Earnings Guidance Amid DIY Paint Decline
Q: Can you maintain earnings guidance despite DIY paint softness?
A: Management is confident in meeting their earnings guidance even if sales are at the lower end of expectations due to cost-saving initiatives and operational efficiencies. They have tempered their sales outlook but still expect to achieve margin expansion through sustainable productivity enhancements and cautious SG&A spending. They have maintained the midpoint of their EPS guidance range and believe they can deliver improved margins regardless of sales variations.

Margin Outlook and Cost-Saving Initiatives
Q: How are cost-saving initiatives supporting margin expansion?
A: The company has implemented numerous cost-saving measures across operations, including productivity enhancements, shift optimization, and efficiency improvements in manufacturing plants. These initiatives are considered sticky and sustainable, contributing to higher margins even in a volatile market. Management emphasizes that they are not relying on uncertain future events but on executed and ongoing operational improvements to achieve margin targets.

Adjustments for Potential Tariff Changes
Q: How will you handle abrupt changes in tariff policy?
A: Masco has reduced tariff exposure by approximately 30% through alternative sourcing strategies and plans to execute a proven playbook if tariffs increase. Management believes they can navigate potential tariff impacts more effectively and swiftly based on past experience, having maintained margins above pre-pandemic levels despite previous tariff challenges.

Strong Performance in Plumbing Segment
Q: What's driving growth in the Plumbing segment?
A: Growth in the Plumbing segment is driven by stabilization of demand both internationally and in North America, with signs of recovery in key international markets like Germany and China. The company is gaining market share, particularly with their Hansgrohe brand in Europe. Product innovation, influencer advocacy, and the successful integration of the Sauna360 acquisition are also contributing to the positive trends.

Capital Allocation and M&A Pipeline
Q: What's the outlook for M&A activity and capital allocation?
A: While the M&A pipeline remains consistent, activity is somewhat quiet due to interest rates and valuation expectations. Masco continues to focus on paint and plumbing businesses that can leverage their strengths, seeking opportunities similar to the Sauna360 acquisition. They remain committed to their capital allocation strategy of $600 million towards share repurchases or bolt-on M&A.

Sensitivity of EPS Guidance to Top Line
Q: Is EPS guidance sensitive to lower sales volumes?
A: Management believes they can achieve their EPS guidance even if sales come in at the lower end of the range. This confidence is based on their ability to manage margins through operational efficiencies and cost control measures, which are expected to offset potential sales shortfalls.

DIY Paint Volumes vs. Pre-COVID Levels
Q: How do current DIY paint volumes compare to pre-COVID levels?
A: DIY paint volumes are currently below pre-pandemic levels, while pro paint volumes are above. Overall, the company's volumes are relatively consistent with pre-pandemic levels when considering that pro growth has offset DIY declines. Management sees the current situation as a deferral of demand and expects improvement when the market normalizes.

Pricing and Commodity Costs in Plumbing
Q: How are commodity costs affecting pricing in Plumbing?
A: The company is experiencing some commodity inflation, particularly in metals like copper and zinc. In response, they are implementing low single-digit price increases in the Plumbing segment to offset these costs. Despite the headwinds, they expect margin expansion due to operational efficiencies and effective cost management.

DIY Paint Market Share and Performance
Q: Is DIY paint performance tracking industry trends?
A: Management believes they are holding market share in DIY paint, performing in line with the industry. They attribute this to their strong partnership with The Home Depot and the strength of the Behr brand, which is highly regarded for quality and brand equity. They remain confident in their position and are prepared for when DIY demand returns.

Impact of Existing Home Sales Slowdown
Q: How does the slowdown in existing home sales affect you?
A: While increased existing home sales are beneficial, the impact on Masco's business is minimal due to the large base of 130 million existing homes compared to the 4 million annual sales. The company's focus on small-ticket repair and remodel products provides resilience, and they are not significantly affected by fluctuations in existing home turnover.