American let's advantage you at, the it I have think opportunity look call to utilize are have brands, side, we imported can us. to or house private as the manufacturing.

ones out. So, look I the at those that's there, opportunities you call think two when probably I'd

Alex Rygiel

you. Thank helpful. Very

David Chaika

to you joining us your all and this continued the morning call interest like thank in on for for I'd Masco. of

you free further me please XXX-XXX-XXXX contact any at As feel have questions. Thank if always, you. to

Operator

This concludes call. today's

now may disconnect. You

David Chaika	Masco Corp.
Keith J. Allman	Masco Corp.
John G. Sznewajs	Masco Corp.
Stephen Kim	Evercore ISI
Doug Clark	Goldman Sachs & Co. LLC
Nishu Sood	Deutsche Bank Securities, Inc.
John Lovallo	Bank of America Merrill Lynch
Mason Marion	Nomura Instinet
Susan Maklari	Credit Suisse Securities (NYSE:USA) LLC
Matthew Bouley	Barclays Capital, Inc.
Michael Jason Rehaut	JPMorgan Securities LLC
Michael Dahl	RBC Capital Markets LLC
Stephen East	Wells Fargo Securities LLC
Justin Andrew Speer	Zelman & Associates
Keith Hughes	SunTrust Robinson Humphrey, Inc.
Philip Ng	Jefferies LLC
Alex Rygiel	B. Riley FBR, Inc.

Masco (MAS) 30 Oct 182018 Q3 Earnings call transcript