Hello, everyone, I'm Phil Ng, Jefferies Building Products Analyst. We're delighted to have Masco join us today at a dynamic environment in housing and R&R, more broadly. Representing the company is Rick Westenberg, CFO of the company. Rick, why don't you kick things off and just give us a little more perspective on Masco and what you're seeing? Sure. Thank you, Phil, and good morning, everybody. Really appreciate you joining this morning here in the room or those joining via webcast. Really excited to be here at the Jefferies Industrial Conference and talk a little bit about Masco. I'll just start with a couple of minute introduction and overview of Masco. Masco is approximately an $8 billion building products company in the repair and remodeling, or R&R, segment of the industry. We're focused primarily on R&R. About 90% of our sales are in the R&R space, with about 10% in the new construction area. We're organized in two distinct segments, one being plumbing, which is anchored by our Delta, Hansgrohe, and Watkins Wellness businesses. Delta is really our biggest North American plumbing business. Hansgrohe is really our international plumbing business, which with sales in over 150 countries around the world. Watkins Wellness is our spa and sauna business. Combined, our plumbing segment generated just under $5 billion of revenue in 2023 and generated 18% operating profit margins, and we've guided to 19% operating profit margins here in 2024. So continued margin - strong margins and expanding margins at that as well. Our second segment is our Decorative Architectural Products segment, which is anchored by our Behr brand and business, which is really focused on paint and coatings. It's really an industry leader, and particularly in the DIY, but also growing in the Pro space. We also have, in our Decorative Architectural Products segment, a couple of other businesses, a building hardware business, as well as a lighting business, and I'll touch upon that here at this time, because we, as you probably noticed or read, we announced earlier this week that we entered into an agreement to sell our lighting business, the Kichler Lighting business, and we can talk more about that, I'm sure, as we get into the fireside chat. The Decorative Architectural Products segment generated just over $3 billion of revenue in 2023, and generated 17.8% operating profit margins. We've guided to approximately 18% margins here in 2024. Again, very strong margins. Masco's portfolio businesses really share a common thread, and that is founded on industry-leading brands, products and innovative products, as well as service. And that's really the basis of what drives what we do at Masco, coupled with our execution, really looking to grow above market and expand margins, which we've done, and I'm sure we'll talk more about. The last thing I'll touch upon is our capital allocation framework. It's very consistent and disciplined. First and foremost, we reinvest in the business. We invest from a capital expenditures perspective, about 2%-2.5% of our top line into our business, and for 2024, we've guided to spend about $200 million. Second is a strong investment-grade credit rating. We are currently BBB or BBB equivalent, which is right where we want to be, and very strong balance sheet and cash flows of the business. Third is a relevant dividend. So we have a payout ratio of 30%, and we've increased our dividend eleven years in a row and running. And fourth is to return all available cash to shareholders through share buybacks, to the extent we don't have any M&A activity. And we've guided that we would anticipate having about $600 million to return to shareholders through share buybacks this year, and that is before the proceeds that we would receive as part of the Kichler sale, as I mentioned earlier. So that's a little bit of a summary of the business, as well as kind of our expectations for the year, and I know Phil will get into some more specifics as we join the fireside chat. Rick, this, the divestiture for Kichler was timely. Appreciate you doing it right before our conference, so we got something to talk about. More things to talk about, I mean. Why now? What was the strategic rationale for divesting? Now, I think more importantly, you guys have done a phenomenal job in pruning your portfolio into higher quality, consumer-facing products. You know, any avenues for you to kind of redeploy that capital for growth, whether it's a third leg or something larger out there? Sure, Phil. Yeah, as I mentioned, we announced the agreement earlier this week. We still are subject to customary closing conditions and regulatory approval. But, effectively, as you mentioned, we-- Masco's done, I think, a tremendous job with regards to honing its portfolio. We exited, cabinets and, windows and doors, a number of years ago, and that was really designed to reduce our exposure to the new construction part of the business and focus more and more on the repair and remodel segment of the industry, which is a lot less volatile, and as I mentioned earlier, we have about 90% of our sales in that space. As it pertains to Kichler in particular, it was a, The strategic rationale was really fit, and we felt that the business would have a lot more success and be able to focus on growth with a partner with an owner that has a more concerted focus on lighting, and that's Kingswood Capital is the buyer, and they own Progress Lighting. So they've got a growing portfolio with regards to the lighting segment. And we think it's really a win-win-win for all parties involved, including Masco, with regards to being able to continue to focus our capital and our assets towards our core businesses, which is plumbing, coatings, and wellness. And so that's really the strategic rationale and the focus. And so we're really excited about the transaction. You know, the why now? The team has done a tremendous job at Kichler in terms of restructuring the business, making some tough decisions in terms of exiting unprofitable or low-profit lines of business, taking price where appropriate and where possible, and particularly reducing costs. It really positioned the business to be in a position where it is today, to be an attractive asset for a new owner. What's the margin profile of Kichler? Is it kinda in the low teens EBITDA range? And once you exit that, hopefully by next year, does your segment get a nice bump from a margin standpoint? Yeah, so we don't disclose margin performance by business unit. It is part of the Decorative Architectural Products segment. And I guess what we do disclose, I'll share a couple of data points, is we do disclose the rough top-line size of the business, and that's 3% of our overall business. So 3% of $8 billion is the size of the business. Again, we don't talk about margin profile, but it is a margin that is below our decorative architectural product margin, which is about 18%. And so we would expect that to be...the transaction ultimately to be accretive to margins. It's pretty modest in terms of overall magnitude, and that's not really the strategic rationale for the transaction, but it will be helpful for margins, at least modestly going forward. In terms of growth, where do you see the best opportunities to kinda grow, whether it's organic or inorganic Yeah, I would say it's really a combination. Organic is really more of where we can control our investment. And as I mentioned before, or in terms of our capital allocation framework, we're focused first and foremost on reinvesting in the business, and that is to the tune of about 2%-2.5% of sales. And a big chunk of that goes into new product development and really focused on improving our technology, the design, style of our products. We've got a metric that we track very closely, which is called the Vitality Index, and that is measured as the percent of our revenue that is attributable to products that we've introduced, new products that we've introduced over the last three years. Our target is about 25%, and we've been consistently at that level over the last few years, and that's where we're focused. So there's some really great organic opportunities, both in terms of our core business as well as some adjacencies as well. So you know, just to name one in particular is the Delta Faucet Company business is currently launching a reverse osmosis water filtration system that is, we think, very consistent with the plumbing platform approach and very accretive to the business. Overall, our focus is again across our plumbing, coatings, and wellness businesses, and that's where we're gonna focus our investment organically as well as inorganic. And our inorganic strategy or approach is really to focus on bolt-on acquisitions. Acquisitions that are complementary and consistent with one of our three core platforms, that being plumbing, coatings, and wellness. We've had a couple of acquisitions over the last couple of years that I would reference as good examples of that. The Steamist transaction, which was a steam shower business that we acquired in early 2022, was a bolt-on to our Delta Faucet business. And about a year ago, we acquired Sauna360, which is a Finnish-based sauna company that bolted onto our Watkins Wellness business, and both of those have been very successful and very consistent with our approach going forward. So I think they're representative transactions. Super. Some of the big box retailers that have reported results fairly recently have talked about the consumer weakening, particularly big ticket, larger projects, and actually DIY as well. Any recent color in terms of point-of-sale trends? It felt like as you exited 2Q, plumbing in the U.S. felt like it was bottoming and maybe at a good spot to inflect, and Europe was stabilizing, so just give us a little color of what you're seeing out there and how your customers are managing inventory and their business. Sure. So how I describe it is what we often describe it in the current state is really a stabilization in the business, and that's really across most of our lines of business. And I would say although that isn't inflection to growth yet, it's progress relative to where we saw the market, let's say, 18 to 24 months ago. And really, for our business, a couple of data points that I'd reference is the first three quarters of 2023, we saw a decline in our top line of about 10%, so that was Q1 to Q3 of 2023. In the last nine months, or the last three quarters, stemming from Q4 of 2023 through our most recent quarter, Q2 of 2024, we've seen a decline in our top line of about 2%-3%, so real stabilization and consistency. And we saw some encouraging signs with regards to particularly our North America plumbing business in Q2, where actually volumes were up for the first time in a couple of years, and our Watkins Wellness business actually grew for the first time in a couple of years. Now, we aren't getting out ahead of ourselves. We are, our guidance or our expectations for the second half of the year is to be roughly flat, and that's in an environment where we see the North America R&R industry at flat to down low single digits, so we're seeing some stabilization. I would, you mentioned paint. With regards to paint, it's really a dichotomy there. DIY paint has been hit more significantly. As we all know, we had a significant pull forward of R&R activity, and particularly for us, the DIY paint business, coming out of COVID, and what we've experienced over the last 18 months or so is really a hangover from that pull forward, and that's really hit our business. That said, what we are seeing is growth in the Pro paint business, and that's really performed well. We've had significant growth over the last three years, and we continue to have growth this year. Year to date, it's up low single digits, and our guidance for the year is that we expect our Pro paint business to be up low single digits for the year, so that's encouraging, and what I would say is, probably overarching all of this, is the fundamentals of the business. As we look out here today, yes, we're going through a bit of a transition year. We expect things to be roughly flattish for the second half of this year, but ultimately we will return to growth, and the foundation, the core level of growth that we see in the R&R space is about 3%-5%, and that's underpinned by a few things. One is the increase in home equity value that we've seen over the last number of years and people's willingness to invest in their homes. Second is the age of the housing stock. Every year, the housing stock gets a year older, and we've seen a significant shift of homes into what is often termed as a primary remodeling age of twenty to forty years. We understand that there's about 1.7 million homes that will be entering the primary remodeling period over the next three years, and that really bodes well to the strong fundamental growth. So it's really, you know, as we look here, I know your question is more short term, Phil, but as we look here longer term, we're really excited about the prospects of the industry and how we're positioned to grow going forward. That's a perfect segue. You know, rates have come down, and hopefully we get some rate cuts in the not so distant future. Help us kinda think through what needs to happen for R& R to return back to growth and for Masco to kind of return back to that, you know, low to mid-single-digit range? What type of lag should we expect? Yeah, it's a good question. What I would say is obviously we've all been watching the interest rate environment very closely. We think that interest rates will obviously come down here gradually over the course of this year and into next year, and that will be a helpful tailwind to the business. As I alluded to before, the quote, unquote, "hangover" from the pull forward of the COVID spending is working its way through kind of the sector. And now we've really entered a period what we believe is deferral of spend. And that is partially driven based off of the higher interest rate environment. As the interest rates start to decline, and people get more comfortable with regards to stabilization interest rates and positive trends and affordability, they will reenter the market, the R&R space, and deploy some of that equity that they've built up over the last number of years. So we believe that it's not gonna be a hockey stick type of recovery, but we believe a gradual recovery, which trends towards the 3%-5% long-term growth rate. Which I think will be healthy for all players, but particularly ourselves, in terms of how we're positioned. Some of the companies that have been at our conference this week that have R & R exposure have talked about, you know, with that framework, maybe we get a recovery in the back half of next year, 2025, on R & R. Your business is a little different, right? It's smaller ticket, it's more consumer facing, and then even within paint, it's a little nuanced with DIY versus Pro. Right. Give us a little perspective on how you think the shape of recovery could look like, for your business? So it's difficult to have a crystal ball in terms of how things will recover. As I mentioned before, we do believe that the recovery is that our business will be roughly flat in the second half of the year. So again, more of that stabilization in terms of performance. As interest rates continue to come down and people that may be on the sidelines reenter the market from an R & R perspective and invest in their house, we'll see a gradual uptick in that business overall from an industry perspective, and again, for Masco. The way oftentimes I describe it, it's not a matter of if, but when, and knowing exactly when that is, is difficult to pinpoint. But we do believe that this year, 2024, is really a transition year, and as we move into twenty twenty-five, we'll see a return to growth, whether that's, you know, Q1, Q2, Q3. Tough to say exactly when that will pivot to growth. But again, the long-term fundamentals of the business are a strong gravitational force towards that 3%-5% growth. And we're very bullish longer term in terms of the business. What I would say in terms of particular segments of the business, the North America plumbing business, as I mentioned before, actually saw some signs of growth here in this past quarter, Q2, and so we're cautiously optimistic that that may bode a bit more strong as we get into the recovery period. Our international business may be a bit more lagged. They entered the downturn in terms of the R&R space later than the North America market, and we do expect that will take a bit longer to return to recovery. And paint, as I've talked about already, the DIY paint, we need to get first to stabilization, and then into growth. But we're, you know, with our industry leading with our very strong brand and strong market position, we're really well positioned for when the market does turn. And pro paint is a growth story and continues to be a growth story for Masco, and that is something that we're very bullish on with our partner, The Home Depot, with regards to continuing to grow that business. ... That's great. From a margin standpoint, you guys have managed a lot over the last, since COVID, whether it's inflation, tariffs, and this air pocket in housing, margins have been pretty awesome. Your longer term target, you're calling for another, call it one hundred, one hundred and fifty basis points, from here. What are some of the levers, you need to see to kinda drive that, and do you need to see growth kind of get back to that low- to mid-single digit range to kinda get there? Yeah, I think I'd start with a little bit of history as well in terms of our margin performance, because I think that'll set the stage for Masco's ability to deliver that margin expansion going forward. Historically, pre-pandemic, Masco's operating profit margins ran in the 15%-16.5% range. As recently as 2022, Masco had operating profit margins of about 15.5%, 15.6%. Currently, we generated 16.8% margins in 2023, and we're guiding to 17%-17.5% margins here in 2024. Really, a 150 basis point increase over the last couple of years, and that's in the face of a very challenged environment. That's really a testament to our team's ability to execute, and that's really manifested itself in terms of managing the inflationary headwinds that we encountered, as well as really leveraging our Masco Operating System to drive efficiencies, productivity, cost reductions, et cetera, to drive that margin expansion. The reason I mention that is because as we look forward, and as you mentioned, Phil, we've guided targets or communicated targets out there of 18.5% in 2026 for the Masco business, and that's another one hundred and fifty basis point expansion. That will be underpinned by continuing to execute across the businesses, as we have done here over the last couple of years. It will also be based off of growth, the return to growth that we've talked about over the next couple of years. And to put it in perspective, our incremental margins, or we often call it our drop-down margins of the business, is 25%-30%. So very accretive to our currently 17%-17.5% margins. And so leveraging the business and leveraging that growth is a key ingredient, but I'd say it's a combination of the two. Okay, that's great. Can you give us a little color what you're seeing on the inflation front? We've seen some movement on metal, ocean freight, shipping container prices, and all that. So just give us a little perspective and your ability kind of manage through that as we look out to 2025. Yeah. Import costs have been volatile. Obviously, we saw a significant inflation over the last couple of years, and we've been able to mitigate that through pricing and through cost efficiencies and productivity, as I mentioned before. What we saw is real stabilization in 2023, actually a deflationary environment for some of our import costs, and that's primarily copper, zinc, TiO2, and resin from our paint business, and we saw deflation in the second half of last year and really flattish for 2023. Unfortunately, we saw a return to an inflationary environment as we entered 2024. Particularly in Q2, copper hit record highs in Q2. Fortunately, we've seen a pullback in those input costs. It's also worth noting that logistics costs, notably ocean freight, has been elevated as well. Important to note, though, that given that the timing for procurement and our inventory turn, it's about a six-month lag between when we see those types of inflationary costs in the market and when it hits our P&L. So the benefit of that is it gives us time to react and calibrate the business. So we will, as we articulated in our Q2 earnings, we do expect to see a bit of a headwind later this year because of input costs. But importantly, we factor that into our guidance, and despite those inflationary costs, we do expect to increase margins in the second half of the year, primarily in the fourth quarter, as well as for the calendar year overall. So that's what I would say, but I... But in terms of going forward, we're seeing some stabilization, and we'll manage the business accordingly. What are the big levers? Is it gonna be continuous improvement, or will pricing be a lever as well? Yeah, it'll be a combination. So pricing is a lever. Obviously, we do that very judiciously with regards to a very disciplined price strategy, particularly in the plumbing business. And so, as we communicated in our second quarter earnings, we do expect our price-cost relationship in the year to be low single digits positive, so we've been able to price for that inflationary cost. Paint is a bit of a different dynamic because of our relationship with The Home Depot, where we are price-cost neutral, and so we manage our price with our partner accordingly. So price is certainly a lever, and that's something that we continually look at. Cost is obviously a really important lever, and as I've mentioned a couple of times, the team is really focused on productivity, efficiency, automation, the real levers to drive costs, not only just to offset input costs, but also to drive the margin expansion, as I mentioned earlier. Super. Rick, you were talking about a bolt-on you've done recently, a reverse osmosis filtration. It wasn't a bolt-on, it's inorganic. Inorganic. One of your competitors has been growing that business, so that water filtration, that whole home water business. Is that an area that you guys are thinking about on the digital water side of things? We're exploring different opportunities. I think one of our key focuses is water quality and purification, and so we are focused really on the local water filtration reverse osmosis solution that we're focused on, and we introduced that, and I think you saw that in Vegas during the KBIS show in February. So we're really excited about that, and that's, I think, really gonna be a start of a beachhead for us. Okay, super. Well, Rick, thank you for all your great insights. Really appreciate it.