MAS - Earnings call transcript Q4 2019

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Operator

Good morning, ladies and gentlemen. Welcome to Masco Corporation’s 2019 Fourth Quarter and Full Year Conference Call. My name is Regina, 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]

the Investor to Relations. turn President, Chaika, now and Treasurer will call David over Vice I

You begin. may

David Chaika

Thank you, call. Regina, Corporation’s XXXX and good morning. quarter full Welcome and year conference fourth to Masco

and With are Sznewajs, Vice and me President Masco; Financial Keith President Masco’s Officer. today Chief and CEO Allman, John of

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

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

statements materially Our statements performance, are our the from actual that about These which risks to our our and uncertainties forward-looking statements. today future include will subject could statements. differ constitute to forward-looking cause views results

these and our that Form Commission. our and and risk XX-K our Securities describe XX-Q in risks in the factors Exchange Form with uncertainties disclosures other and we filed We

non-GAAP Our include statements will also financial metrics.

profit share and under presentation adjusted are and in Relations. release metrics earnings Our these references on our our available earnings to reconcile as to will adjusted, slides, otherwise We per Investor operating GAAP noted. unless website be which

that operations and our accounted have businesses as Cabinetry discontinued note for please for Finally, presented. we periods all Windows

the over that, I’ll With now turn call to Keith.

Keith Allman

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

results for periods Cabinetry Windows operations and our all mentioned, reflect financial as Dave been have to restated As presented. discontinued

growth excluding In driven fourth in the increased plumbing the In currency, topline XX.X% our in our was slide solid operating margin line expectations, was with North of impact paint. profit down American operating X%, Turning quarter. to and by the our and four. quarter,

of impact XXXX. to the in we’ve previously quarter due input the as variable cost compared was and full communicated, due this increase higher tariffs fourth of to to costs As an

earnings per matched quarter year prior $X.XX share Our per at share. for the

by Delta growth Turning was fourth experienced and American to Plumbing market with e-commerce both our channels. and industry-leading the business Watkins plumbing and points quarter, segments. driven retail the led grew price This sales continued and in fourth which to trade, portfolio by for in record Watkins. Delta its quarter our in growth products North was outperform of the across X%.

We Solution what In saw to we perform sales our Decorative well mid-single-digit Behr well our by was good last DIY reset low-single-digit This to easy-pour similar other Scuff QX Ultra year-end forward the XXXX, that year. can Defense increased segment, innovations continued paint. from Behr results growth paint our Color as as recently of and experienced new paint new Centers, pro growth. with pulled ordering such as Architectural and aided from

Our lower in by an paint growth business, sales tariffs. by our significantly that impacted industry lighting offset was has been

$XXX the for approximately our signing net strategic on fourth quarter, completing Windows Lastly, tax Milgard we in value February. of the now million preferred closing $XXX cash liquidation to stock for sell our at $XXX progress business after proceeds significant an with by end million. agreement sale of Cabinetry Cabinetry plan our the a of of and for the close to business and million by made sale expect We

retired pleased interest performance, it early mature sheet fourth XXXX, scheduled concluded We debt a reducing of $XXX and cash quarter, of and we quarter and flow, approximately the free million $XXX Masco. that were our balance with million With transformational was and strong the the share proceeds sale in from year expense. to our strengthening in our of executed further Milgard for repurchases our

five. slide to turn Please

return building more year, back transform stronger, Masco stable, executing while and year company. strategy our navigated we look effectively into products the higher we challenging a As on to full less this cyclical

inflation. the Delta, excluding year. year, end achieved of sales challenges increased we X% and pricing and Watkins mitigated the full other by largely Hansgrohe, impact the Behr the sales actions each tariffs record slower as costs for impact For markets, and currency, of Despite the driven grew of tariff

Delta gained and Germany China. line while bath brand share particularly solid retail, early voice-enabled its with Hansgrohe its fixtures several of Brizo helping to expanding new drive products also growth, at and showrooms, in faucets. XXXX, launched in in

two Our of recent awards. trade kitchen of and industry KBIS we as innovation KBIS, was bath demonstrated or the at the excellence show best earned

Our another the its its spa had the award Watkins, Impact new for KBIS won care system outstanding our Rainfinity system. simpler provide water leading less Kintsu cartridge by disposable driven unique cleaner innovations brand collection, chemicals award shower in part Show system. also won as Brizo for Best provides KBIS our Hansgrohe brand salt spa such bath to This a uses of and FreshWater year, maintenance-free, and business that experience. a its

paint. to driving Home a high-single-digit us. will opportunity capabilities, And for to in Pro to continued with paint well the XXXX, large people share is gain partner, pro continue invest the pro our in Behr market. Depot, perform growth growth in we and in along paint

headwinds will performance occur we in next quarter expect While tariffs, some skews certain the was we hit lighting paint hardest with of the one reduction label pleased as in experienced exit in this and channel. our three continue in we by impacted category for the XXXX, private results. and the retail inventory the lighting were our quarters The to

Investor point. end in our the at lighting to that at stabilize we believe positioned will we outlined will our by Day, return XXXX performance and be to of that we As growth

reducing by our delivered we $XXX net make finish debt increased consecutive share outstanding EBITDA year $X.X Masco And per company we to Wrapping business. capital executed shareholders to term the earnings up billion divestitures our our the better strategy Windows times. and to as commitment for divest the and at completing increasing a over by X%, our agreement long for approximately returning of million by performance, a year, to signing to repurchases, drive value, approximately to Cabinetry on through by of the our dividend an our $XXX of deployed shareholder XXXX X.X we businesses, debt share our Xth million

effective With strategy we of operations return allocation in continuing achieved invested a performance, XX% from capital capital and operational XXXX. strong our on

closing Before especially all for made of on our thank XXXX, Cabinetry that to like year that the all former hard their employees, I’d successful for of are those and Masco. book businesses, perseverance and XXXX another Windows work

of XXXX. I’d our you share turning our Now, to markets. view to like with

which repair of revenue. For remodel the and approximately our is XX% market,

in to second the accelerating growth We growth be expect XXXX in half range market with of the in year. X% X% to the of

the market, paint paint and we us, flat paint the subset to to and be grow remodel pro expect DIY for to the mid-single-digits. market repair market of For low market a the

is family of our growth we approximately sector. expect which have For the particularly new as revenue, in seen an improvement the construction permits, id-single-digit and XX% we starts single in market, both

received we in shareholder the our Europe, to to February, to $XXX million be international proceeds strong As approximately of margins value. be the sheet sales expect of to sale the after-tax our low single per the from $X.XX in X% assumptions, Based principally our will be markets, expect environment. to in full capital drive net for continue balanced earnings in to we growth $X.XX. flat year growth be XX%, to digit and With X%, Cabinetry these currency, allocation range and to share a we range of balance on expected excluding strategy

XXX%, will or repurchases, flow likely towards we to throughout deploy the will M&A conversion share free million our closing. approximately remainder up $XXX repurchases million proceeds Cabinetry XXXX, share look the to another with $XXX And of of subject market of cash opportunities. million We after toward strong shortly deploy to to expected $XXX

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

John Sznewajs

everyone. you, Thank morning, Keith, good and

other As of my onetime mentioned, impact continuing Dave of excluding focus performance rationalization comments will items. on operations, the most adjusted from and

the In volumes higher profit Operating by the was year the quarter driven by X% actions. In by lighting Turning and unfavorable income to seven, decreased matched in offset partially at pricing of in was X% by year mix XX.X%. business. sales our international offset quarter, partially prior paint actions $X currency, currency. This quarter $XXX American the approximately impacted mix, sales operating sales North local unfavorable plan. the sales Currency X% impacted unfavorably we reported driven slide growth businesses. and and of increased in pricing lower We quarter, local local and and Fourth increased in margins in translation in relationship million by million. on plumbing volume our cost variable operating currency, with finished costs. price

to prior in fourth XXXX previously operations. and operations XX% the change Windows quarter, this we performance normalized first tax at for the guided that Please tax per the segments prior note of slide $X.XX year matched appendix rate, restated a based the XX. move to provided and versus to Due of on have and on numbers tax XXXX Cabinetry adjusted of is discontinued EPS XX% share. a rate, in quarters rate the three the EPS For our discontinued

X%. Turning segments, increased North sales the by sales grew local volumes. In to local year. matched disciplined currency, the full year lower actions was X% offset Currency the unfairly across currency, and In pricing increased translation local million. This both in year $XX Sales American XXXX. X% currency. by by driven partially performance impacted full international prior

in gains softness home market in we of its in XXXX, Germany Hansgrohe While continued China. market international drive share experienced and to some

operating SG&A a operating X%, year. $XX with the basis Our percent for to as million full the XX.X% full And income increased XX.X%. decreased XX for of points year, or of margins sales

to $X.XX Lastly, year. for our full the X% increased EPS

to eight. Turning slide

the driven Our of the growth by America. Plumbing in in impact segment strong grew X% excluding currency, quarter, North

sales million quarter. impacted by $X the unfavorably currency in approximately Foreign

improved an Growth wholesale, quarter fourth led customers. increased achieved product local they volumes their sales was quarter currency comp of This another across record our demand was growth by and e-commerce X% Delta we sales XXXX. through North as X% as increased against American experienced from retail, in categories. dealer, in the

Additionally, industry-leading quarter Watkins, brands. innovative our business outperform to spa and its also products by another record achieving new with continued

lower with Hansgrohe currency, decreased Germany volume. Germany This fourth strong due growth sales of sales XXXX. to quarter fourth variable was partially incremental quarter decreased in by offset of the in difficult the million $X and international Operating in sales the profit offset Our by X% a in growth quarter partially costs, due comp outpaced in in in X% local to higher China.

the at to XXXX, solid in grew mitigate sales pricing tariffs, result volumes. Delta full North actions driven early the growth by local Watkins. in taken Turning American record lower a This X% and offsetting and to was local aggressive increased of as sales currency. impact year currency, X% of years

favorable a local currency matched other by instances, profit offset cost year translation spending, Plumbing partially as was prior International ahead prior China feeling certain and year, mix. Germany impact due offset Hansgrohe’s currency sales to operating of of softness by in the year in and Full in growth tariff price as higher Our unfavorable in solid regions. relationship priced we matched costs

expect Plumbing to X% Plumbing European we range, excluding segment to market. expectations growth For sales XXXX, to the the the be growth our low X% currency, for principally due in

XX% As of full the We List of outside X List a as and of tariffs to America. similar margins the be XXXX North segment reminder, year XXXX. sales X impact the we anticipate experience will in Plumbing are full

Also, We rates, points tariff year. anticipate half recovering impact of half second not XXX be first and expect in will basis the will half roughly currency first do of the be to XXXX in exchange before margins down the the given year operating revenue. our expect greatest the XXXX we the materially of impact the current in we

customer, by volumes nine, sales, the in performance in X% our of sales strong declined the the portion a of lighting lower which million. due were This quarter. business by slide paint impacted segment to and by a rebalancing to in $XX key quarter with more Decorative was private driven the approximately label offset than Architectural inventory loss a Turning business fourth which

price products the QX Behr’s solid to pull-forward of the in million and volumes from in lighting experienced low-single-digit impact spending. aided XXXX, tariff Operating the cost in sales was and fourth we Pro mid-single-digit quarter by growth an of pull-forward due offset by by lower costs unfavorable growth incentives, income of and in partially declined similar $XX lower relationship, XXXX. DIY approximately higher driven to

offset pricing XXXX. builders’ high-single-digit in XXXX, to we by the lighting in driven Growth acquisition of Kichler initiative, pro. as of full paint grow achieved the the with to hardware X%, Turning partially aided by continue also XXXX. a March year was our businesses, as was grew pro volumes performance actions of our result in This share by growth our lower and disciplined sales

due principally XXXX, paint. growth selling spending. growth mid-single-digit by In expect costs, and and we X%, DIY in in lower operating increases and offset Full-year decreased to income paint low-single-digit partially volumes increased lower commodity price pro

a also revenue million our private We million QX these The XXX $X Kichler of expect a of -- approximately before and tariffs and in and impacted the will be QX, customer. $XX impact this loss of rebalancing in approximately basis year. approximately by the the segment of points program portion operating loss full-year in items of segment be volume margins each QX, the inventory by at depress label in will operating will QX. and This impact recovering balance in segment revenue

zero between be XXXX, For segment XX% expect the full with XX.X%. we in X% will the and sales year in margins operating growth to range,

And slide XX. turning to

liquidity. with X.X percent finished the billion an sheet EBITDA improvement to year Our XX XX.X%, basis of year was capital prior year-end year. at as sales approximately times, ended balance and $X.X sheet debt we balance net the over Working of a points of with strong at

XXXX repurchased our strengthen million. $XXX we qualified shares This debt by plan action should share. took $X.XX reduce for And the by once We initiated sheet XXXX, per we X% approximately this end in balance XXXX. further our to We plan will terminate benefit ongoing million by of outstanding completed. to contributions of plans. U.S. and pension we our reducing by our to our $XXX dividend During pension approximately annual annuitize XX% our and expense complete the increased and defined

business Cabinetry expenses. Lastly, the we proceeds our we of after from of million in $XXX close And February. approximately sale net to expect the taxes expect sale and

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

will investment growth. We our continue in prioritize to organic to businesses drive

activity deploy sale the Including average flow strategic repurchases to appropriate million we in cash with conditions. XXXX, in $X.X will returns the expected acquisitions rate Cabinetry XXX This XXX% would and bring million business, XXXX with between subject our million balance share $XXX expect of proceeds billion dividend. expected in from net cash conversion and the our to generated share free We repurchases right to up we market XXX to XXXX. maintain share will fit XXXX free We for and in count shares. expect we an flow of

Lastly, full midpoint $X.XX XX%. represents to earlier, of for the X% estimate margins And growth as we to Keith growth mentioned of approximately EPS expect XXXX annual X% of the our XXXX, which revenue X% year the EPS range. is with operating at $X.XX,

I’ll that, to the call now With turn over back Keith.

Keith Allman

John. you, Thank

Masco. plumbing, businesses. was significant our XXXX a mitigated tariff by We dynamic and faced and hardware transformational year lighting for headwinds

grow We Delta, Watkins. and record continue to Hansgrohe, plumbing segment with our sales at

to brand. And and pro with our the agreement our Windows our businesses portfolio business. simplified continue and Cabinet to Behr capital on sell leading DIY gain to our paint signed our and of share We we execute strategy. We continue allocation with an divestitures

wages appreciation and age. steadily are is increasing. have of fundamentals and confident home stock healthy. enter to household are remain our remodel Home Existing XXXX, business growing. continues sales the have core Housing we our improved market formations As repair Consumers and increased. in price

Investor favorable Day focus put on of our strong With XXXX deliver with and to we balance we continue liquidity, shareholder forth our sheet to last $X strategy, our fundamentals value in and create at our and our target these that EPS XXXX executing continued are well-positioned September. on $X.XX to will coupled

With open up that now the for we’ll calls Q&A.

Operator

come will the from Evercore Kim question ISI. first Our Instructions] [Operator Stephen of line with

Stephen Kim

private margin margin? being you’re you you’ve of particularly is some a by within very and guess, sense much, impact curious being guidance quarter kind can for this Kichler your think first the of at guidance the of first I think question partner? here. relates Dec retail you given. all, you first label business, much What you I’m and what that to the program Arc, discontinued margin guess at Thanks looking impact the all a give representing in driven the here how for, is guys, Yes. detail when look really appreciate to other margin the that I

John Sznewajs

It��s Yes. Steve, good John. morning.

relatively I it label indeed label the think, because of program. from loss a is the is margin business modest, private a impact private

is the tariffs think, I here bigger impact full cost in segment year. margin absorbing to first in the due the on part of the the the the of

Stephen Kim

all? due I with was could Thanks. you are maybe then, on been believe if you’ve segment one, I an to coronavirus, things to guess, be that adjustment improvement since you? there unfortunate that’s factoring issues thinking stay in as I the there well anything in that I’m in Dec talk happened might one be given two, I’m tariffs to as Kichler, changing mentioned if the plan affecting in what’s number the the last -- and supply strategic as guess, curious, then, we business, been outlook any months, you that your adjustment about Arc over at lot around look you but there Kichler, world? any imagine China improving Has that event. light And time the business, don’t in acquisition after obviously might change into your approach And last how of in spoke you develop three your to the a continuing believe watched any And chain. you results your particularly the happened, the has at the shortly how there curious, is can is in coronavirus, or there’s coming

Keith Allman

first. and this China, revenue. have take the will about about of we X% When Stephen, talk revenue coronavirus I’ll it’s our in that the about that is think Keith. you

our in So, supply that to keep China an I role chain. plays Obviously, important want perspective. in

represents revenue. it’s about of and our So, it important X% us to

on a is It not without we and now coronavirus. performance from is the situation are a material fluid fluid a doubt, expecting of as impact it situation, I mentioned. our As a

we When we about, of you travel none here we’re and meetings. been I factories that. sitting employees, restriction, most guidelines, and thankful morning, of first all, know, We’ve have precautions, in as infected terms think the and importantly, of gathering our for virus, very stand, we’ve significance, by our where instituted guess, this hygiene eliminated

started week. have We will factory biggest manufacturing of be force throughout about our that up ramping -- and the that XX% started small that a yesterday

So that had what we New represents Year. due a delay week to the from about Lunar one anticipated

slower ramp-up but So, a not a anticipated. significant delay, than we definitely

are chain up, supply Year, From from where back. people countryside New our And out planful story a coming they on perspective, bringing they back Chinese they’re the a very suppliers ramping biggest a similar with where and were there’s ramp-up. they’re

So, right are we now, a as and I’ve is our it biggest suppliers cautiously to factories, to optimistic, talked own situation. fluid but our

are of there next building of over the up And that’s are may lot terms of and you sold know, XX still closed, products In a retail again, X% dealers. and of small open days. of China, in course those the to start will as over Most the demand they our volume. through malls the

home. sales Our working all teams from are

reviewing terms and help to come orders to some degree they maintain large us Germany. as We’ve premium the delivery of spots products as to freight a performance our of revenue -- our in. back reserved the We’re in back we ship

we’re So, my point taking is, precautions.

situation. contracted none that the serious our thankful a employees of We’re It’s have virus.

We’re taking it seriously.

at where business. we have this We impact developed. plans our don’t stand, we contingency a expect material point on And

at firm And Kichler we were in industry pricing, of XXXX. industry lighting significantly products the the by mentioned, the mean, of been in we we place. large that John and our we the the question business. private I has inventory a And tariffs. on quarter. these across portion suffer customers aggressive, a building of for tariffs. And expect in loss out did it. to is outlined pricing of regards of Kichler, overall take was With challenge growth in were no one the we’ve label impact there a about to first our one rebalancing our impacted as And terms

not tariffs this we the certainly, when So, were made acquisition. expected

we regarding what improvements cost relates haven’t. it structure really question plan we approach. we’ve tariffs, that. that. as changed if direct fundamentally, pricing work discussed a improvement total We’ve our We but be I’ve change your But a of thought for our had in Certainly, terms to was done would cost drive already to our and there In productivity.

it to and to going we’re ahead that plan we relates our and We’re of that cost. continue expect outperform plan, as to drive to to continue and productivity

the the X continue is in the we industry. products it’s and to and we is right products. receiving reinvigorated our our and process. our product of very this in serve. regards very in and having at tweaked Kichler that that. programs generations commercial we’re new relationship dealers. With new and simplify January plan. on And looked and customers we’ve positive right executed we’re top-line, brand on we’ve about launch to very dealer And focused just programs development our cases feedback some We the on really And Kichler have And to focused the We’ve executing team strong, the and X incentivize

third So, there the to XXXX, quarters doubt, this to we They’re in a the bit growth. through footing And we’re going return on quarter. were without volume as be into going business then exit solid to continue a challenges first then to and some little XXXX. two

Operator

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

Matthew Bouley

decorative of that balance you’re year saying for And basis-point the that the It largely reflective guidance like I recover the your of sounded through year. margins that’s wanted suggests on around follow obviously, the the decline. to that will up flowing guidance just through. XXX side, the QX full tariffs

a you. steady those the of improvement sequentially that you anniversary improvement, through cadence-wise. tariffs? So, of you I the or kind as year, more expecting Thank to guess, Are question end of kind the my year is more is margin waited

John Sznewajs

Let you here. of little me give a bit color

they through P&L the the how about So, starting of XXXX XXXX and course through into if phased tail end our going of you impacted XXXX. tariffs think in us and the how

tariff million XXXX. about costs in $XX impact We incremental to have P&L of

first most to We of expect in the XXXX. P&L impact be in million the incremental And half $XX that $XX the should another year. million

effect middle flow of XXXX. of us hit third the of the in and full through us, the really that consider hit fourth $XX to quarter million quarter you P&L, our kind the If started

the should quarter two continued year. then, So, we it in in get fourth third a this quarter as dissipate And impact bit this then of the we the experience into full quarters the and the first of year. should little

the recovery cost-out $XXX work on million supplier to implemented through and we’ve margin may we’re at we to mitigate efforts other pricing of have. resourcing So, that opportunities, tariffs. continuing full negotiations, the But, looking also opportunities

The one thing cost point recovery might is face that are because out is little margin should bit I compression, experiencing we we what of a on these tariffs.

So, line. we of year, dropping the to don’t we margin expansion P&L. margin should back have necessarily the to some their through bottom resume once work expect That the tariffs said, in way half the the

you. that’s hopefully, So, to helpful

Matthew Bouley

just It that. secondly, is. Kichler. around kind bigger then you Thank picture of for And

hoping business growth of allow return past mean, moved losses? business think term or around guess positioned you kind change to you. would kind from you could I term Just you’ve that some perspective, this this of longer growth plans? to how these that bit Thank to elaborate kind of a a channel a of envision you after I what needs near

Keith Allman

Similar answer answered question. how to Stephen’s I

it occurred significant inventory customer. specific there by and private this rebalancing label business events think was as I losses some business and to tariffs in in a that relates

this through As of flow to return the begin those rather will tariffs on solid out to business the to the things, particularly to loss be the year, label growth. footing -- begins private

And the broad is this the brand in we of channels. all and strong In it’s in terms about across specific presence few businesses Kichler. have one that channel the deep industry that of have leveraging Kichler relationships a the strategies, really

specific terms the launches development, and I -- great to Delta years channel. product multi-channel we’re a that and working product is revamped this it what were incentives programs commercial not when root is So, for the sure in the us. programs, to service. And highlighted And we and several as through of fundamentally, went products different at and ago of up strategy strategy new and as aligned drive to shore down process, incentives at make assortment, earlier, of to good we revamp our were through did, that our unlike needs we our align

unique team, leadership little e-business have driving in our the down actually leadership several And Kichler. bit channel. from the movement in e-commerce A players that lighting in were in we to is here Company Delta a share Faucet instrumental to put

We have and retail And a all showrooms. across great we’re there. focused channels, team down e-business, landscape,

So, core as do it of at again, component cost the it it, programs. to we’re we I’ll say and but said commercial that it’s That’s here of is that. we approach. outperforming I’ve that will on is the productivity, Masco multipronged everything plan Kichler productivity at as a really a well. it and But continue continue intend focused and

going So, and as going no some continue on we’re to on grow. going get business change I be through to mentioned we’re year, my solid to And to happened footing, were we’re the There strategy. significant the this the and that to earlier answer, it. events to defined at end of

Operator

line Nomura comes Michael of Your from Instinet. question with next Wood the

Michael Wood

And changed what paint to consumer the see in about, in the bit talk of you called you out I could more And on the wanted competitors are behaving a with to incentives profitability if of in pricing how what’s maybe incentives? in just incentives these that are if seeing you terms impacting reaction terms you in can paint? elaborate industry presentation.

John Sznewajs

Mike, I it’s incentives. between might our slight necessarily a ourselves partners, consumer-based misinterpretation. not It’s incentives retail be and think, there

Michael Wood

Understand.

that clarify and to the just offered store saying is This large incentives at customers? between that, the you you’re So and necessarily have not changed. price actual

John Sznewajs

with we volume our customers. Largely due have major Yes. rebates That’s that correct. to

Michael Wood

to your the market forward math back overlaid assumptions do terms And of preventing that’s rate envelope Is I there get larger? a the gain just calling for share Great. typical that that you’re something from of going it business, of we expect, kind I being rough share to impacting the growth that if X%. you’d roughly gains or is in for and for should that X% the expect end market X% overall, the business

John Sznewajs

I -- paint a now we’ve that’s you share got now it’s [technical businesses expecting gains -- as mean, we’re pro difficulty] No. the recall, dollars.

you at same much when it are -- large business. to that that numbers, base you get that we share And off the a harder business. behind to it’s continue it’s gain was But, of and smaller that to rate share as at when the harder law of so, gaining invest

industry. buy have model of them Home think and It’s channel a to brands into continues successful and stores partner quality invest behind on one business. to their We contractor to Our winning -- the focus in the very attract highest the Depot and to pro established we that ranked paints.

business between ourselves a Depot, model So, and here. Home we’ve terrific we established think

Operator

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

Michael Dahl

John, just business, that’s into last the question. of probably forward the that of in same it a line XXXX that on borrowing and by think. pick-up about think a was point I cents, looks segment we amount top couple from and If a the it maybe QX, like pull paint

specifically, pro, point think broader X market with flat; expect can a about you even overall if So, that paint you numbers? perform or low mid single that as still that you market, those with headwind. when got you’ve do then think comp the to you line paint headwind, in single have flat, DIY to you Do outperform

John Sznewajs

Yes, Mike.

bottom the one, the have, react right largely comments to pull your think your line and you on impact. mouth So, is I to forward

think instances. think in we do both about we and pro, the outpace the both in we As DIY can growth market

to they’re here their We’re folks of outpace with further And DIY think because is still light XXXX. our $X.X here channel now, the and can in gained think we the our business at portion pro. market Home market growth we still have a relatively on business, rates be DIY Depot performance still the partner as look -- well that a we billion even the as we share they at experiencing the in though and the there of to growth we the alignment our and stores, draw in again, we’re

Michael Dahl

Second question, price also margin up tariff about the another question kind following on earlier impact. of

recovery to I flat that to be about the question true if Plumbing, year-on-year second and tariffs. part margin, this is including Plumbing? year, kind think, specifically just a you within and down of to margins for aggregate, it that full answering second pace XXX. on lighting, clarify, is looks were And -- talking also Plumbing have of in to of half that like But you’re up your get

so, And you, just actions is or get raw chain, materials to that leverage you around is to volume supply price, that incremental pure benefiting that?

John Sznewajs

Mike. Yes,

respect about not enterprise-wide comments So, specifically the single you’re right. My with any to prior segment. again, and were

We to back further any year? don’t expect anything break is the you What is that required down incremental tariffs. the Those the the first right. the half due drive expect the volume-driven. margin half of year back the the pricing in half segment, expansion that year else expect of you’re of plumbing given largely that’s we outside year -- volume in are or As in the margin in the we half to impacts the second headwinds actions of of expansion of margin the the

Operator

question Seldon next from Bank. Clarke line comes Your of the with Deutsche

Seldon Clarke

Just continuing and plumbing revenue how should think for on your last within the price decorative? volume question, guidance we about and

John Sznewajs

be So, volume. if would you most -- I think consider to volume about

the tariffs of of we through early because out pricing of XXXX, earlier, at the pricing, put indicated on the our XXXX, in modest the on with all I low very laid I impact should estimates. flowing we we through, say. pricing, tariffs As impact top-line back expect kind in

the as both -- is for as that most of of total therefore with most today, that so, Plumbing and the volume-driven. segment have is Decorative in you Architectural the Company And we well outlined growth segment the

Seldon Clarke

a margin, kind obviously like this And think XX.X% of top get But, improvement there? or see underlying that bridge continuing right actions you XX think year. you longer down the XXXX, cost or see of then, that or earnings. there are which $X.XX some of still expectation the term? What’s volume-driven you to basis be reiterated the on implies guided pricing you a that down something $X on points the just going another on about I bit for line line to actions Is how like to little the to

Keith Allman

things A XXXX that driving couple our of would performance. be

Firstly, anticipate we behind that are us. tariff the headwinds

into in as R&R we the remarks, acceleration market, our increase will on XXXX. earlier think mentioned an of terms consumer. And the in improving supply fundamentals, In we XXXX, we the we about that believe overall strong when and based hold through expect

drop about growth DIY terms market XXXX. So, that of range and we behind us our that’s for gives the improving together XXXX, $X.XX confidence share to with and that down Plumbing what planned paint gain tariffs the as business in repurchases us, our in in with share market and pro, continued talked with repurchase, $X

Seldon Clarke

Okay.

roughly? So, think number the about, right is XX.X still to kind of

Keith Allman

Yes, I think so.

Seldon Clarke

Okay. I appreciate the time. Thanks, guys.

Operator

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

Michael Rehaut

Thanks. Good everyone. morning,

get get if through I about there, get said if the just offset. to in $XX those that in want chain actions how estimated XXXX. actions feel offsetting that that headwind down just the -- earlier incremental you’ve a those you was productivity, that for think in impact throw you there think to supply million tariff did in question shake sense $XX had, out I is either break I do there the and headwinds through you of of I XXXX specifically I’m actions? to you How John, to such. a I trying and million or is XXXX, offsetting First specifically impact. that a was wanted or to did to other like cost, net just you a XXXX see guess, sense to price, things to to And flow offsetting expect you when that trying just you

Keith Allman

call were actions In XX% Mike, of mitigation round numbers, let’s say, price. I’d through it our

the that XXXX. So, that lever was biggest pulled we in

countries to negotiations suppliers have tariffs about So, We’ll chain mitigated resourcing, of longer But, thing. some our be up, suppliers through in out do limited the cost suppliers. The new existing in of while majority and to cost for XX% with other movement supply moving that we’ll that. the China a that leaves of a it’s ramping is that some be to us. cases continue terms going of sort that’s production and our of take to some established play term that And we’ll to in low that. -- do

system when why $XX XXXX. and flow had importantly it through XXXX, that aggressively with and now that and headwind when and you hit And in our price. mitigation, the more combination P&L. inventory that into through they we’ve heading fundamentally, hence think into we about was the million tariffs put So That’s the mostly overhang the early of the of and the of timing

John Sznewajs

headwind. guess, exit there’s net Keith we the here, going -- I actions to maybe between to covered. as we think the mentioned, Mike, chains tariffs supplement we’ve We comments of that fully we got pricing be as don’t supply impact got a But, think we’ve actions think XXXX, Keith’s we and the

Michael Rehaut

you. Thank helpful. That’s Okay.

you’ve bunch about for And moment. million questions. the back is, this it the I just Secondly, Kichler as a of in Was each have circle $XX circle to make think label But, will you I’m and think I apologies, year. numbers know a inventory to right to I third business to be just of I wanted of answered quarters back sure the trying to some the going of quarter. first couple that the end said private rebalancing John, right? by five that in in how

John Sznewajs

be just label QX to each Maybe million and of in $XX will private and clear. Collectively, rebalancing the inventory be QX.

those both of Mike from actions. So, year, XX total of in impact the

Michael Rehaut

Okay.

had has get $XX to just assume So, as the and sense I a XQ. a -- I maybe hit you million in trying business was of,

in to how somewhere hit to depending XXX range a to revenue things XX, from talking in of purchase. XX you’re -- maybe XX So, traversed of on your XXXX, original the

bit for in any and about even rather where different kind think with potential or a you importantly, sense given some it’s or pieces, I the that of cost done was in purchased to to ahead, how behind all little trying the of about a characterize improve of line, just end XXXX? business of the company-specific the of talked get also it? today more you would -- improvement you relative a You’ve by Are actions lot that I think you’ve XXXX you still the to moving the how types margins actions business. further

John Sznewajs

Yes, Mike.

respect don’t to out question. the break we with by individual So, margins can company. the appreciate I margins,

Clearly, on when his in we at bit has to the on cost-out we that’s can minutes ago, work more of work bought continue we mentioned anticipated much little as Keith But been headwind we about say As topic. and and comments than that Kichler. supply a couple as would chain a volume initiatives have a successfully company. the

Operator

America. next question Your of John from the with Bank comes line Lovallo of

John Lovallo

it with similar in to in is as though, I obviously, you to fairly just lighting been of from here. I’m any guys we’re have well. something is, structurally question a industry a handled and headwinds creating mean pertains is sticking consumer seeing maybe headwind industry that beat there that curious, And Just just what number horse. concern a a dead here? preference The broader to perspective, there’s changing and there’s don’t them flooring cabinets the lighting But,

Keith Allman

we’re was a the categories. number be No, that honestly change, there we anything a approaching as change. it seeing product structural shift If would don’t pretty a that’s to view it structural e-commerce. of would be our that But broadly -- across

it’s of a change. the about and as talk tariffs So, a that’s view China, It we was an a not no, industry -- there. When definitely into significant it from that you kind large have had by structural we imported don’t come hit. we

as structure. of versus to more the a that’s -- change, it’s a it event onetime So relates

be What it industry, as remodel this And a cue, is There’s design trends -- to haven’t design in a it’s solid, very takes product it intimacy -- consumer new and significant it’s the that. that’s introduction, to process. component having a continues relates to a win design-forward. of it things certainly and changed. process understanding those product It

been know to throughout return industry. to put XXXX. And So, this growth the to us that a tariffs rate. in, change that how behind the of we’re then, going we in we’re has compete going that really came course that and And to

John Lovallo

in up some key the the us for the SG&A also as percentage Okay. John, Thanks, Keith. then, please? maybe million front drivers $XXX of fairly and of quarter, on sales. was under understand basis just help And meaningfully Can dollar that just that, you a

John Sznewajs

John. Sure, Yes.

last actually the is recall, a long SG&A in had one lightest may you in fourth of quarter As we time. quarters

kind that maybe SG&A did you a I last be just opposed headwind a was more we anything in of of a up it which occur, low building, SG&A quarter would that the million fourth tight a The which comp a one a did against. recall call So, year we it’s more last year are gain on called as that of as comp. or to against out we have think $X that may thing low else. not basis sale one-off But, on extremely

Operator

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

Justin Speer

unpack I forecasts. margin some just to your of wanted more

raw you You there in reconcile to mentioned being first is something to just with saying me to that? the you a business, affected. the that tariff the Can basis-point on that quarter just there more obtained deleverage I’m fact that help top being factors then from the understand pricing that are price. through? be we of? other trying else, also, you of the lag Decorative or volume Are that, headwind segment out material tailwind costs, then, need relative lower your any is rolling transport that costs any And of your -- cost XXX But in Architectural more lower and -- aware offsets or even it’s across

John Sznewajs

Yes.

of couple a there. questions So just -- in

address try those. me to Let

fact Also of that So, is right? couple label referenced we lost a the We that with bit, volumes, private comes should indicate have out in pull paint, the $XX million One the from on degradation that lower there’s margin there. we little in a QX. to volumes portion a lower on obviously terms going program. quarter forward of things fourth QX, the in

say operating volumes, that drive would QX should margin profit in help Architectural in segment, We’re Decorative anticipating that I I lower. lower guess, a

raw -- the on side I well. should the material of recovery, margins will thing terms In it’s as drive is because costs, the lower margin third say tariffs, that is, cost

we obviously, cost On always side, the on work offset productivity.

that, particularly is have year the recall, way over work our commodity ago. paint price of with the we tend the cost to costs, But be with input costs here business paint since neutral things to terms a specifically, -- time. In -- in moderated

margins. so, -- would And may have that impact

costs pricing -- as really input is impact there be may moderate, prices moderate, it So, some as well. on

So, together. hit puts think it all I I Did questions? that your all

Justin Speer

down of guess, because paint, there’s forward the I X%. a the last first trying in you unevenness I just the understand that prior I with because guess pull because comps year. was of that were But quarter know of had I’m lot Well, know Kichler. XXXX, was year,, your I to some

of that So, obviously much those your you’re out, it’s mostly losing I have lost tariffs comment margin trying or that But, an business, the that Kichler there cost impact your Is price hitting tariff profile the a it and trying you. are kind such evened and and you would business. have affecting of the that thought as to side, of I’m wouldn’t that reconcile that segment? have you’ve Architectural not coding would that’s just get to of -- in as it’s result the share from Decorative

John Sznewajs

I say there -- you communicate didn’t don’t if maybe talked into you lost know go think, to right. QX, is But programs. I I’d I the lost if about we going be volume,

to the going QX. greater is the that’s followed the the main volume than in the on two, a much Of impact be by impact. so, margin degradation, margins tariff contributor the And to tariffs

Justin Speer

of for post losing kind sandbox, That you’re so or who in the share of advantaged I player there that’s that in lastly impression makes was from everyone doesn’t something in Because And China terms is to the the under perhaps businesses? sense. it lighting just same the speak, tariffs? me Is that is another to was else? chain, then, source supply

Keith Allman

industry the down. is think, I

of been the industry-wide the tariffs I impact think, has in effect.

another more taking the one, particularly any haven’t We’re not that’s single identified really -- we competitor share across board. than

Justin Speer

Thank you, guys.

Operator

Keith SunTrust. next line Your come will of from Hughes the with question

Keith Hughes

what give North American Thank XXXX, you you. in growth? us, Plumbing was Can

John Sznewajs

North the full American year, X%, Keith? think was Plumbing growth I for

Keith Hughes

pricing or there? in Is is volume there that all

John Sznewajs

There you fair to Keith, offset We consider a put mean, the I year. there. amount there. Yes. a actually the probably tariff QX if of in pricing of in pricing of bit tariffs, impact, little in QX in and last place was

Keith Hughes

Okay.

given earlier, in this us XXXX in in any not don’t ask in again, expect you -- think And you’re way, I so, North -- in, and that this you’re for let any expecting price this you guidance said coming you’ve me plumbing? Plumbing America, price expecting not

John Sznewajs

put but much. of No. a in, there Not we bit be it little might ton. Keith, not a

Keith Hughes

all. you. Thank That’s Okay.

Operator

from line Phil of comes with question next Jefferies. Ng Your the

Phil Ng

a how lay sense And us as the you guys. M&A Hey, about in buybacks any you the update in, think Can should on that of XXXX? pipeline? pace then, give we

John Sznewajs

-- share I’ll take about the repurchase In M&A terms talk of the pipeline. Keith and let Phil, question, I’ll

I to the the about out. the of how large we we way deploy a probably probably chunk terms we’ll look think the be $XXX of more maybe In after that get balance depending of it plays from $XXX of we will then, we And market That the thinking the million portion, mentioned, proceeds a transaction, do year, million through on the is, surely good balance are Cabinetry so. opportunistic, discussed. to the we’re that received, proceeds the

In don’t Keith, M&A that? pipeline, take terms you why of

Keith Allman

pipeline Phil, solid. remains our

was We a bit with the continue global would in because to say business slower I uncertainty trade M&A drive than expected some activity the of valuations being ‘XX it. it things little and that that up I say small. seller expectations that. pick flux of that Overall, in But Most We lately. of some fairly are -- would we’re still seems of them to have remain at. picked up high. the looking I the like

So, solid we’re patient. going be pipeline. But, to

Phil Ng

one Got just one for last And me. it.

I stuff, lighting loss. tariff mean, there’s some and share the On dynamic obviously,

to we get issues, growth. expect that XX% some segment, of range? you As mentioned to work Decorative, and as these got kind Keith -- to when margins think that to through XXXX, expect we Should XX% of to you about in back you return

Keith Allman

growth. that Well, we’re with to going continue

to that. We on volume. down that We’ll have drop a drive good incremental continue

would we improving ‘XX margins So, would ‘XX. I as compare to be that expect

Phil Ng

Okay.

John Sznewajs

out in per Day XX% Investor since September. may around segment our to our you September. -- that has process thought recall, we And in that Phil, margins laid changed XX.X% we not

Operator

come Our from Truman will final Patterson Fargo. question of Wells with line the

Truman Patterson

to coronavirus more? I believe portion mentioned And have little wanted the Could bit contingency well. on that you touch sourced Plumbing What plans of China? from dig component I Products piece a Keith, First, as again. into you

the what’s week you there. your on you impact remain chain, does Will of can get that supply seem like it shut Just current Could And plans inventory shelves? product going update two? on trying to another an actually for discuss maybe that understand actually or balances it’s intensifying. your and if

Keith Allman

over Year. Really, Our of be about to a factories -- would related what are week that delay have New been up Chinese a represents the normally speed. coming delay to

They’re coming little bit a coming they’re up. than So, would normally. slower they what up

And for be week and to our of We biggest have next in coming the workforce about course plant, of into that’s going XX% week, half. the our example. a

As malls a I happening -- home they’ll But perspective, lot from again, in and of remain lot of there’s a course a the dealers and close earlier or flux said improvement retail Anticipated the a two. next be week over opening. be volume here. there’ll the

of X% representing revenue, us. an it material here, the impact China on have in not session with our I anticipating answer we’re to as earlier said Q&A on a So,

outstanding terms delivery on we’re continuing with rate us said, our at of the eye an In some And contingencies, we as maintain keep proposition that of freight it. can premium lead looking I the to to to time so help we’re fill and customers.

policies got procedures and said, different we’ve employees, that on sure And at We’re it to to I closely. a make fluid It’s paying to our foremost. we’re impact situation most this and to attention keenly material anticipating a help paying time. that our first not watching as have results, we’re attention the we’re and

Truman Patterson

early near-term like trying just R&R has how on then, And in so, actually here. to side that. understand are. you shoots I’m picking XXXX? Are little It up think for any Thanks to seeing kind green that? slow pretty do sustainable on a And has had XXXX. impact any guidance looks Okay. recover in if you your start activity weather of R&R

Keith Allman

what I considered been. think, could and things the weather has have been pretty good, all it

at calling R&R. generally see half. there’s accelerating range look lag numbers X% those X% that We’re we numbers and R&R we to we’re at growth that back indicators towards from in the economic to looking When the it at, the

So, back we with confident in acceleration feel that in the half. X% R&R X% to

Operator

Thank all Ladies And you today’s you and disconnect. will for conclude now may gentlemen, call. that conference joining.

Masco (MAS) 11 Feb 202019 Q4 Earnings call transcript