Good morning, ladies and gentlemen. Welcome to Masco Corporation's Second Quarter 2022 Conference Call. My name is Bailey, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. To ask a question, please press star then the number one on your telephone keypad. To withdraw your question, please press star then two. I will now turn the call over to David Chaika, Vice President, Treasurer, and Investor Relations. You may now begin. Thank you, Bailey, and good morning. Welcome to Masco Corporation's 2022 Second Quarter Conference Call. With me today are Keith Allman, President and CEO of Masco, and John Sznewajs, Masco's Vice President and Chief Financial Officer. Our second quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at 313-792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission. Our statements will also include non-GAAP financial metrics. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I'll now turn the call over to Keith. Thank you, Dave. Good morning, everyone, and thank you for joining us today. Please turn to slide five. We continue to execute in this challenging environment, and I'm pleased with our performance in the first half of the year. In the second quarter, our top line increased 8%, with growth driven by pricing and to a lesser extent, volume in both segments. Our operating profit was impacted by higher supply chain costs, planned marketing expense increases, and unfavorable foreign currency. Commodity and other inflation was mid-teens in the quarter, but we expect this to be a peak level as we anniversary inflation that began last year, and we are beginning to see declines in certain input costs in the spot market. Importantly, with our continued pricing actions, we have begun to recover the price cost lag that we experienced in the back half of 2021. Additionally, we continue to leverage our SG&A, as SG&A as a percent of sales improved 90- basis points to 15.3%. These actions contributed to sequential margin improvement of 140- basis points to 17.6% for the quarter. Our earnings per share for the quarter was $1.14, which matched prior year's earnings. Turning to our segments. Plumbing grew 7% in local currency against a 48% comp, with 7% growth in North American plumbing and 8% growth in international plumbing. North American growth was led by our spa business that continues to capitalize on strong demand for its products. International plumbing markets remain solid, with strong growth across Europe and in China during the quarter. In our decorative architectural segment, sales grew 15% as Behr continued its strong performance with low teens growth in DIY paint and approximately 40% growth in pro paint. DIY paint growth was mostly due to price as we continue to see DIY paint volumes normalizing. We expect full year DIY paint volumes to be in the range of 2019 volumes. Pro paint volumes remain strong as we continue to gain market share in this market, demonstrating the compelling offering that we have developed along with The Home Depot. I'm also very pleased that for the ninth year in a row, Behr was named the number one rated interior paint by a leading third-party testing agency. In addition to the top spot, Behr took all of the top four rankings. This is a testament to the quality and value proposition that Behr Paint brings to both the DIY and pro paint markets as paint quality, including ease of application, durability, coverage, and value are extremely important selling points for both the DIY and pro customer. Turning to capital allocation, we repurchased $550 million of our stock during the quarter through open market repurchases and an accelerated stock repurchase transaction. This brought our total share repurchases to over $900 million for 2022 or nearly 7% of our shares outstanding at the beginning of the year. This likely completes our repurchases for the year as we will use our free cash flow to repay the $500 million term loan we used to fund the ASR. Now let me address what we are seeing in terms of demand in our markets. Largely as expected, demand or actual sell out for many of our products moderated during the second quarter. Across most of our categories, we expect volumes to be down modestly in the second half of the year with growth driven by pricing. On the cost side, certain input costs such as labor and freight remain elevated. Additionally, labor and freight availability continues to be inconsistent, making it challenging to operate efficiently. Lastly, the US dollar continues to strengthen, resulting in lower operating profit dollars than we forecasted. With these considerations in mind, we are narrowing our earnings per share expectations for the year to be between $4.15 and $4.25 per share from our previous expectations of $4.15 to 4.35. We are closely monitoring market dynamics and will take action if demand falls below our expectations. That said, we believe there are numerous positive structural factors related to housing that will be supportive of increased repair and remodel activity over the next few years, even if there is a short-term economic slowdown. We are on the edge of the large 75-million-person millennial cohort forming households and entering the housing market. 2.7 million more homes will reach the prime remodeling age of 20 to 39 years old over the next three years. The COVID-19 pandemic has clearly increased the desire for more enjoyable living spaces, which has led to increased home demand and remodeling expenditures. Consumers and homeowners have strong balance sheets with more than $2 trillion in savings and home equity values at all-time highs. All of these structural forces provide tailwinds for our repair and remodel business. Now I'll turn the call over to John for additional detail on how our second quarter results and full year outlook. John? Thank you, Keith, and good morning, everyone. As Dave mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization and other one-time items. Turning to slide seven, we delivered another strong quarter, with sales increasing 8% against a robust 24% comp. Net selling prices increased sales by 10%, and higher volumes increased sales by 1%. These were partially offset by an unfavorable currency impact of 3%. Sales grew 11%, excluding the impact of currency. In local currency, North American sales increased 11%. This performance was driven by strong growth in DIY and pro paint, as well as spas, faucets and showers. The main drivers of this growth were increased net selling prices, which increased sales by 10%, and higher sales volumes, which increased sales by 1%. In local currency, international sales increased 8% or 11% excluding divestitures. Net selling prices increased sales by 7% and higher volumes increased sales by 4%. Our gross margin of 33% was impacted by higher year-over-year commodity and logistics costs in the quarter. We anticipate that gross margin will continue to face pressure in the third quarter, with year-over-year improvement expected in the fourth quarter. Our SG&A as a percentage of sales improved 90- basis points to 15.3% due to operating leverage and continued cost discipline across our businesses. Operating profit in the second quarter was $414 million, and operating margin was 17.6%, sequential improvement of 140- basis points. Operating profit was impacted by higher supply chain costs, marketing and currency, partially offset by higher net selling prices and incremental volume. Our EPS of $1.14 in the quarter matched the second quarter of 2021. Turning to slide eight, plumbing growth was 7% in local currency against a robust 48% comp in the second quarter of last year. Segment sales grew 8%, excluding the net impacts of currency, acquisitions and divestitures. Pricing contributed 7% to growth, and volume contributed 1%. North American sales increased 7% in local currency. This performance was led by Watkins Wellness as they continue to capitalize on the trends toward wellness and outdoor living. Delta also contributed to increased sales in the quarter as they delivered growth against a double-digit comp. International plumbing sales increased 8% in local currency or 11% excluding divestitures. Hansgrohe grew sales across almost all their markets, with their key markets of Germany, China, France, and the UK continuing to drive exceptional results. Segment operating profit in the second quarter was $238 million, and operating margin was 17.3%. Operating profit was impacted by higher supply chain costs, marketing, and currency, partially offset by higher net selling prices. Turning to slide nine, decorative architectural sales increased 15% for the second quarter. Our pro paint business delivered another outstanding quarter with growth of approximately 40% as our pro paint offering and high quality products continue to gain share with the pro customer. With our strong operational execution and continued investment, we are demonstrating our ability to retain and grow our penetration with the pro customer. Our DIY business sales grew low teens. However, DIY volumes normalized in the second quarter. We now anticipate second half DIY paint sales to decline modestly. Operating profit was $198 million in the quarter, up $10 million or 5%, and operating margin was 20.2%. This performance was driven by higher net selling prices and incremental volume, partially offset by higher commodity and supply chain costs and marketing. Turning to slide 10. Our balance sheet is strong with net debt to EBITDA at 1.9x, even with the additional $500 million we borrowed to fund the accelerated share repurchase transaction we executed during the quarter. We ended the quarter with approximately $1.4 billion of balance sheet liquidity. Working capital as a percent of sales was 18.9%. Working capital was impacted by higher inventory levels to meet demand of our customers, cost inflation, and delays in receipt and delivery of material. Through focused execution, we continue to balance our inventory levels with demand. We expect working capital as a percent of sales to be approximately 16.5% at year-end. We also continued our focus on shareholder value creation by deploying $550 million to share repurchases during the second quarter. Year to date, we have deployed approximately $914 million to share repurchases and retired approximately 16.6 million shares, or almost 7% of our shares outstanding at the beginning of the year. We do not expect further share repurchases this year, as we will use our free cash flow in the second half to repay the $500 million term loan. Finally, turning to slide 11, let's review our outlook for 2022. Given moderating demand and additional foreign currency headwinds, we now expect full year sales growth for Masco to be in the range of 5% to 7% versus our previous guidance of 6% to 10%. Due to lower sales volume and higher supply chain costs, we now anticipate full year operating margins to be approximately 17%. While we do anticipate margin expansion in the second half of the year, this will be related to the fourth quarter. In our plumbing segment, we now expect 2022 sales growth to be in the range of 3% to 5%, including foreign currency, versus our previous guidance of 3% to 7%. Due to the current exchange rate, foreign currency is expected to unfavorably impact plumbing revenue by approximately 3% or $165 million. We now anticipate full year plumbing margins will be approximately 18%, lower from previous guidance due to higher supply chain inefficiencies and slightly lower volume assumptions. In our decorative architectural segment, we expect 2022 sales to grow in the range of 9% to11% versus our previous guidance of 10% to14%. Looking specifically at paint growth for 2022, we currently anticipate our DIY paint sales to increase mid-single digits and our pro paint sales to increase strong double digits. We now expect full year decorative architectural margin to be approximately 18%. As we previously discussed, in this segment, pricing actions typically only recover the dollar amount of inflation. As a result, all else equal, operating profit dollars remain neutral from cost recovery pricing actions but result in margin compression. Finally, as Keith mentioned earlier, our updated 2022 EPS estimate is $4.15 to 4.25, which represents 14% EPS growth at the midpoint of the range. This assumes a 233 million average diluted share count for the year. Additional modeling assumptions for 2022 can be found on slide 14 in our earnings deck. With that, I would like to open the call for Q&A. Operator? Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question and one follow-up question during this Q&A session. Our first question today comes from the line of Stephen Kim from Evercore ISI. Please go ahead. Your line is now open. Thanks very much, guys. Appreciate it. Was curious if you could talk a little bit about the, I know you gave a lot of info there. Hopefully, I got it all down right. When you talked about in the Dec Arch segment, I believe paint, you said you expected second half volume to decline modestly. I just wanted to see if you could give us a sense for was that inclusive of the pro-business. Maybe you could just re-review that, what your volume specific outlook is within paint, and maybe breaking out DIY versus pro, just so we're clear. Sure, Steven. You know, as you think about demand, you know, like we said, we saw strong demand in the quarter. As we think about, you know, going forward, DIY versus pro, as you might expect, you know, we've had some strong comps in the pro side of the business. You know, we're starting to face some pretty significant comps in third quarter. I think our pro comp against third quarter of last year is like 45% growth. While we still anticipate growth in the pro in the back half of the year, obviously, we won't be posting the strong gains that we've posted the last three or four quarters. You know, as we think about our DIY business, we do think our DIY business will be up in the back half of the year. That said, it'll be driven by price with volumes declining in the back half of the year. Okay... [crosstalk] You do think DIY volume will be up? Will be down. Yeah, down probably double digits. Low double digits, Steve. What would be down double digits? Sorry, I spoke over you. Yeah, DIY paint volumes will be down low double digits in the second half of the year. Okay. That's what I needed. Okay, great. Thank you for that. Appreciate it. When you look at the plumbing business, can you give us a sense, just housekeeping-wise, you know, what was the FX and the acquisitions and divestitures impact on sales in the quarter? When you're looking forward, in that business, do you anticipate that you will be able to more than cover your cost inflation in that business, or should we simply be looking for just recovering the cost dollar for dollar in the back half of the plumbing business? As we look into 2023, I know we're not giving guidance on that. However, would it be reasonable to think that with the movements we're seeing in commodities and perhaps a little stickiness in price, that we might actually see some positive carryover effect in 2023? Steve, this is Keith. Typically, we do recover with price in this segment. We do recover margin as well. You're exactly right. If there is a pullback in commodities, we would expect that to be a tailwind for us. Yeah. Steve, and maybe you had a question in the beginning. I think the first part of your question had to do with revenue and the impact of acquisitions and FX. You know, roughly speaking, these are kind of rough numbers. FX is roughly 2% and the acquisition is 1%. Perfect. Thank you so much. Thank you. The next question today comes from the line of Matthew Bouley from Barclays. Please go ahead. Your line is now open. Hey, good morning, everyone. Thank you for taking the questions. I think you mentioned at the top, speaking around sellout, that sellout moderated in the quarter. I guess, you know, number one, could you kind of speak to the comparison of sort of sell in and sell through there through the quarter? You know, part two, really what I'm getting at as we think about the second half guide, you know, was that basically your view of sellout or, you know, or is there any assumption around additional inventory destocking there? Thank you. Yeah. We did catch up on our channel inventory a little bit year to date and through the second quarter. I think, you know, that was planned, and we did that to help improve our service to the customer and to the consumer. In terms of the forward look as it relates to our guide, we're really not anticipating inventory fluctuations to have much impact on that. Got it. Okay. Thank you for that, Keith. Second one. It sounded like on the international business in Hansgrohe, strong trends there, you know, ex divestitures and currency. I guess looking forward, clearly a lot of concern around, you know, energy costs in Europe and Germany specifically. I guess could you sort of speak to your assumptions around the second half in the international business, both on the energy side and sort of the knock-on effects to the European consumer there? Thank you. Well, you know, we certainly are in no position to make an overall crystal ball call it an economic call in Europe. I will tell you that we continue to see strong demand, particularly in the key markets, for Hansgrohe. Central Germany, China continues to perform very well for us, France, the UK, et cetera. We're counting on continued good, solid growth from Europe, and our performance is quite strong. With regard to the overall energy, the team has done a really good job, and we've secured the majority of our energy requirements from renewable energy for this year and going into next year. We're working hard to convert and have converted the majority of our equipment from natural gas to other sources of energy in terms of powering that equipment. That said, if there was a significant shutdown or constriction of energy flow into it, that would be an issue that we'd have to manage, and that would be challenging. In terms of the proactive actions that we're taking, I feel confident about the work that the team has done. They've done a good job. Yeah. To maybe just a couple other comments in addition to Keith's comments. You know, we are assuming higher energy input costs in the back half of the year, just given what's taken place. We feel, you know, we need to make sure that's baked into the guide. Great. Well, thanks, John. Thanks, Keith. Good luck, guys. Thank you. The next question today comes from Mike Dahl from RBC Capital. Please go ahead. Your line is now open. Thanks. Morning. Just a couple follow-ups here. In terms of the second half guide and the comments or the implied volumes for the second half, this relates a little to Matt's question, but can you talk about how those volume expectations compare to where you exited second quarter? I know you talked about moderation through the quarter. Are you assuming, you know, similar levels of declines as you have most recently seen, or are you embedding greater declines in the back half of the year than what you've just experienced maybe over the past month or so? Yeah. I'd say, Mike, as we look at it, you know, we think things have kind of stabilized here. You know, we think the trends as we exited the quarter were gonna be consistent with the back half of the year as best we can tell at this point. Got it. Okay. Then my second question is around the inflation dynamics. I talked about kind of 15% high level, but this is the peak. Can you split that out between your segments? Because it seems fairly clear if we look at some of the plumbing inputs to Steve's question, you know, that there could be a relief on the horizon there. Maybe a little stickier on the paint side, but if you could give us a little more color on the difference in inflation trends between the two segments and potential timeline for relief as you see it. Sure, Mike. Happy to do that. So, as you indicated, we have experienced a fair amount of inflation, obviously all year and starting actually in basically the midpoint of 2021. As you said, you know, and we said earlier, we think we've hit a high point. As we look at our cost basket across the various segments, we have seen some input costs back off their highs from earlier in the year. You know, obviously, copper and zinc, which go into our plumbing products, have begun to decrease. That impact, it takes about two quarters or six months to flow to an impact on financial statement. If you consider the timing of the inflation that we're experiencing now, the timing of the decline in some of the commodity prices, that's not gonna have much of an impact here in 2022. That'll be much more of an impact in the first part of 2023. That could provide a tailwind as we go into 2023. You know, other parts of the inflation basket though are beginning to moderate as well. You know, ocean freight was something we talked about quite extensively on prior calls. We're starting to see that begin to moderate. That said, you know, fuel costs, you know, will probably offset a portion of that because, you know, over-the-road trucking trends continue to be high. Certain other components of our inputs like packaging and pallets all continue to remain high. On the paint side of our business, we are seeing paint input costs be stickier and still face some upward pressure. Specifically, we're seeing that is TiO2 in other inputs. We're closely monitoring that. You know, if we have to take additional pricing actions to offset any of this inflation, we will do so, you know, as evidenced by the fact that we put through 10% price in the second quarter. You know, we think, you know, we are in good position. We're slightly, you know, price/cost positive for the second quarter. We're set up well, but we'll continue to monitor the situation and we'll react accordingly, with additional price if needed, if need be. That's very helpful. Thanks, John. Thank you. The next question for today comes from the line of John Lovallo from UBS. Please go ahead. Your line is now open. Good morning, guys, thank you for taking my questions as well. The first one is maybe just a point of clarification. Did you say that the DIY volumes in the quarter were actually flat, which would be, you know, a very good outcome versus your peers? If so, what do you think were the biggest drivers that on a relative basis? Yeah. DIY volumes for the quarter were relatively flat. Yeah. Is that what I'm saying? John, did you have a second? Yeah, I'm here. John, did you have a second question? Yeah. I'm sorry. I thought you heard my answer. You said... [crosstalk] So, uh... [crosstalk] No, I missed it. They were relatively flat? Sell in, if I remember, was greater than sell out in the quarter. Yeah, they were right. I hope that answers your question. I'm certain. Yeah, I'm just curious cause that is better than some of what your competitors are saying, and I was just curious if you thought, you know, what was kind of the differentiating factor there. Yeah. I think part of it, John, is, you know, if you compare our results against the second quarter last year, we had relatively soft performance in DIY because of the Texas freeze. As you think about the year-over-year comparison, we are catching up on that. That's why we had better sell in than sell out in the second quarter. Okay. Thank you. When we look at demand and our revenue. John, it's Keith. When you look at revenue in Dec Arch and the growth in second quarter, it was roughly 80% price and about 20% volume. Then when you look at that volume, we're relatively flat in DIY. Got it. Okay. In terms of just, you know, the inflationary pressures, are you seeing any trade down for consumers, in either of your segments? Not really. It's been pretty stable, you know, and we've worked hard to reduce the impact of movement along the assortment from the lower price to the higher price and from pro to DIY, for example. There still exists, you know, some impact of mix as we see that kind of movement. We really haven't seen evidence of a trade down when we look across the volume of our big ticket items like spas, for example. We continue to see strong demand there, strong backlog of about 25 weeks remaining. Which is greater than we would typically see in a normalized environment in China, where we have really a focus on the higher end products that Hansgrohe sees there with a good growth in China, and that continues. Despite the market slowdown, that popped back very nicely. We're seeing good demand there. We are seeing good demand on the lower end of our assortment. Overall, have not seen evidence of a significant trade down, and we don't expect any as we move forward through the year. Okay. Thanks, guys. Thank you. The next question today comes from the line of Susan Maklari from Goldman Sachs. Please go ahead. Your line is now open. Good morning, everyone. My first question is, you know, building off of John's question there. As you take a step back, can you talk a bit about the overall state of the consumer, how it changed during the quarter, what their willingness to spend is on housing? And are you seeing any signs of elasticity as the pricing continues to come through across the product categories? Well, we did see some moderation of demand, and we are seeing some signals of slowdown as we look at the various leading indicators, if you will, like website searches and those sorts of things that we watch closely. There was a moderation that I would say. While we don't break down specific end quarter trends, I would say that mid-quarter, we saw a moderation, and then it's been fairly flat since then. It's consistent across our categories, and for the specific categories, fairly consistent across the channel. Overall, I think a consistent moderation of demand. Now there's some categories for us that have bucked that trend. We talked about our propane sales that was very strong, our spa sales that we felt were very strong, and international continues to perform very well for us. Faucets and showers, hardware, lighting, DIY paint, I would say we have seen a moderation of demand. As I said, that happened kind of mid-quarter, and then has been flattish coming through the rest of the quarter. We expect volumes to be down modestly in the second half, maybe a little less in plumbing, a little bit more in decorative. I'll remind you that plumbing had, I think it was a 16% comp in third quarter, and decorative had a 15% comp. You can factor that in as you think about the segments on a quarterly basis. Sue, you know, maybe one thing I would add to Keith's comments is, you know, as we look at the consumer, the consumer continues to look healthy, to us. You know, we continue to see strong balance sheets. You know, home equity continues to look good. It's, you know, in terms of your question about elasticity, you know, if you think about our portfolio of low-ticket repair, remodel products, you know, consumers you know have the flexibility to buy our products. A lot of our products are, you know, for break fix purposes. We're not seeing the consumer bend as a result of the higher prices that they're feeling in the market, at least for our products. Okay. That's very helpful color. I guess as a follow-up, you know, as we do think about the macro environment shifting, are there any early steps you're taking to prepare the business? Or what are the things that you're watching for to indicate that you may need to make some underlying changes in terms of perhaps cost structures or those kinds of things looking out? Well, at the end of the day, ultimately, it would be demand for us. That would be the trigger for us to implement our contingency plans. That's really a part of our ongoing business planning process, and this is something that we all have experience in dealing with. It's part of what we do. Pullbacks on certainly variable costs and discretionary costs that we could execute in the SG&A function, for example, and throttling back growth investments or hires and looking at that variable cost. Depending on the depth of it, as we've proven the ability to do, we could get into the fixed costs as well. We have contingency plans in place, and we watch leading indicators. I mentioned website traffic. We have deep access and relationships in the channel as it relates to consumer tickets et cetera, and we watch those leading indicators. Fundamentally, we wouldn't execute cost outs on a leading indicator. We'd wait to see where the demand goes, and we're very keenly watching that and, as part of our standard process, meeting on a regular basis with the businesses to review their contingency planning. This is, you know, certainly an area where we have experience, and it's part of our business. That's fundamentally how we're looking at it. Having said that, the portfolio as we reconfigured it with what John mentioned with the break fix component and with the fact that it's lower ticket and they're high bang for the buck coupled with the fundamental shifts that we've seen in terms of how people buy and products for their home and how they view their home, we feel good about the long-term aspects of our portfolio. Okay. Thank you very much. Good luck with everything. Thank you. The next question today comes from the line of Deepa Raghavan from Wells Fargo Securities. Please go ahead. Your line is now open. Good morning, everyone. Thanks for taking my question. The first question is on price/cost. You mentioned you are slightly price/cost positive in the quarter. Is it true across both the segments? I'm interested in plumbing comments specifically because it doesn't look like price fully offset inter-quarter headwinds from higher costs. Yeah, Deepa, you know, we were price/cost slightly positive across both segments, both plumbing and decorative architectural. You know, I think the thing that you might focus on a little bit more is we did have some operational inefficiencies in the second quarter in plumbing. As Keith referenced in his prepared remarks, specifically, we had some you know shipping and some labor inefficiencies in the second quarter that probably would've created more of a headwind for the plumbing segment. Deepa, are you there? Oh, hey, sorry. I was on mute. Apologize for that. Just a follow-up. Can you talk through some metrics that might have positively surprised you or negatively surprised you in the quarter? I mean, you know, I think I'm looking at the magnitude of change that possibly surprised you and if that changes in the second half of the year. We continue to perform well in Europe. I wouldn't say so much that that's a surprise, but it was, you know, we've watched that performance develop, and that was good to see for our franchise to be able to grow like we did in Europe and China. I think that was very solid. You know, we've talked about now for a number of quarters about how we're working very hard to drive stickiness into the pro paint demand, and it's evidenced by our continued growth and share gain in that part of our business that the team is doing an outstanding job together with our channel partner to really take advantage of the opportunity that we had with our supply chain excellence when we had an opportunity to acquire a share of wallet of some new customers to really show them what that Behr Paint can do. We've had positive response there. I think our continued growth in Europe and our continued stickiness and demonstrated capability to keep our business that we're gaining in the pro was a couple positive aspects of the quarter for sure. Yeah. I'd say on the negative side, you know, the operational inefficiencies that I just mentioned in plumbing were probably a bit more persistent than we'd expected. I mean, it's been a very dynamic environment, as you well know, you know, in the last couple quarters, and we thought we would see some improvement, and obviously we didn't see the improvement in the second quarter that we'd anticipated. Quite honestly, we probably expect some of those inefficiencies to carry over into the third quarter in the plumbing segment. It'd be a, you know, continue to be a bit of a headwind for that segment as we go into the third quarter. We do think things get better as we roll into the fourth quarter. Thanks much for the color. Very helpful. Good luck. Thank you. The next question today comes from the line of Keith Hughes from Truist. Please go ahead. Your line is now open. Thank you. Questions on international plumbing. Strong numbers in the quarter. You had highlighted it in the prepared statement. There's been a lot of fear around Europe, what could be coming. Are you getting any indications that this pace of business could fall off in the second half of the year given some of their energy pressure and various other things going on in the continent? You know, as I talked a little bit earlier, Keith, it's a dynamic environment, and we don't have a crystal ball. We're focused on being fleet of foot and watching and being ready to make adjustments if there was some sort of significant economic changes. It's a dynamic environment for sure. We're not seeing that currently. We're not seeing that reflected in a trade-down, and we continue to see good, robust demand through Europe. You know, we are taking the contingency plans and putting those in place in terms of conversion, as I mentioned, from natural gas to other sources of energy. We've procured the majority of our energy through 2023 from renewable sources. The team's doing a good job to, you know, prepare for and address the current challenges in terms of seeing indications of what might happen going forward. We're working hard to be ready for what might happen, but we are not seeing any indications of a downturn in Europe at this point. Keith, you know, the other thing I would add to Keith's comments. If you think about Hansgrohe, you know, a good portion of their revenue comes from project sales. You know, think about hospitality or hotels going up. A lot of that takes place, you know, in countries outside of Europe. That's Asia, that's the Middle East. There's a good fundamental baseline of demand there, even though we do serve projects in Europe. Even when you know the consumer market turns down, these projects continue. They have to be finished. That will provide some basis of support for Hansgrohe going forward. Okay. Thank you. Thank you. The next question today comes from the line of David MacGregor from Longbow Research. Please go ahead. Your line is now open. Yes. Good morning, everyone. You talked about the gross profit margins and the fact that they're gonna be under a little more pressure in third quarter, and then we'd expect to improve a little more in fourth quarter. I wonder if you could just unpack that a little for us and talk about some of the puts and takes that are behind those dynamics. Yeah, certainly. There's a couple things that are happening there, David. You know, one is, you know, we talked about the cost recovery element of our decorative architectural business, where we recoup the dollar cost of the inflation. Obviously, you know, we talked about, and we've talked historically about a 5% inflationary increase has about 100- basis points impact on our margins in the segment. If you think about the fact that we mentioned we had mid-teens inflationary impact in the second quarter, you know, that's a big contributor to, you know, some of the gross margin pressure that we're feeling. On top of that, I mean, I think the second thing that would be impacting would be the lower volumes that we're foreshadowing. Those two, I think, are the two big things that are impacting our gross margins in the second half, David. Okay. That's helpful. Just as a follow-up, I guess, you know, given the fact that the macro seems to be softening up here a little bit, I'm just wondering to what extent you're seeing your channel partners tapping the brakes on replenishing inventories. I'm just wondering if you can talk about what you're seeing right now in terms of channel inventory levels and what you're expecting in terms of fluctuations around that over the next two to three quarters. It's really a mixed bag. In some cases, we're still a little light on where we'd like to have our channel inventories. For the most part, we've caught up, and I think the inventories are in pretty good shape as we work to get inventory in place to better serve the customer and to meet the requirements. A little bit of a pull down, you know, not atypical as some of our bigger plumbing wholesale customers approach their fiscal year-end or fiscal quarter end, that there'll be some pull back in inventory. There's a little bit of pull back, I would say, in plumbing wholesale, but by and large, I think it's fairly stable. Okay. Great. Thanks very much. Thank you. The next question today comes from the line of Adam Baumgarten from Zelman. Please go ahead. Your line is now open. Hey. Good morning, everyone. I guess maybe starting in paint, just given the slower DIY outlook in the second half, do you expect promotional activity to pick up in any meaningful way? You know, that really is a decision of our channel partner. I mean, we obviously are together in that, in the discussions and the strategy around it. In some cases, based on our partnership, we'll choose to participate in that and help fund some of that. As we sit right now, I would not expect material change in the promotion levels. Again, that's a choice of our customer. Okay. Got it. Just switching gears to plumbing, just maybe if you could give us some color around the order patterns or showroom traffic that you're seeing in the spa business? Well, that continues to be robust really. Our backlogs, as I mentioned, are around 25 weeks and staying there. The orders have been pretty consistent. Haven't seen a material movement up or down there. I would say consistent through the quarter. Got it. Thanks a lot. Thank you. The next question today comes from Philip Ng from Jefferies. Please go ahead. Your line is now open. Hey, guys. I guess if demand does soften a bit, what are some of the levers that you guys are talking about in the contingency plan, perhaps for next year? When we think about decremental margins, in that softer demand environment, how should we think about that, John? Do you anticipate pricing holding in that environment? You know, Phil, as you think about our contingency plans, they take in a couple of different, you know, flavors, right? I mean, depending on the extent of the softening of demand, some things you do is simple belt tightening. You pull back on open headcount requests. You pull back on advertising, travel, and entertainment, things like that. If the decline is more persistent and deeper and longer than you expect, then you have to look at the structural aspects of the business. You know, you have to take out headcount, reduce shifts, things like that. We'll see how this plays out. You know, in terms of our decremental margins, you know, they should be fairly consistent with our incremental margins, which are kind of in that 25% to30% range. We may not have that perfect alignment there. You know, the first quarter of a decline, you can't always get the cost out as quickly as volumes decline, but we're gonna try to marry those up as best we can. The one thing that may be helpful as we go into, you know, if there is a recession, you know, typically input costs decline, so that could be a little bit of an offset to some of those decremental margins. You know, that's the way we think about it. Keith, I don't know if there's anything else you'd like to add. Yeah, I talked about the fixed and variable component of the cost plans that we have in place, and it really depends on the demand. I think we hit on that pretty good. Cool. In pricing in that environment? Pricing in that environment, you know, I think, you know, it depends again on what we're seeing in the marketplace. You know, if in the rare instance in a recession, if commodities were to inflate, we'd have to push through pricing. You know, we do have, you know, by segment it varies. We typically don't give back a lot of pricing in on the paint and the plumbing side of our business. Obviously, if there was deflation in inputs, we've got that, the cost recovery on an inflationary reverses itself in that environment. Actually that's when you start to see margins expand in our Decorative Architectural segment. Gotcha. That's really helpful. On plumbing, if I heard you correctly, Keith, it sounded like China was still quite strong. Certainly that part of the world is seeing a lot of COVID lockdowns. I've been impressed that it's held up so well. Any color on how you're kind of managing through that and how you're thinking about that business in the back half? Yeah, I think you nailed it. That was real solid performance for us in China, particularly given the shutdown period that was there in the quarter. I think it really gets back to a combination of three things. We're executing very well. The team there has been a real nice bright spot for us. Good folks there that are focused on growth, no matter what is thrown at them. The shutdown was significant. Secondly, we are focused on the higher end segment, and we believe we're the share leader in that premium segment. That tends to have less volatility and I think more consistency. Thirdly, when you look at where we're selling to in terms of end use, it's primarily, and as John mentioned, into project business or in hotels or in multifamily, et cetera, which has the ability to jump right back, you know, after that shutdown, more so than, say, if we were into the lower price point that depended more on retail traffic. Those three things combined have really come together to give us a very nice story in China. Okay. Super. Thank you. Thank you. The next question today comes from the line of Garik Shmois from Loop Capital. Please go ahead. Your line is now open. Hi. Thanks for taking my question. Higher level question from me. Just want to unpack the comment that the DIY paint volumes are coming back down to 2019 levels. I'm just wondering if you're thinking at this point that 2019 is the right baseline for that business. You know, just given, you know, on one hand you've got strong demographic trends, but on the other hand, you had a big surge in DIY demand during the pandemic. Just a little bit higher level on just kind of what the right baseline could be for that business. Yeah, I think that's exactly how we're thinking about it. You know, we had tremendous DIY demand as the pandemic hit and folks put more of a focus on their home and had more time. We've seen some shift as the pandemic restrictions lessened with a move towards pro, and we're very happy with how our pro business has been able to take advantage of that with respect to capacity and supply chain performance. A lso keep that as it relates to quality and service and having a good value proposition for the pros and the stickiness of that share that we gained. When we look going forward with the millennials coming in and forming houses, and we know that they're DIYers for multiple projects based on our research, not just one and done, so to speak. I think that's a very you know the impact of COVID as it relates to how those DIYers view their home and invest in their home, and the equity that they've developed in their home and their savings accounts, that we think for the next couple of years for sure that the DIY volume is gonna have some nice tailwinds because of those structural factors. Yes, we're looking at kind of the you know great growth during the pandemic. We've come back now to, let's say, a 2019 level in terms of volume, and we see this as the jump off point for further growth in DIY. Great. That's helpful. Wanted to follow up on capital allocation. I guess I'll take that question. You're focused on paying off the term loan. In the second half of the year, so you'll pause on repurchases. You know, what does that mean for M&A moving forward? Does that take a pause as well, just given the debt pay down that's coming in? No, no, here, I mean, we're continuing to look at M&A. You know, we continue to have our teams cultivate potential acquisition candidates. As you might expect in this environment where things get a little choppy, you know, there are fewer candidates for sale. That said, you know, our balance sheet is set up. I mean, we are in a position to execute on strategic M&A if the right candidates were to emerge in this environment. Understood. Thanks for the help. Thank you. The next question today comes from the line of Kenneth Zener from KeyBanc Capital Markets. Please go ahead. Your line is now open. Good morning. Hey, Ken. Good morning. Good morning. Make sure we're on the same page. Look, I don't want to get into, you know, on pace. There's two questions I have. If you're talking about, I think it was DIY 21 versus 19, could you just maybe say, if that's accurate, is that your total paid volumes? And then, could you maybe just level set like, you know, how you're thinking about that same comment, you know, first half of this year versus second half, just so we can see kind of how that seasonality and all this COVID stuff is working through, if you have that. I think the bigger question I'm gonna ask is, you know, are you sure it's not a yin or yang situation because there's a lot of small regional competitors, in my view, that are ceding share. Can you really kind of maybe talk about where you are today versus 2019 and, you know, your Pro initiative, it doesn't have to be coming from Sherwin-Williams. You know, there's a bunch of private, smaller regional companies that are, you know, ceding that share. Can you maybe just give us a little context around that? Because obviously, as you guys had raw material availability, you gained share because people came, and now they're staying with you. I think sometimes the dialogue is just between two data points rather than the broader picture, please. Thank you. You know, we're focused on our business and on the targeted customers that we have where our value proposition works the best as part of our partnership with the Home Depot. You know, it's challenging, as I've consistently talked about in terms of quarter to quarter market size determination with any kind of accuracy. But when you look at our growth rates, particularly with Pro, there's no question that we're gaining share in Pro. We've done it now for two, three quarters in a row and demonstrated, I think, some stickiness. With regards to competition, we have very strong competition in our in that segment. I think it makes us better, very respectful of them. With regards to where our volume is coming from, I really don't have an answer for that. You know, we know we're outgrowing the market, we're gaining share. You're exactly right. There's regional competitors throughout the country. But we're really focused on how we can best serve our customer. While we understand market sizing is difficult on a quarter-to-quarter basis, I think it's pretty clear we're gaining share and feel good about the business now. Moving forward, the structural aspects of DIY that we talked about, the fact that we are relatively low share in Pro and we're demonstrating the ability to grow together with our channel partners. That's how we view it. Thank you. Thank you. The next question today comes from the line of Rafe Jadrosich from Bank of America. Please go ahead, your line is now open. Hi. Good morning. Thanks for taking my question. First, as you look at your CapEx investments for 2022, are you adjusting any of your capacity expansion plans to reflect the moderating demand or changing macro environment? No. We've—when you look at the major projects we have and where they're focused, say, European plumbing business, our spa business, these are investments that will start to begin to ramp up in 2023 and won't reach full capacity till after that. While we're certainly aware and are keenly watching what's happening in the short term here as it relates to a potential slowdown or a pullback, and we have contingency plans in place that we talked about, and we have an experience base in our leadership team that has operated in this environment several times. We're confident in that, but we're also confident in the fundamentals of our low-ticket DIY repair and remodel and the pro aspect of our business for the long term. It has strong fundamentals, and strong correlations to what we think are positive tailwinds. No, we're not going to pull back on these important capacity increases for us because of where they are, what business they're in, what geography they're in, the confidence we have overall in the long term of our business. No change to that. Rafe, the only thing I would add to Keith's good comments is that, you know, we generate, you know, we're a high cash flow generating company, and the, you know, the amount of dollars that we allocate to CapEx is relatively light compared to our free cash flow. We have the free cash flow to fund these without really pulling back on any other investments that we need to make across the business. Most cases where we look at this capital, they're stepwise, where we can begin to capacitize, say the new factory with various amounts of equipment and staffing. It's not an all or nothing thing as it relates to the total investment. We have no plans right now to fall back on our capacity, CapEx rather. Okay. That makes sense. Then the guidance implies an improvement in the plumbing margins, I think in the second half of the year versus the first half. Can you just maybe help us understand how much of that is lower inflation from the metal side versus additional price realization or additional price hikes that you've announced in the first half of the year? Yeah. Rafe, you know, it is. I think about it, you know, the improvement, you know, the back half of the year in plumbing is gonna be, you know, third quarter, you know, margins. My guess would be very similar to second quarter's, and fourth quarter will improve significantly compared to fourth quarter of last year. You know, I think the fundamental difference is the improvement in performance in the fourth quarter, you know, relative to the fourth quarter of last year. You know, the pricing, the improvement in commodity position really will not be much of an impact in the back half of the year. That's really gonna be a 2023 event, just given the length of our supply chains and the fact that it takes about two quarters for that benefit to flow through and hit our P&L. Okay. That's really helpful. Thank you. Thank you. Our final question today comes from the line of Michael Rehaut from JP Morgan. Please go ahead. Your line is now open. Hi. Good morning, guys. The... I think. You know, when we think about it in terms of pricing, we have, we're seeing, as John mentioned in an earlier question, we are seeing some pullbacks, say, in brass and the copper and zinc and that sort of thing, but we're also seeing some pressure in other spots of the business, TiO2 specialty chemicals in our paint business. We are still very attuned to the relationship to the commodity, inbound pricing and the pricing that we need to have for our customers, and we're staying keenly aware of that. Where the supply chain has frankly is a little tougher than we had expected this quarter when we were sitting here a quarter ago thinking about it, is in terms of labor costs and freight costs. Importantly, beyond the cost of it's really the availability of those two aspects, you know, of our input. When you have freight that is less predictable, the delivery times, as I think we're all seeing even our personal lives, where the delivery times of inbound product is not as reliable, the fill rates, the lead times are more challenged. That puts a challenge to the rhythm of manufacturing and to the rhythm of our supply chain. We did see that in plumbing this past quarter. I think that's really what I would highlight that has changed. Thank you, guys. Good luck. Thanks. Thank you. This concludes today's Masco Corporation Second Quarter 2022 conference call. Thank you all for your participation. You may now disconnect your lines.