MAS - Earnings call transcript Q4 2018

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Operator

Good morning, ladies and gentlemen. Welcome to Masco’s Fourth Quarter and Full Year Results Conference Call. My name is Jack, and I will be your operator for today's call.

As a reminder, today's conference call is being recorded for replay purposes. [Operator instructions] I will now turn the call over to David Chaika, Treasurer and Vice President of Investor Relations. Mr. begin. may you Chaika,

David Chaika

and and and and Welcome Investor on With full Allman, will Fourth today of are Jack, and to Vice XXXX Financial refer presentation Chief me Masco website slides fourth our Relations. Keith Officer. Masco; CEO and quarter year earnings President available Sznewajs, good you, under Masco's to President release morning. quarter Corporation's today John the Thank are conference we call. that

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

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

include will Our also statements measures. financial non-GAAP

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

Keith Allman

with I’ll year the turn Good with Dave. brief I results XXXX. begin today. you, morning, on Thank some on conclude us our you everyone, thoughts and thank full quarter joining comments and our to before fourth for

of our benefit and our American increased In top X. Plumbing operations, strong in growth acquisition, the in our Slide North line Turning by XX%, Kichler growth impact excluding the driven quarter, paint. currency, strong the of to fourth

divestitures, increase improved X%. due and cost grew Excluding profit volume, million $XX XX%, of acquisitions and price sales Operating realization. to or grew of continued currency, the impact control

XX.X%. to basis the margins quarter operating points result, expanded for a As XXX

X.X per fourth to rate a improved operating quarters. our compared pleased a performance. earnings, earnings million million lower for quarter lower our increase significant increased in activity quarter, Our repurchase share $XXX XX% repurchased were due We shares and prior to with tax We in count. share the

Sales Turning for we XXXX, X%. executing by demand, driven sales, delivered overcame year profit to inflation was consumer growth increased and full capital and the value. focus growth shareholder full allocation and Slide on end X, XXXX of strategies year. healthy growth our continued strong for to significant EPS markets for the operating This solid our and deliver

offset costs manage lower material XXXX to inflation. implement X%. Behr to Hardware. tax and and impact the of Delta by This currency Excluding Wellness Operating X% Watkins for sales significant and grew divestitures, profit earnings, our our account and inflationary a driven operating Liberty record demonstrating Hansgrohe, expense. price XX% headwinds despite Paint, business in of per lower five our other Earnings ability units, acquisitions grew years raw Faucet, rate growth sales was due to interest XX%, and successfully increased of share share lower increased

significantly distribution, with Turning we and its at brand Germany certain strength and to driven gained Delta a China a ERP and channel, companywide In offsetting continue retail Kichler increased implemented early healthy these continued acquisition the conditions softer and Architectural and in in showrooms, all other by aquatic in realizing of to and an capabilities. countries. our network Watkins, outstanding our Lighting saw spa we'll dealer year and systems. of performance with segments. business, its sales. fitness the year successfully Products across strong new brand XXXX core product in Enterprise. opening brand optimizing its Decorative retail, year operational achieved Hansgrohe's e-commerce. point with retail our leveraging further We've share Kichler's performance by Notably, customers its growth segment, Plumbing channels Delta and XXXX. Peerless and sales integrated Kichler drive in go-to-market wholesale, had portfolio price strong and improvements its was into of and Brizo system. leading value record including And Masco success existing our

growth coatings Our Propane continue with a highest market with we the along Home the XXXX. in revenue, team the propane positioned in now to to in continue products XXXX. we well and people in to expect expect propane of to the initiative single-digit the market drive we The of represents outgrow full large high invest continue grew and great about quality are brand, high the year, leading In Depot. partner, opportunity DIY single-digits for our to XX% and this our market, and DIY

we've top of with divestiture the X% Cabinetry, to returned Turning growth Moores. in to XXXX excluding line growth, strong

million while shift We with the by the flow shareholder for business We and our fifth cash by dividends. allocation business, our and free $XXX the two repair action ago. share the and mid-single free growth, We years, nearly a our share perspective, aided new flow XX% us acquisitions consecutive of redeployed deployed Menards. segment and rate. sales to with cash the cash In challenged finished match repair resulted billion right capital XX% grew more for selectively in our X% to we continued of level returned UK flow fit win in Our the increased of year, returning million reduction several strong Strong to balance and to Masco excluding generated $X.X growth remodel with with U.S. in this cabinet right cash our strong of took is return conversion of business, the our than demand. earnings market, million enabling through $XXX years through value XXX% restructure of repurchases, together business in With Masco, was year for sheet. this approximately during reinvesting hallmark our in current Fastener. grew driven a UK of From has through over dividend with and pursuing digit full the the repurchases and Windows shareholders drive all Kichler we currency our very to now a our the growth, and from year reducing operations year the $XXX debt while program debt $XXX Lighting divestiture our for during shareholders acquisition and double-digits consistent business XXXX remodel strategy. million. We demand. with balanced capital size business, significantly achieved in our overall past lower over Arrow growth This sales by XXXX, up

Our net at X.X approximately debt year-end to EBITDA was times.

Before well XX,XXX to thank for turning in across our here America Masco. their to year as more XXXX, of all for than efforts globe North successful help the as will make to another I'd like XXXX, employees

I'd grow XXXX. Now for of remodel than view single-digit repair many share you with the in we range the turning our expect year. like XXXX. in the market to with Consistent to rate growth of in the to XXXX slower and mid to markets industry forecasters, though

three rates concerns, to pressure. our growth growth assuming previously international XXXX. XX% a recent March construction, low we is single-digit in With assumption tariffs, of affordability less labor the markets, that dealt could for principally we mortgage help that and tariffs due We've list mainly we're environment. with impact Xst. rate regards than the you on with understanding effectively some single-digit will increase alleviate to in on expecting these and Masco are the And to the inflation new raw shared tariffs material is our Europe, constraints that other affordability declines of low a For

represent sold. As a the of of $XXX reminder, or approximately X.X% annual XX% million approximately of cost tariffs goods inflation

be the currency, strategy, impact chain XXXX price to on in strong to initiatives, $XXX the range offset as X% intend sheet, in these X%, on However, it assumptions, share other share consumer of margins with With towards approximately productivity to of balanced XXXX. increases the capital allocation price will similar Based per expect these continue $X.XX. and subsequent and internal $X.XX will have sales be be to supply and remains deploy we've range to we repurchases excluding our growth our balance measures million demand. earnings what tariffs to we to in same

the go results fourth detail. our over and more full I'll quarter over turn in year to call to John John? Now,

John Sznewajs

Thank you, Keith, and good morning, everyone.

As Dave the excluding focus performance, charges, on my related to will adjusted one-time mentioned, Kichler of step-up items. most for accounting acquisition and impact the rationalization inventory of comments purchase other

XX% finished Turning Fourth the in local quarter increased Slide year or XX% currency. X, we've sales the strong.

matched American sales the in divestiture and excluding our quarter the Excluding approximately international prior translation in quarter increased impacted divestitures. increased $XX Local currency decreased margins Moores acquisitions XX% to or X%, X%, basis XXX X% sales of XX.X% in sales lower leverage unfavorably and Currency operating the XX% as income XXXX. XXX currency. points the Local quarter to currency points cost divestitures, quarter to sales volume, sales increased year bottom-line SG&A and increased expanded containment. acquisitions fourth local to in million. X% by promotional in in quarter We or North and on in quarter of fourth spend solid delivered performance the XX.X%. as present a of basis the and excluding

Slide regulatory IRS from adjusted previously $X.XX XX% a For expected approximately calculated more EPS would $X.XX rate regarding this guided tax tax in have on EPS of rate of quarter, was normalized to numbers This provisions segments, sales restated pull-forward the to guidance asset note XX. and new driven Decorative $X.XX. on the the the increased by Plumbing was each code. XX% the the rate the quarter tax of and $X.XX by to rate. the tax provided gain our lower tax quarter impacted certain benefit in appendix to I of a in based this of our consisting Due Fourth sale of XXXX recent change versus of was favorably in the performance fourth EPS like normalized approximately issuance due $X.XX change, segment. XX% Decorative XX% we than to in due

the X%. sales year XXXX, full increased Turning to

translation divestiture. and local the increased the the year currency, North full million. full American Excluding X%, the Arrow excluding $XX To results X%. acquisitions XX% year divestitures, year for sales Currency sales impacted full by acquisitions increased favorably in or

consumers. North divestiture. with local declined is international well, growth strong solid and revenue In X% year or product to currency, American Moores broad sales continue X%, assortment and full resonate excluding increased for designers innovative teams driving products executed the our Our the brands,

international experienced mainly our in to international in market continued XXXX, the some we While UK, Hansgrohe plumbing business softness growth. drive

SG&A, a XX.X% X% or million points Full as continue the basis of percent to as year XX.X%. to our XX control margins increased our volume operating leverage we full $XX for costs. as and sales, income decreased Our year, operating up

EPS from XXXX EPS prior and increased $X.XX Compared to of from and $X.XX the $X.XX guided of aggregate sales benefit rate. the our Lastly, building the XX% our the EPS year EPS tax a in $X.XX the EPS of sale full benefit guidance, XX%, rate in XX% previously for down full tax QX the our normalized year. to pull-forward a again includes

continue tax a assume Our XX% will adjusted to EPS normalize XXXX. for calculation rate

of Turning currency. strong This was finish our quarter demand local the approximately retail, to in wholesale, North X% million as e-commerce fourth X, we from faucet, sales businesses. spa strong customers. the QX had impacted $XX Plumbing quarter. from our the while benefited increased a approximately and sales X%, XXXX driven in by quarter by increased to in strong of currency pull-forward segment experienced sales dealer growth excluding the negatively shower in as Slide and currency The year impact sales from our American million $XX of

industry quarter brands. these by fourth business record spa leading a new continued to our and innovative products with Additionally outperform achieving

the Germany Operating quarter China. lower and they on Our increased quarter. stocks growth in grew the to spending profit in from price neutral focus strong key fourth in markets this international rebounding experienced quarter performance in currency, sales Hansgrohe's a XX%, drove due the relationship. local volume, X% third incremental as and cost

sales American increased local was all local a Delta, Turning year. and Hansgrohe strong driven X% years Watkins. currency This price strong X% in currency. growth across by full record the growth to sales year grew and the experienced in as points we during channels XXXX, North at

to costs as continued year, and international such Our due investments experienced in volume grew growth, Hansgrohe's first from brand, offset Full in spending. increased other design sales quarters to the X% price operating local their the we and of by X% profit partially performance plumbing in three lag the ERP currency as innovation. year mix benefit expenses

the as For be impact currency results to and principally XXXX, of to impact each $XX XXXX quarters. quarter X% plumbing impacted year-end excluding we sales we by per the in rates, be approximately to similar approximately and margins unfavorable X% tariffs. the of expect segment currency Also with growth of price the we exchange and million, the unfavorably implement in offset This XXXX. will second given EPS first in range, expect to currency $X.XX revenue XXXX negative QX QX, exchange proposed

addition, approximate quarter In will segment $XX depreciation amortization million and in increased in capital due this to XXXX. investments per

expense million trade large ISH, show. be a We in QX we European also exhibiting anticipate $X at plumbing will of additional biennial as

Turning to Architectural Decorative XX% the grew Slide X, in segment quarter. the Products fourth

acquisition sales aided by the Kichler increased in growth performance in Operating DIY price $X and approximately due relationship, cost we million increased forward pulled incentives. strong our as products, million X%, achieve sale DIY strong Kichler, cost growth of acquisition, the Behr's Excluding of high sales control QX, from to the grew aided core increased the in was gain the in single-digit building. sales $XX XXXX, improvement double-digit quarter of to a experienced Full by purchases in grew year customer income on a XX%. year-end and volume XX% Pro.

our and continued performance the X%. Pro. was initiative driven by grow share achieve Excluding growth The Kichler of as Behr to sales we with acquisition high-single-digit Pro grew solid the

slowdown the Home slightly is and opportunity. market. growth Pro are Depot, significant pleased considering with Full this and Hardware's from lower to invest continue solid performance on new guided While gains growth successful in we double-digit continued XXXX principally in we XX%, Together previously growth channel. operating in in the program capitalize than lower and due the this The with acquisition also improving coatings overall share the will Liberty Kichler of spending. was wins the product in retail our expectations, introductions attributable income price-cost to the year growth to increased the relationship sales and

pull-forward basis approximately $XX quarter both erosion depreciation XXXX, year-over-year increase million QX, quarter. operating approximately XXX in Kichler commodity propane down sequential to and investment per margins expect is of full initiative, $XX XXXX, into the million This segment's points. of we QX For amortization to margin in be and sales the and by driven additional inflation, in QX, our impact

and in sales we between the X% margins operating year full two and to the to segment benefit growth from expect acquisition For this X% XXXX, Kichler range, in be XX%. of XX% the approximately be including months to the

XXXX. increased to segment, driven the the Turning to excluding Slide XX, in experienced leading in the solid performance year in in remodel the fourth Cabinetry This full with X% pleased our quarter first sales by its Moores double-digit year. brands as growth and divestiture, X% at we was repair and our industry Menards Cardell program well, are performance. The performing is we business and

costs costs matched call. Full performance and In addition, business for in million third million quarter declined quarter logistics our the XXXX. construction XXXX, sales home lower year. Segment logistics new margins by to mix the flat costs the profitability our will impacted market ramp-up increased Menards fourth to $X the declined also we XXXX. discussed cabinet quarter and driven by single-digit full to low expect the as to $X related and to win. we The in expect growth mix was in was and segment due profitability similar year in demand addition

Turning the and in XX. Windows quarter for segment, year. full sales X% the In fourth our declined to X% decreased Slide

second in full by sales in and window the a our positive the for in driven year. a market window sale window experience grew of primarily implementing the year partially $X system be North quarter, in FX, Fastener Segment quarter full will in performance softness. UK actions favorable and Full million the of to shift and costs U.S. year, million, California Milgard, decreased mix. restructuring profitability digits the warranty-related in the ERP quarter the Excluding UK we was to pricing the by X% leading increased by increase low-single was which driven for the first Milgard's favorable Arrow business, $XX quarter and UK Milgard's increased growth a due fourth inefficiencies our Western products. the largest fourth the was of full operations. in price Milgard's which and performance and door for but XXXX received growth the mid offset both facility. This continues operation, costs premium year. XXXX, mix single-digits taken profit toward and and In American quarter to This

incremental first a the we loss quarter. in ERP volumes operating costs the result, lower to As expect a in modest due

expect we sales growth for improvement. this with low segment, For margin full year, excluding single-digit currency modest

liquidity $XXX Turning full XX%. facility. at balance the sheet approximately to year as our capital, with of Slide percent well year-end strong of our Working revolving $XXX availability balance as million sales, sheet credit a was as the XX, million finished of

While of in be some slightly to higher the due this of Kichler, continues to the performance best acquisition industry. results the

we by approximately we repurchased our in increased for by quarterly dividend XX% to reducing further strengthen debt sheet $XXX balance action XXXX, to During XXXX our We share. by XX.X million. took $XXX per million $X.XX shares million and

we now and as rating Poor's, addition, grade investment In Fitch Standard credit hold & Moody's. an

XXXX, Going our disciplined allocation strategy capital is into unchanged.

We appropriate fit share We'll dividend. the in will an businesses to growth. returns maintain drive balance continue with prioritize repurchases, organic investments and right to with strategic we and our acquisitions

to to million XXXX another share market for in repurchases $XXX We deploy expect subject conditions.

flow average million better share sustain We are to conversion XXX% cash in generated rate flow in XXXX. assuming expect and count cash free million a $XXX for We XXXX. than XXX XXXX, of free

XX of and the to these of each provided back slides detail my our earlier, XXXX Keith. for for EPS prepared call during our over to lot turn of mentioned is see the remarks. I assumptions. appendix XXXX estimate a our earnings expected in Please list that, on With XX as deck segment performance $X.XX Lastly, I'll $X.XX a Keith per share.

Keith Allman

John. Thank you,

at to we correlated increasing while than fundamentals are home. spending. Home core This the repair prices Looking invest our housing remodel million remodel growing. for steadily our is highly coupled our the demographic. with homes stock the and continue remodeling increases liquidity executing age may is are business This including spending. continue our The have their with With Consumer brands, healthy. the throughout and confidence our repair to formations leadership with of and sheet will in XXXX, to now operational XX-years-old. drives willingness leading owned balance decade. strategy, growth create the moderate greater This household demand believe XXXX, fueling wages appreciate. continue and and of XX consumers' in to And that by markets our strong we millennial XXXX, that, innovation is up next value. excellence driven housing increased focus continued investing Q&A. This trend we’ll on open and increased line for position, in With projected our shareholder

Operator

[Operator the Ken line Instructions] The question Keybanc. Zener first from comes with of

open. is line Your

Ken Zener

growth X% was other in faucets just you a end in saw of wondering the could and want different to wellness. past, looked there America those dispersion that we I shower-heads, just your thinking expand and where maybe North little Day The between Analyst I on at non-decorative I'm bit. if how Plumbing, much you And markets. was see

of initiatives we do working. a If and you can for are the the different quarter that year sense just for can so how those get

Keith Allman

than believe When pleased market. And you higher our is that with growth North of X%, growth Plumbing the overall look we at that. we're market American that very

think a we share we're So taking there.

with our Europe, with countries, Hansgrohe market is business, when plumbing think particularly of performing, feel that's extremely demand really difficult But XXX diverse that. about the how down spread at good you nail aggregation. in that. over an it's to growth happy When kind you that Central look we're about international set and we of So

that the opening and price point, we look we very look launched the point, you good address was -- good meaning wanted overall there which and where over good growth our high-end the But driven, tub our some growth with. entry in as for that of sales a be performance Brizo price our Hansgrohe then opening spa Axor group's when driven Plumbing Delta good when in relates brand, saw in and to was business. And pleased peerless way more to growth driven very brands in we it for we further geographic had you price dispersion, categories, that some tend our as business And strong which very new Beijing, specifically So across of toward we're point example, talked were in seeing products growth point. look the prepared also hot respectively. we to price and or remarks we saw our

across strong full dispersed we're continuum of price growth both So points geographies, across our the and portfolio. seeing

good segment. feel XXXX about about we the growth feel So that and good in

Ken Zener

from I just -- I paint was looking I including mean, commentary you being mean, I about didn't much. that? on low-double-digits. other it And I to seems then have some think DIY like pull-forward? challenging. grow. it Was at spend grew seems the And that can we you if other the of there was some Because the very kind producers issue you Thank

John Sznewajs

does Yes, that It's out growth low-double-digit rate or pulled quarter the fourth the million the forward $XX all, reflect -- sales the of first quarter. first I John. were of into include of Ken.

we just bit. rate So said, help little in aid think overall bit. That's that a grow do market coatings does a the XXXX that little growth

probably we've a ton. share up on gain the so of picked feel like do little bit a side, And not we DIY

the year you it definitely low full rate look but single-digit low our a for was fourth full for in of little there at quarter, growth tailwind so bit year, If the growth. single-digit, overall the

Operator

next Michael JP Your Morgan. line Rehaut comes question of from with

open. Your line is

Michael Rehaut

outlook. your opportunity at in market XXXX, about your share if indeed your in I X% by it correct, was The gain -- I curious expansion of curious was in reflected just XXXX, about et like X% X% looked to had growth growth line you your if cetera. segment as lot to that's gaining that first though that Plumbing initiatives a share so all execute assumptions, obviously, you continued such of the I out sales to question was market X%, and was, how in is to propane, more outlook with of looking think

Keith Allman

things of we is one X% line Mike, Yes, year the the fourth that that did have quarter. pull-forward that top impact the some on the our sales the impacted guidance that did the for fact full of to X%

would in anticipated, which XXXX into R&R are XXXX. So that the we is that growing mid market, typically than markets both we kind have hitting $XX if consider But million, you pull-forward of the single-digit X% consider kind both single-digits to in new X% of range and we've Construction Architectural low and low fact you and particular segment, Decorative got growing International, if our the for that, single-digits.

put some that there all baked you in If together, is share there. gain

markets do ahead we're growing little we the So slowing of for bit markets, think overall but are a XXXX.

So that captures I essence hope the your question. of

John Sznewajs

sure. we're gain opportunities seeing on to continue share propane for our Mike, good segment, some

solid softer. it be have We believe XXXX. in aisle offering, little good while as DIY and market relates brand to and continue. a feel in our expect that going and it'll to a product space, little et a -- We real that Plumbing, we cetera, we in is And an that momentum softer service about the

gain into our share is there thinking. So baked

Michael Rehaut

I your guess, secondly, XX% you into outlook the year, baked are tariffs mentioned that list EPS three guidance. for your the

other offset to of just how remind still clarify if to that have? down expect overall offsets incremental break and it tariff more between you and if headwinds, to wanted of the inflation it’s XXXX, $XXX possible outlook in it you raw us that Just million whatever you material and could incremental broadly price represents productivity between for and

John Sznewajs

we've that impact, about That right number. talked before. is Mike, million $XXX the And

XX% time, parts significant it's of more and to if potential How variability moving as that think there. think Of it that And be amount goes is dynamic say? in goes as when you do much to a share sure does our of So that that certainty the revealed with and over everything, in? situation. about XX in very reflect best Does -- there’s a I course, we'll updates. the --

In biggest for terms a ROCE, is uncertainty XXXX. doubt, of tariffs without the

copper continue the significant in that a level we commodities assuming to 'XX, that's a pricing March. Plumbing, bit, will are and think our see other as we And where they that remained look has so pressures But like think plywood In assuming in moderate do started for -- in cabinets, are distribution currently. while level does example, to coatings, modest TiOX there half at in the at We logistics, we continuing into When at of in tariffs we're significant are And we're XX% and the we jump the zinc, will those copper that there XXXX. year. are might in in on forecast and has we benefit back be up they move those we moderating. resins. We through zinc elevated. the hold are to moderated think and

of of significant addressing we're it, lot terms In and our how and a decisions we're making work supply doing on certainly, moves chain.

We're and we've to those. all at low at on then out. to and That's purchases looking price. cost engineering in other costs opportunities example. For the think, to at ability and example, value looking execute we've like. productivity. the reallocated, looking just countries address of We're to plywood move and other our cabinet I duties and of We're countervailing business tariffs if you would, moved certainly over million And $XX one demonstrated

Operator

Michael comes Instinet. next Your question from Nomura Wood from

Your is line open.

Michael Wood

of It to wanted of sale some you market. ask terms some could for you some you relative of color gallon have driving quarter? growth, just DIY And I looks more the the you what's fourth strength. us that in provide do question, could share outperformed color as trend with on First more like, any that if in the you point mentioned,

Keith Allman

in quarter. flat for too in That low read-through. the That's terms of can't much really -- So get Mike, single-digits said down a POS. not growth of into give was you we ours. can't We the kind fourth

So and good and overall. that about that's we where feel DIY. of we We a that's combination stand both Pro And there. --

DIY continue been Pro So been the little XXXX. to we a that's sluggish. case But has all of The side. grow the bit

that's new news. not necessarily So

John Sznewajs

our aisle So, I with bullet. we're There well the DIY the driving cash is it a to Behr silver convert foot no doing think, that certainly There's driver of aisle is known. is in in terms the strong strong -- number to a partnership the big is of consumer. things. and and one what's sales DIY growth Home The space traffic in work brand paying the in of Depot, the to extremely of

both levels the are extremely delivery in service terms and in Our store of strong.

that a and continued part service steady success all brand innovation our of in of So pipeline and combination is DIY.

Michael Wood

building your that see fourth retail, other Europe product of you quarter have then in segments? and in And some that -- reported seen any U.S. some have companies notably destocking did

Keith Allman

see destocking had There's where always channel fluctuation did that in tremendous in slow the our in bit success. of We little bit little customers. Plumbing And we've QX. a down that with inventories a wholesale, did at

was destocking also bit restocking. $XX there. equate we and million We over that across talked then, Plumbing. obviously, would, pull-ahead to little and that Paint volume, impact a So But of which significant about had

what our did destocking in material not we really So see channels. any would I characterize as

Operator

Your line comes next from with question of Citi. Schrier the Scott

Your line open. is

Scott Schrier

could delays. you to we come a there have if might offset bit talk and price then quarter have little tarrifs, wondering impact margins I'm that the if about pushing this tariff on from was any

that things that’s putting might the better be bit pretty of to in than if turn that some And you of hoped price hell pricing through? any understanding you there. increases caused don’t uncertain, to for, margin there, then, speak you're of those tariffs can for if lag materialize we there's or So a little that elasticity have out

John Sznewajs

Sure, Scott.

recover is related the the your offset we're what quarter price do of what tariffs margin we're on tariff. you and to price tariff to relates with due recall specifically the when the pursue we that pricing it just amount As question, to trying the to to pursuing impact to dollar impact when in

result on margin So the anything, incremental we're because into that the only there's actually potential recovering dollar the for value a we're is tariff because putting of an as decline place, that. pricing if a not margin of slight of to tariff

really there. of the I benefit second forget So, no part margin the question.

Keith Allman

there in pull we product elastic difficult demand on -- the – based that specifically, we that inflation nail markets, when a the Scott, and our elasticity, With that of information are we're across to this terms in would down. studies line that are but it's down or environment our be to categories environment in. you up constant of affected. that we expecting In broad-based at the of look difficult goes terms back really down in in is of kind a some take have that’s do its really particular Typically,

Scott Schrier

mentioned Got or is, the are curious, couple quarters, in about some It. I'm your you've that ticket strong continuing moderation that And your last 'XX. comments believe, you consistent anticipate size with in seeing I of then trends in of that terms if you

some to so, if uncertainty. You into ticket would guidance? sizes in have environment an see is even some your And you where built moderate that expect

Keith Allman

in We're Mix is it of Scott. good I story about Hansgrohe. a items. little a high-end some talked our seeing high-end good for at systems price terms us growth bit higher ticket bigger shower in very

well. to We continued do

had business record this spa a Our year. year

design talked by opening products. that's about is high-end in very toilets China us we've We're the bathing we've vitreous where continues and of some into Peerless, talked increasing low-end. to be And launched continuing we our and and 'XX. rate the specific So or strong and products that also for our growth point the strong and our in about revenue price it expect when

also seeing we're So growth there.

think driving And point. to have up growth. we opening products dispersion kind that. story the into have bimodal homeowners new price And of then cover strong and we I of and high on products you when and that The new the are have phenomenon forming entries move good a some there's is market end. that's that households,

margin to bit a you how material tend that when be we're anticipating products work being in are lower-end a margin. lower And over impact. lower mix all 'XX, not our There at looking close to done factored we're while really little we've gap. Now time,

Operator

question from Speer with line next Justin & Associates. Zelman comes of Your

line Your open. is

Justin Speer

embedded couple a SG&A I just on corporate in I nature? of just had that guidance? is revenues management One, level want in think a questions. understand your to the broader And a how the temporal about which to in of And go-forward basis as percentage excellent. quarter was the SG&A,

Keith Allman

in that in and wins we on program was segment, we about shower a A QX the lap portion investments Liberty tied the of with of terms in talked sale at pretty of some is this $X to -- significant gain favorability so decorative about the million. that year some did resets XXXX SG&A in hardware DAP what And program.

bit was there So a comp, of an you would. if easy

We're year investments did for good such SG&A pressures, some in Plumbing marketing strategically to for throughout we had to to up cost to we the continue be example. were for the in that spend and the expect push those we to mitigate percent going a certain also growth, investments and 'XX invest support Deco slightly to control into as total 'XX sales, initiative. We 'XX inflationary In Company pushed as as from additional headcounts pro of up of 'XX. pick out

Justin Speer

there next pertains And business, a as is for Okay. then tariff. flat the it to question, Plumbing a you're included the particularly XX% margins looking question two-part

First under as the a or X% how that scenario? in And flex sanguine do question the view? opposed do tariffs hand question is more margins that Was XX% for you backdrop? XX% do And low-single already look they R&R business a for around price market or is tariff? your no have flat that second how to

Keith Allman

In price do No, XX%. we're actions question we've us? a price cost-outs second driven obviously combination But the shape not. required we for in that there. we significant XX? Should sure. and your for Justin, would go XX%. pricing hand repeat in terms We're for see for the of the and have We conversations could that of feel part you more this good -- We XX% had be with we the to on of conversations do

John Sznewajs

the -- flex tariff On growth a-no versus margin in scenario. low on environment the

commodities about assuming are think I as that Justin, constant. So that

mean, really, margin that there on we a right. let's impact. is in say some modest given and expansion So should I just I commodity incremental would that our leverage volume, see put

us that see to that that the that kind a volume this consumer and And high margins extent in of on or impact so And incremental has effect XX% we in help impact the go would favorable demand, of to should out. segment typically good off a tariffs don't into XX% range.

some So modest as scenario margin expansion we should see well. that in some, again,

Justin Speer

flat looking depression a would go your there? potentially in XX% growth modest world, for assuming a tariff that into as guidance risk does But you're

John Sznewajs

little bit XX% tariffs. it of a impact -- only an have because had on we It

these impact again, to all ago. be, We only of same answer be the I gave minutes are that tariffs. getting recovery We'll a on going the dollar couple

little So that a could there, that headwind a scenario, -- if of Justin. bit anything present to margins in

Justin Speer

you. Thank

Keith Allman

heard may lines XX% guidance. along think tariff say the I of have something I risking you our the

to guidance have expectation incorporated on Just XX% into Xst. of clear, be March our the we

Operator

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

Your open. line is

Nishu Sood

ask to the that assumed wanted demand moderation forecast. your first into I in about you're baking 'XX

the side, impact on would indicators quarter that imagine expect your begin of So housing housing or down, some slowed to we next has two. in the businesses I have you that clearly and some

assumed -- assuming already on something given is are slowdown XQ? the side, just new side? the it that R&R the the Or you seen in On slowdown happens you've that

Keith Allman

a of We did slowdown bit in see QX. little a

I little we think bit bit. little a business, wholesale. and talked our the in in saw coatings trade it our Plumbing a I about business

a there’s little of slowness there. bit So

John Sznewajs

the and cabinets for we in degree, bit of single-digits single-digits for year And there. are I'd Windows We full little also grew mid low a a fourth in to slowdown our quarter, Windows, and say that the we saw business.

Nishu Sood

gears shifting their kind other -- a terms in new there terms exposure kind of there growth the pretty getting seems low specialty, construction. -- turnaround to in to And to margin of greater cabinets revenue single-digit double-digit of us and back just given good

have expecting there, and On on your flat -- less imagine margin I tariffs that the less for would as we're well. impact commodities tables though year, side based the we

only can those we -- improvement two businesses? further margins So, flat when in expect why the on

Keith Allman

year some look north you that there. dropdown can at when from X%. good come compare to of When think a you that the full we pretty good cabinets, we're doing that. certainly we had margin And competition, We've got

some dealt in that drag a bit experienced with. on we've of also still little plywood more be There's We margins. that that inflation could

we're In our make as of experience top terms we've will Windows that ERP that continue of the actual impact to both well on the line shows system. got spend expense an our us as have into the ERP business, quarter, going to which

it that's together, our led So really margin. to combine those relates when you what's things as to guidance

Operator

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

open. Your line is

Stephen Kim

guided bit. cabinet year the on that follow-up about or the about points XXX going about of end an be think, end to conversation your on it alone that But was basis rate add this a $XX would annualized you to Menards, suggest that of three. And maybe of of a case, at to the little the zero last by million that recognized or basis year. that XXXX. had to that wanted I by so you I next running indicated run I'm half guessing be sales if to in were you've would year. Menards

or worth kind talk of you're what wondering point there any sales things anything And that of that or regionally that -- the out price market seeing is terms depressing that if in or like is so that calling you I'm is there about be could seeing the wise that? you're underlies in guidance environment was anything environment

John Sznewajs

we little a do while run that with Stephen, rate better million than business to the bit the won't you Menards $XX sales respect -- So, I break-out if specific that -- customer suggests.

of pricing as on a and a XXXX, a the bit consider so for going go slowdown XXXX, XXXX. impact big feeling little we there. impact out Cabinetry, in do the and and That great of the is of into a bit like little we XXXX the see you've in So deceleration more market laid expect says item and into ticket as tariffs the to Cabinetry we

of growth on And our R&R this so this flat because deceleration, we've we nice forecast we expect definitely XXXX. for said, gone our business. seen though of to did modest the some sales do growth new see weighs construction in And we've that side on our back just even That's that for some business.

area of that not in for while see XXXX. little So deceleration but do a ago, bit we

Stephen Kim

clarify, just win? modest some Okay, to you're addition Menards that's to or that just excluding helpful. expecting But -- growth when in

Keith Allman

say tariffs we've market fact the -- some kind it'd ex-Menards. given demand, overall very that the given the -- headwinds, We low and or be taken single-digit to I'd of growth flat decelerate

Stephen Kim

Menards. Ex-

point At selling the of season for there's that just markets certain but of it's Got it. year. year also housing what you still being kind low week. reasonably terms this going seems this we a single-digit Okay. the in housing growth like And then as outlook the to the the about lot conservative, up spring things for do in entered talked

I result single-digit be would of you a laid And strategy segments anything specifically? or to able should generate out if that starts low figure your you are outside would as is was upside change? of sales that there we this growth profit curious to be about growth, so any there you starts expecting particular see that housing And housing

Keith Allman

go for If that then to a down could bit, there's -- be if upside us. obviously an rates little start

of we guidance, direct question, in would terms, upside if I say no. see our your Stephen, In

our to drive to because business bit into would put guidance where the come out where specific our strategy, we in talked I now. little we that our than what business from think right we repair be think Paint off construction. going With we and on state and doing business. back And to regards change it our our anything for expect strategy thing right we of that based what think the higher demand. Obviously shifted remodeling XX% should we to business know value. an We've and spot cyclical, now housing a Lighting we not there where and some rather really. need close it increase cabinet to business, services coming in We've a R&R purposefully demand? to our space. good how about continuing We No, particularly in our fulfill to shareholder new in stable margin, portfolio more a our be to less our got do capacities we that's spun Plumbing we're we our moved

that's working. think it's and strategy. We strategy sound So that is our

change not should strategic would 'XX. we have housing that material in So any pickup I we say would see

John Sznewajs

percent just total I about housing Stephen, a of that remind our And you down now to XX%. is as revenue

we've very the part Because reposition the our years, over done really our it's of that So toward overall strategic business. it's of a and point. really the key minor impact sales a

Operator

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

open. line Your is

Mike Dahl

Plumbing have with go the called to to are sales just Paint a cadence thinking your that you guys segments in around couple and of of the out back about idiosyncratic to pull-forward wanted I things, respect the about things commentary the some and growth, you XQ, versus sales XQ, XQ. pointed guess playing margin we think should higher about X% about organic XQ think half? that at in on we level, some when how of a But headwinds X% impact out second I to kind the out that of

Keith Allman

in pressure Paint that pull-forward talked relates of we're with as and top it seeing and we that in Well, the experienced the some we've margin XQ, about line also on Plumbing. to

QX half, So half that we those would change pulling quarter. back of the in of be the second When a a half QX to second factor out from first to not beyond significant we certainly really quarter first with that. regards effect then pull-forward into a in up bit to be the but that maybe second 'XX, the little to at we're will the of the exist so quarter half, pull-forward. as on somewhat the first stronger headwinds see really look the don't first half, it similar out And pick

Mike Dahl

follow-up question. And it. my got Okay, then

a on the Kichler has business bit in potentially tariffs down guidance, with at I that's hoping Just standpoint. exposure segment, because looking clearly decorative was respect the more, to outsized that a to drill particular XXXX from a

be, potential go should could conservatism You've expressed XX% some impacts speaking what demand broadly the around effect. into

standpoint growth a extent to more there. from are specifically, a So Kichler embedding you little I guess on what guys us and the detail give can you margin

Keith Allman

details break on Kichler, but Yes. specific down it into speaking terms. I into for won't in more general

starting recall, we in of XX have XXXX, in March. basically Kichler may You months

starting in March. we'll have basically So

Kichler. in on a weaker the would have that in in quarter we'll value lower seasonally of segment. than the margins average QX as as particularly, full margin that's are be the Kichler's But Kichler, Kichler. a So QX, just face And quarter for drag

segment. will with that's margin of put we some look of the that that at prepared in to regards So and in the our some segment happy. guidance, remarks our performance QX part as Very drag on

our down of the out demonstrated number of outstanding that's performance Kichler number build leader across functions. has the continue We to an in team a businesses and

really and of an [indiscernible] I'm seeing with get also then brand and skills dealerships purchasing customers, and to exposure our for seeing to our our interact of some I and more opportunity us strong to area. As operational the some a that bring power

opportunity capabilities e-business have that We ability outstanding and bring to an business. to

that Kichler a happy we're Understanding fact margin quarter drive is with in seasonally quarter the So to ownership that drag or year year. throughout we're going of continue given and acquisition, performance segment. QX little that the of weaker bit to the will and very be a full the full Kichler

John Sznewajs

maybe bit. add to or on to Mike, a Keith's comments just just Yeah,

raised the when kind from rate that impacts, they we market overall as acquired at the you look about of we when X% lighting we about. the If kind headwind of that. when you about fundamental have a think without X% and see might grow a call we business, could, mid-single the range, about on R&R you shifting business in for how lighting we really dramatically it. at the said a market talked same should doubt. to the the It that digit point little bit of Yes, as That and tariffs don't talked initially tariff because the

plays. need and how we roll-out look that to see tariffs see how and something actually at the So

Operator

comes the Barclays. from Bouley of question next Matthew Your line with

Your line is open.

Matthew Bouley

because on how you assumptions, obviously XXXX a gave both of Plumbing kind discussion in around pieces for estimate up depending Cabinets in commodities. thank margins tariffs point my light would you and for of Hey, different you flex follow market around to moving wanted just taking lot questions. on I margins earlier of the and a

precise Thank gives you. of specific be such just margin I kind range those estimates? in able to then And or I give, guess more confidence around So estimates? you you some what would guess, bracket

Keith Allman

specificity I for to comes example. identify think forward, the being able the from pull

more a We so because were get wanted that's many benefit. think to detail there in significant moving parts. segments, those some I

the I think it seasonally and it the those relates out there. that slower Kichler And to one point -- time. of the effect months of out historically, months, a three we operate three fact businesses as of we understand how in of own three instead

we to talked about and wanted sure was that. that that math straight So make we

laid talking year. big is precise to detail, think which detail with prepared if more quarter. the of that could those we're the I we With our to impact away the lay performance would margin that it respect to detail here as out leave more that at get certainty the that So up with obviously for -- be the out that to more tariff, for cetera. and we'll and we've than go we And about, specific toward part would we're the were higher regards our moving of piece number that regards range dates, to more us have provide the will et move around with

Matthew Bouley

guidance for the first from understanding quarter, then expecting just lower in you're quarter. margin second the quarter fourth suggest Decorative, the over-year it impacts specifically margin still a the larger that the And to year-

meaningful a that on pro, there? that of moving any the in from color additional additional I part light why prices any why that is be of there mix would you. of headwind lower. is Kichler the how Thank oil So maybe just obviously of color margins guess conservatism much tariffs on on

Keith Allman

mover big that headwind we've We 'XX. already the about. do of a which in is Kichler there price talked commodity first half some expect

in until anniversary rep don't reps quarter. recall invest to that hub continue and third to going are and XXXX we pro We our additions stores pro the

that So don't guidance will in our when commodity range. Those we additions XX% fact year. look expect early those made growth and be the facing put hub at look anniversary to particularly that we some stores are We Kichler, resin in you you 'XX the and in what investments that XX% in our year. late of pro headwinds the area in we in be at at the reps to to combined to look

John Sznewajs

just I what the to that list called my add of other I and Matthew. The is out items prepared up one depreciation we've in that out amortization compared historically, our in to segment. be experienced thing remarks, would will Keith that called

So EBITDA not that's no does little where whatsoever. an on but a probably margin another headwind -- perspective, bit, EBITDA impact EBITDA from

Operator

Suisse. Your comes with the Maklari question Credit Susan line from final of

open. is line Your

Susan Maklari

much the a My some that do the and is first to think around, you capital or generation you you year last side that we potentially adding do how working amount of can you've should there about just over expect? How work the of done cash think fair so. on question more

John Sznewajs

Certainly.

our from have So been historically, do a the noticing been part that fact at we It it. has Indeed, of little business elevated Kichler done. Kichler we've That carry that higher business. businesses than historically, core you the capital know to know we working large hard reduce have actually team. see opportunity working the for typically the [indiscernible] of where and acquisition working they they said, working capital on they thank that in as capital. their businesses, to We a we've most businesses bit with are the working our been has with working a

a our So going we there on forward. of be as of know, you working may a have focused capital. little And us tailwind could bit businesses for all

strive we So been. so we've posted we're far, get where are we what -- with to happy we've than while within always better

will of you XXXX. seven go we into capital XXXX. an a bit there's little tariffs, a believe have short working the so a thing working one as its we a because that better for that is working think I capital the us headwind period and go said, bit So out in in into days very as to grind the impact of will opportunity government That our bit the pay be little tariffs, to time. capital I

Susan Maklari

question seeing are M&A Okay. in pipeline there? of And forward? just how that on is integrated, thinking you've give you then Can about any going us the is you now what terms my next Kichler color been

Keith Allman

strategy a then with our if strategy. pipeline identifying we pipeline, of cultivation growth and will, are and process tailwinds fundamental and pleased changing think pricing and the focused We have good power spaces, I'm pipeline and changed in you We're our the really identify on not and targets we start that not activity specific have level M&A, have our our remains solid. we then good we

we to continue in we dividends, that as to that -- kind affords course we balance ability allocate us and approach a our deals do have sheet of the going toward to fund capital our repurchases, are a existing want are on balanced do We strong core the business. to innovation share and brand of well as

continue like to deal, drive we'll going So we're we're to do when a do are we announce and what that. ready to we seeing it and to

Operator

and This Masco results quarter concludes full the fourth the session you call. year and participation. Q&A We conference your for thank

disconnect. You may now

Masco (MAS) 7 Feb 192018 Q4 Earnings call transcript