Home building and building products. Really pleased to have John Sznewajs here, CFO of Masco Corporation. Before we get into the questions, you know, John's gonna give kind of an opening overview of Masco for those that are newer to the story. Before we even get to that, we're gonna do our audience response questions, so I'll try to run through those quickly. Always interesting to see. Number 1 for this audience, do you currently own Masco? Overweight, market weight, underweight, or no? Share the data. Is it real-time? It's gonna come right here. Oh, four seconds. Look at that. Let's see. See, do I have a friendly crowd? All right, we have an audience of new investors. All right. Next question, please. Your general bias towards Masco right now, positive, negative, or neutral? Not allowed to answer. Hit one. Can I influence? All right. We're leaning neutral. A little more leaning negative, I guess. Okay. Next question, please. Through cycle EPS growth for Masco will be above, in line, or below peers in your opinion. Generally in line with or below peers for this audience. All right, next question. In your opinion, what should Masco do with excess cash? Bolt-on, larger M&A, share repo, dividends, debt pay down, or internal investment? Okay, we have a mix, but no one thinks larger M&A. That may be the answer. Next question. What multiple of 23 earnings should Masco trade? Below 10 or above 21 and everything in between. Weighted towards 13-15. All right, next question, please. The most significant share price headwind to Masco today, growth, margins, capital deployment, or execution/strategy. Growth and margins. Mm-hmm. Simple. Okay. I believe the next one's the last question. Does ESG play an active role in your decision regarding Masco? Yes, positive? Yes, negative? No? No, but will in the future? At the moment, no- No. For this audience. Okay. With that, John, thank you for being here. Great. happy to let you give the elevator pitch on Masco here for those less familiar. Yeah. Thanks, Matthew. Good afternoon, everyone. Because we have an audience that largely does not own the shares, I thought maybe it does make sense to do just a quick overview of who we are and what we're all about. Masco is a, one of the leading building products manufacturers here serving the North American and international markets. The two product categories that we serve are the plumbing market, and we're one of the largest players in the plumbing market here domestically. We have brands like Delta Faucet here domestically. Our international brand is Hansgrohe. Our, you know, our revenues on the plumbing side of our business, I call it roughly $5 billion, just north of $5 billion. The second product category then we're in is we call decorative architectural. Largely that's paint. We manufacture the Behr brand of paint that's sold through The Home Depot. We've had great exposure there over the years. Great DIY business historically over the last decade or so. We really worked in partnership with The Home Depot to create a pro brand, and we've grown that from effectively zero, call it a decade, just over a decade ago, to something now that finished out 2022 just north of $900 million on revenue. Great growth in partnership with The Home Depot with this pro paint initiative that both of us are driving. If you think about what distinguishes Masco from a lot of our peers, I'd say it's two or three things. The one, if you look across our portfolio, I think we have perhaps the best portfolio of brands in the industry with Delta domestically, Hansgrohe, and Behr. We've got a variety of sub-brands that appear, appeal to pro contractors. That's really important. The second thing that we do to support those brands is we drive a lot of innovation. Innovation accounts for roughly 30% of our sales or accounted for roughly 30% of our sales in 2022, which means we're churning or introducing products on a very regular cadence, which drives footsteps, whether it's to websites, on behalf of our channel partners, to our channel partners' retail outlets or to some of our local dealers and distributors that we sell products through. I'd say the third thing that distinguishes us from the competition is the amount of cash flow that we generate. Typically, in a normal year, we have a 100% free cash flow conversion. We deploy a lot of that free cash flow back to shareholders through share repurchases and/or dividends. We've been paying out a very consistent dividend at a 30% payout ratio. The balance sheet, it goes to share repurchases. In the last couple of years, we've done over $1 billion back to shareholders through share repurchases and dividends. Very active program. We are selectively then also adding on to our very strong businesses through high quality, small bolt-on M&A opportunities that appeal to us and to our customers through product line adjacencies or channel adjacencies. It's, you know, we're really pleased with how the portfolio is shaped today, the cash that we generate and then how we deploy that capital. Matt, you know, I think that, you know, that's a good high level view of who we are and what we look like. Wonderful. Over to you for some Q&A. Okay. maybe we'll just kinda start with sort of the, you know, news hot off the press, your guidance. you know, maybe we'll focus on the repair and remodel market, given that's Masco's bread and butter. you know, you had The Home Depot out yesterday talking to flat comps, you know, maybe kind of a low market decline in volumes this year. You had your peers down in Chicago talking about kind of mid-single-digit market declines. You had Masco guiding to a low double-digit market decline on repair and remodel. Very simple question is kind of what are you guys seeing out there and, you know, how did you kind of, you know, come up with the underpinnings of that guide? As we were looking at the market as we were, you know, finishing up the fourth quarter and then also beginning the first quarter. It's just taking a look at the dynamic that we were facing and what the broader economy is facing with the, you know, higher interest rates, how it's impacting the consumer. Taking a look at the very specific aspects of some of our business. You know, we felt the high single-digit, I'm sorry, the low double-digit decline in the R&R market, broadly speaking, was the right call. If you look at the composition of our portfolio, you know, we called our paint business down, call it, you know, high single digits for our DIY paint, mid-single digits for our pro paint initiative. That said, you know, we've got some other components of the business on the plumbing side that we're gonna feel a little bit more pressure. Specifically, we have a hot tub or a spa business that's in the portfolio that's about 15% of our plumbing segment revenue that we believe will decline more than the guide that we gave for the market. That's just because it's a high-ticket item, highly discretionary, and as consumers pulling back on discretionary spending, we think that one's gonna get impacted. That's driving. Then we looked at other aspects of what's going on in the broader economy to get us to our low double-digit decline. You know, that said, you know, we will have a little bit of pricing to offset that market decline. you know, thinking about our business, we're guiding, we'll call it down roughly 10% for Masco. Got it. Okay, that's helpful. Sort of the overall market decline, but it's still, if I'm hearing you correctly, kind of weighted towards your exposures within that. That's right. You know, if you think about the competitors that have come out, you know, everyone's got a little bit different view of the market. I would tell you, I've been with the company for a long time. This is, you know, a fairly challenging environment to forecast. Right. you know, going to the, to the plumbing business, as you mentioned, you know, spa and sort of the impact there. I think you guided plumbing down 10%-14%- Yep. this year. You know, I guess it'd be helpful if you can kinda outline just where was spa, you know, three years ago, right? What could that impact kinda look like this year and sorta just, you know, how that's kind of playing into the 10%-14%. Yeah, sure. You know, going into the pandemic, it was a nice solid piece of our plumbing business, but we've seen enormous growth in that business during the course of the pandemic. You know, through the last 3 years, we've seen 50%, you know, growth in that business. I mean, just enormous comps that we've been facing. You know, as we think about the consumer cooling off, it's natural when you see that kind of outsized growth, that kind of reverts a little bit more to the mean. We'll see that pull back. Now, we still think it'll be above 2019 levels here in 2023, but still down, you know, down comparatively from 2022, which was a record year for that business. Right. ultimately, I mean, you're implying it will be down sort of more than the 10%-14%. That's correct. basically. Okay. Got it. I'm kinda stick on the same topics on plumbing top line. You've obviously got a big international business there with Hansgrohe split between, you know, Europe and, you know, really the rest of the world. I think you got it to down high single digits. That's right. For your international expectations. Kinda how's that, you know, breaking out between Europe and rest of the world and, you know, just as have you started to see that already or is it still an expectation that, you know, will kinda soften further? Yeah, I would tell you, Matthew, that, you know, our international plumbing business has been a bit of a positive surprise for us. You know, going into 2022 even, we thought there would be more softness in that business, that business has really held up well. Maybe just to give you a little bit of a profile of what Hansgrohe is all about. To Matthew's point here, our core business is headquartered in Germany. We've got stronger sales in Central Europe. That said, Hansgrohe also sells into 140 markets around the world. It's one that's our first and only truly global brand that we have. With that, you know, they saw good growth in China last year, good growth in India last year in a lot of the peripheral markets that it sells into. Quite honestly, Central Europe held in there better than we anticipated, in 2022. Some of that's, you know, due to the innovation that Hansgrohe brings in. They put out a lot of innovation into the market on an annual basis. Part of that's due to there's some competitive dynamics where they've outperformed some of their competition and were able to gain share in what was a tough market in Central Europe. You know, as we roll the tape forward into 2023, as we look at, you know, the world and how it's shaping up, you know, we do, you know, still think the market will be down high single digits, as you mentioned. That said, we do think Hansgrohe will outperform that, you know, because of the performance that they put up in China last year and the strength that they're seeing in some of these other markets, as well as the fact that the markets in Central Europe for them still remain favorable. The dynamics look like they can continue to pick up a little bit of share there this year. We think Hansgrohe will do well this year. Got it. You mentioned that there's kind of a positive price offset to the overall guide. I'm sticking with plumbing. I know, you know, we've seen publicly that Delta had a price increase out for April. How are you thinking about, you know, carryover price versus kind of incremental price within that, you know, 10%-14% plumbing guide this year? Yeah. Certainly, to your point, we do have some carryover price from actions that we initiated last year, and that's probably gonna be the majority of the pricing that we've enjoyed this year. That said, there will be some select pricing actions. A couple of our businesses, Hansgrohe's gone out with pricing already earlier this year. That's they would do this so traditionally. They typically go to market with price in the first quarter. To your point, Delta is going out selectively with price, you know, early in the first part of this year. By the time that that gets rolled in, you know, it will be. While it'll impact this year, the bigger component of the pricing impact this year will be from the carryover aspect. Got it. some of that should continue to carry into 2024. Correct. effectively. Okay. Yeah. Okay, that's helpful. As I stick with plumbing and jump down to the margin side, I think if I do the back of the envelope, the margin guide suggested sort of a mid-teens decremental margin. You know, not as harsh as what you're guiding to the whole business. You know, what are some of the things you're doing to kind of manage that, you know, decremental margin in 2023? You typically, what you would see on, you know, lower volumes from us is, you know, we've got high contribution margins across our business. Your company-wide average for contribution margin is roughly 30%. You expect that amount to hit the P&L, given the volume declines that we're kind of foreshadowing. The offsets there are really, you know, two things, Matthew. One is the carryover pricing that we talked about just a couple of minutes ago. That helps mitigate the impact of some of the volume decline. The other thing that's gonna help us in 2023 is the fact that we had some supply chain issues and operational issues in some of our facilities in 2022 that we've gotten on top of and will really be in the rearview mirror by the end of the first quarter here. With the absence of those headwinds and our plants back operating like the way we want them to be operating, you know, that will create some tailwind and also mitigate the impact of the lower volumes this year. Got it. Okay. That's helpful. I think, you know, when you talk about the cadence of the year, I think you guided to Q1 sales and I believe in dollar terms sort of similar to what we saw in Q4. You know, kinda as we think about the cadence of the year beyond Q1, you know, is the assumption that this is, you know, the larger declines are more front half weighted or, you know, or is it kinda evenly spread? Maybe sticking with the plumbing segment for now we've been talking about. Is it kinda evenly spread through the year or maybe kinda, you know, lessen in terms of declines in the back half? Yeah, I'd say, you know, it will follow the cadence of our comps. There'll be some pretty good comps. Yeah. in the first quarter of last year that we're up against, both on the paint side and the plumbing side of the business. as you think about, as we think about the business going through the course of the year and the cadence that develops, you know, as the comps get easier through the course of the year, the performance should get better, both from a top-line perspective, be less of a negative. we also think that starting in Q2, on a year-over-year basis, margins should improve each quarter as we roll through the year. Got it. Okay. That's helpful. We'll jump to Decorative. As you mentioned, on the paint side, you know, you're talking the DIY market down high singles, pro down mid-singles. I guess just a very easy question, is that a market comment, or how does Masco growth compare to that? Yeah, that's a market comment, and we do think we can outperform the market in that environment. Okay. Matthew, just given the strength of our brand, given our strength of the relationship with Home Depot and given, you know, Home Depot's performance. Obviously, they put out their guide last yesterday and, you know, we think we can. Between us and that partnership, we can outperform the market. Right. Understood. You know, you're making a lot of investments, it sounds like, on the pro side this year still. You know, I think about a few years ago where, you know, you were really ramping up the program, right? You're now $900 million. You're you know, adding in all these reps and stores. What's kind of the next leg of these investments you wanna make behind Pro with The Home Depot and kind of, you know, where do you see that evolving? Sure. You know, like I said, it's been a great run with this Pro initiative that we've been driving with in conjunction with them. Like you said, $900 million in revenue. That said, that's still only about 10% market share in the, in the Pro segment of the market. There's still, we think, a lot of runway in Pro. The investment that we're gonna make over the next several years will continue to be in a couple of products. The one is to continue to add additional headcount in terms of sales force, both, you know, external sales force, so people in the field calling up contractors to drive them into Home Depot. Also we're gonna continue our plan, having our employees inside The Home Depot stores to work with the pro contractors when they get in the store to get them in and out of the store quickly and onto the job site. You know, that's the first thing that we're investing in. The second thing we're gonna be investing in this year is a loyalty program. You know, The Home Depot talked a little bit about this on their call yesterday. We'll be a participant and a supporter of that, so we're gonna make some investments to support that, to make sure we've gained a lot of share over the course of the last several years. We wanna make sure that share gain that we have is sticky, and we continue that share. The third thing is gonna be kind of more programmatic. You know, there are some things that we've done over the course of the last couple of years that we've tested, and we wanna just continue to test the things that are important to the pro, things like job site delivery, that we've initially done a couple of markets in 2022, and we'd like to expand that program to more markets as we roll into 2023 and beyond. On that point, you know, the share gain you've made with pro and especially over the past year, you know, you just said, hey, look, you know, between improving the pros customer experience at the home centers and the loyalty program, I mean, that's kinda meant to hang on to some of that share gain. I guess, sort of what are you seeing down at the field level? Are there just some pros that, you know what, they're just gonna go back no matter what? How do you think about that kind of ability to, you know, really stick what you, what you gain? You know, I think it's quicker than we than what we've expected. The best thing that happened over the course of last year is that we had a lot of new pro painters trying Behr paint. What they learned is they like the experience. Based on that, you know, very few painters have 100% share of wall annual one paint supplier. Really what we're fighting for is our own share of that share of wallet with that pro contractor. By getting them the experience, by getting them in partnership, you know, into The Home Depot. A lot of these pro contractors are not just painting, but they're also doing small repairs in the house. It's a very convenient place for the pro to shop. Not only can they get their paint and the paint sundries, but they can get their wallboard 2x4s, whatever else they need to complete the job. It's, you know, I think the program is working like we expected in getting these new contractors into the stores has been a real success, and we think we can hold on to a lot of that share that we gained. Got it. Jumping down to the margin side in Decorative, I mean, I think the guide was for 16% this year. That's right. I mean, you know, the segment historically have been high teens, even above 20 at various points, slightly different mix. Just, you know, I guess it's implying kind of a 40% decremental, again, back of the envelope. You know, what are some of the puts and takes there? You know, you have this mid-high single-digit decline in the end markets of pro and DIY, and just, you know, how do you think about the ability to kind of, you know, get margins back to where they used to be in that segment? Yeah. There's a couple things that are impacting the decrementals this year that, you know, guide you to. One is obviously the volume decline. The other two factors that weigh into it are, one, the investment we just talked about into the pro. Despite the fact we're seeing declining volumes, we wanna make sure that we continue to invest in this program 'cause we want to exit whatever this downturn looks like in a stronger position than when we entered it. That's why we think this investment's important. The third piece of it, a bit of a nuanced piece in the cost recovery aspect of our relationship with our channel partner. That is, you know, if you consider when we put through pricing, we get the cost recovery on the inflation. I'll give you an example. If we put through a 10% price increase into our paint business, it causes the segment margins to decline by 180 basis points because we're just recovering the cost of that inflation, not the margin on that inflation. Given the fact that we've got some carryover pricing happening in the Decorative Architectural segment, that's gonna weigh on the decrementals again in this segment. Got it. Okay. That was gonna be my question. It's mainly carryover pricing, and that's kind of therefore in the guide. Yeah. I mean, what are you then seeing on the sort of underlying raw materials for paint and, you know, what might that mean for price and cost in the segment? Yeah. To this point, we've not seen much movement in pricing in the, in the inputs to paint. Things have been kind of sticky where they're at. We haven't seen any material move down at all, nor are we seeing any, you know, any incremental inflation in vehicles. It's been pretty stable at this point. Okay. Got it. I should have asked that question for plumbing. We can talk about that. Yeah. For brass and plumbing. Yeah. Brass and plumbing have come down a little bit. We do think that we'll see some, you know, some modest, perhaps low single digit deflation in plumbing this year. As you've seen, the two big inputs for our plumbing business are copper and zinc. We've seen those come off the second quarter in 2022 highs, even though it's ticked up a little bit here in the first part of 2023. You know, we still think there'll be, you know, some modest deflation. Okay. There's some modest. It's a small benefit. Yeah. effectively. Okay. Got it. We'll come back to paint. I mean, like thinking of what The Home Depot said yesterday, you know, they're investing a lot, right? They're investing in associates. How do you think about when you see a customer, you know, making a lot of investments in a, in a challenging market environment like this, do you think of it as, does it come back to Masco? Does it come back on them sort of pressuring suppliers in any way? You know, to this point, we've not seen as the investment that they're making. You know, what we know is we have to be in the best position to serve our customer no matter what their strategies are. We are taking our foot off the pedal on things like innovation. You know, we're continuing to invest in innovation. We're continuing to invest in service, you know, with our businesses to make sure that we can meet our customers' timelines for deliveries and the like. We're continuing to invest in people. We actually, as you know, we continue to invest in capacity. In the case of our paint business, for instance, we're putting up a plant in Ohio to ensure that we're in a position to best serve our The Home Depot and our customer base. Got it. With a couple minutes to go before I continue with the full room, does anyone wanna ask John a question in the audience? Okay, I will continue then. How are you thinking about sort of customer inventory positions across, you know, plumbing, distribution and, you know, paint retail and so, you know, does it feel like destocking may continue or you're kinda close to the end of that? Yeah, we think we're close to the end. We didn't see much destocking actually, quite honestly. Right. In the fourth quarter of 2022. We think, you know, the inventory positions both at the retail and to our wholesale customers are in good positions. Sell through is approximately equal to sell in, so it's, you know, we're not seeing anything in our product categories. As you know, we manage our, particularly in the paint side of the business, we manage those inventories very closely based on the seasonality of that business. Yep. Got it. Kind of a higher level question. You know, you've got the annual 10% EPS growth guide. You know, I think Keith said on the call that, you know, the idea is paint should kinda get its margins back to where it was at some point. Mm-hmm. You know, what do you think it will take to kinda, you know, as part of that long-term growth guide, what do you think it will take for the paint profitability to kinda return to those prior levels? I think it's some of it's execution on our part. We gotta, you know, we gotta continue to serve well and get some of the, you know, productivity to our facilities. I think that's a big component of it. Just driving better execution, whether it's top line and/or bottom line, I think all of it is a part that's gonna get us there. Got it. On the capital deployment side, you know, you mentioned the targeted M&A in the right places, quality businesses. Obviously you've got the share repurchase program still out there. Kinda how are you thinking about, you know, where you wanna be from a leverage position and, you know, at what point to kinda, you know, hit the gas pedal again on either share repo or, you know, finding some M&A? Yeah, sure. You're right. The balance sheet's in great shape. You know, net debt-to-EBITDA is at 1.8 times at the end of the year. As we think about M&A, you know, we've got the firepower to use our balance sheet if we want to. If we have the right single acquisition or series of acquisitions were to come along, we can use the balance sheet to put additional leverage on that. That said, we do wanna maintain an investment-grade balance sheet. We would make sure that we keep our discipline around that. I use too much of our capital for M&A, but, you know, at this stage of the game, I'm not too concerned about, you know, us, you know, going that far out with the balance sheet. Got it. Okay. Well, with that, I should have mentioned at the top, John's on his victory lap, as a public company CFO. May second? May thirty-first. May 31st. Excuse me. Thank you, John, for coming on your victory lap here, and thanks everyone for joining today. Thank you. Thank you. Thank you, Matthew.