Masco Corporation Q3 FY2025 earnings call

• Jon Nudi reflected on his first 100 days as CEO, emphasizing the strong foundation, industry-leading brands, and market leadership in segments like Delta Faucet, Hansgrohe, and Watkins Wellness.
• Third quarter results: net sales decreased 3% in local currency, operating profit was $312 million with a margin of 16.3%, and earnings per share was $0.97.
• Capital allocation: strong free cash flow, with $188 million returned to shareholders in the quarter, and expectation to deploy approximately $500 million towards share repurchases or acquisitions in 2025.

Plumbing: Sales increased 1% in local currency. North American plumbing sales rose 1% due to favorable pricing, with Delta Faucet performing strongly in e-commerce and trade; the relaunch of Newport Brass and new water filtration products are growth initiatives. International plumbing sales were in line with prior year in local currency except for a challenging China market. Operating profit for the segment was $204 million, with an operating margin of 16.4%. Decorative Architectural: Sales decreased 12% in the quarter (6% excluding Kichler divestiture). Paint sales were down low single digits, with DIY paint sales decreasing mid-single digits and PRO paint sales up low single digits. Operating profit for the segment was $128 million, and operating margin increased to 19.1%.

• Adjusted earnings per share for 2025 are expected to be in the range of $3.90 to $3.95 per share.
• Sales in 2025 are expected to decrease low single digits, impacted by the 2024 Kichler divestiture and tariffs.
• The annualized cost impact of all incremental tariffs enacted this year is estimated to be approximately $270 million before mitigation, with mitigation efforts expected to mostly offset the direct cost impact in 2025.

• Tariff uncertainties, including new tariffs on copper, antidumping duties on glass, and increases to global reciprocal tariffs.
• Industry softness, particularly in existing home sales affecting DIY paint performance.
• Inventory-related reserves and commodity cost pressures impacting margins.

Q: Steve from Evercore ISI asked about paint pricing and relationship with Home Depot.

A: Jon Nudi said they have a strong relationship with Home Depot, with price cost neutrality over time, and no significant pricing expected for paint in the coming year.

Q: Matthew Bouley from Barclays asked about plumbing margins and cost drivers.

A: Rick Westenberg said Q3 results were impacted by tariffs, industry softness, commodity inputs, and inventory-related reserves.

Q: Michael Rehaut from JPMorgan asked about plumbing margins and full year sales guidance.

A: Rick Westenberg explained Q3 margins were affected by new tariffs, industry softness, and inventory adjustments, and full year sales are expected to decrease low single digits due to industry softness.

Q: Michael Dahl from RBC Capital Markets asked about tariff details and paint margins.

A: Rick Westenberg clarified tariff breakdown and paint margin dynamics, including comp challenges in Q4.

Q: John Lovallo from UBS asked about employee costs and cost savings.

A: Rick Westenberg said there was no repeat of favorable employee costs from Q2, and cost savings are driven by leveraging Masco operating system and productivity measures.

Q: Trevor Allinson from Wolfe Research asked about plumbing input costs and DIY Paint outlook.

A: Rick Westenberg said Plumbing had low single-digit input cost inflation in Q3 and expects similar for the year; Jon Nudi discussed DIY Paint correlation with existing home sales and Behr's potential for growth.

Q: Susan Maklari from Goldman Sachs asked about Delta's strength and capital allocation.

A: Jon Nudi discussed Delta's growth in e-commerce and wholesale, and Rick Westenberg talked about increased capital allocation for share repurchases due to cash tax benefit.

Q: Margaret Grady from Jefferies asked about Plumbing pricing and DIY Paint.

A: Rick Westenberg said Plumbing pricing is a lever for mitigation, and Jon Nudi discussed DIY Paint correlation with existing home sales and Behr's innovation.

Q: Adam Baumgarten from Vertical Research Partners asked about builders hardware and China in Plumbing.

A: Rick Westenberg said builders hardware impact was Q3 specific and not significant for the year; Jon Nudi discussed China challenges in Plumbing.

Q: Keith Hughes from Truist asked about inventory reserves in Plumbing.

A: Rick Westenberg explained inventory reserves are noncash adjustments based on market conditions.

Q: Eric Bosshard from Cleveland Research asked about DIY Paint strategy and Delta's retail outlook.

A: Jon Nudi discussed DIY Paint messaging and brand innovation, and Delta's retail plans for 2026.

Q: Rafe Jadrosich from Bank of America asked about tariff timing and mitigation.

A: Rick Westenberg explained tariff impact cadence and mitigation efforts timeline.

Q: Collin Verron from Deutsche Bank asked about plumbing demand outlook.

A: Jon Nudi discussed long-term positive macro factors but uncertain timing of demand rebound.

Q: Anthony Pettinari from Citi asked about Plumbing brand performance and Watkins Wellness.

A: Jon Nudi talked about strong performance in upper premium/luxury brands and growth opportunities in Watkins Wellness.