Masco Stock

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2026 Earnings Call. As a reminder, today's conference call is being recorded for replay purposes. [Operator Instructions]

I will now hand the conference over to Renee Benedict, Vice President, Investor Relations and Corporate FP&A. Renee, please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2026 Third Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer.

Our third 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 cannot 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 will now turn the call over to Jon.

Thank you, Renee. Good morning, everyone, and thank you for joining us. We delivered strong third quarter results, reflecting the disciplined execution of our teams and the resilience of our business in the face of a challenging macroeconomic backdrop. Our strategy is clear: drive above-market growth by investing in our industry-leading brands, expanding our commercial capabilities and enhancing our operational excellence. This quarter, we made tangible progress across each of these priorities.

If you turn to Slide 5, I'll highlight a few examples of how we're advancing our strategy across the business. First, we rounded out our Executive Committee with the appointment of Brad Hiranaga, Masco's Chief Marketing Officer; and Yaron Ben David as Chief Technology and AI Officer. Together, they bring deep expertise, which will enhance our capabilities in two increasingly critical areas, advance our strategic priorities and further position Masco for long-term growth and success.

Second, I was honored to attend the Home Depot's 2026 supplier partnership meeting earlier this month, where Delta Faucet Company was named interconnected Partner of the Year, and BEHR Paint company was named Marketing Partner of the Year. These recognitions demonstrate the strength of our customer partnerships and our team's continued focus on delivering innovative solutions.

Lastly, Delta further reinforced its leadership position with two important brand distinctions. Based on 2025 U.S. dollar sales, Delta's #1 faucet brand in the U.S. In addition, a third-party survey ranked Delta the #1 go-to brand for professionals. This broad appeal among homeowners and trade professionals underscores the strength of the Delta brand. Collectively, these accomplishments demonstrate how we are continuing to strengthen our capabilities, deepen our customer partnerships and both on the leadership of our brands to drive long-term growth.

Now turning to our third quarter financial results. Please refer to Slide 6. Our net sales in the quarter increased 3%. In local currency, excluding the divestiture of the Bristan business, which we announced in July, sales increased 4%. Operating profit was $351 million, an increase of 13% over the prior year. Operating profit margin was 17.9%, an increase of 160 basis points, and earnings per share grew 23% during the quarter to $1.19 per share. We are very pleased with these results, which demonstrate the resilience of our business and our ability to execute in a dynamic external environment.

Turning to our segments. Plumbing Products sales increased 4% or 5% excluding the impact of our divestiture of Bristan and unfavorable currency. North American sales increased 8% in local currency led by our Delta business, which delivered strong growth in the third quarter. Recent product launches at Delta are gaining traction, including the new Bunacchi bath collection, which is performing well across both showroom and e-commerce channels.

Our premium and luxury brands also continue to perform well, supported by resilient demand at the higher end of the market. Across our Brizo Newport brass brands, we have earned 12 product design awards this year alone. And we're seeing encouraging progress from our continued digital investments, which are making it easier for customers to find, choose and install our products. Overall, this performance builds on solid year-to-date North America plumbing results with sales up 3%, reflecting the strength of our brands and innovative products and reinforcing our confidence in the long-term growth opportunity in this business.

Turning to international Plumbing. Sales decreased 5% in local currency or 1%, excluding the Bristan divestiture, reflecting lower sales against a difficult prior year comparison in some European markets as well as continued weakness in China. We remain confident in our core Hansgrohe international Plumbing business. And the strength of the brand, innovative products and geographic market opportunities, we feel good about the solid year-to-date performance with sales up 1% in local currency and excluding the divestiture. Operating profit for the Plumbing Products segment grew 25% to $256 million and operating margin expense at 320 basis points to 19.1%.

Turning to our Decorative Architectural segment. Sales were flat compared to the prior year. PRO paint delivered another quarter of strong mid-single-digit growth with more consumers turning to professionals for the painting projects, we believe Behr is well positioned to capture this opportunity through its combination of innovative, high-quality products, value and exceptional service. Our investments alongside the Home Depot continue to gain traction, and we are retaining existing PRO customers while attracting new professional painters to the Behr brand.

DIY paint sales decreased low single digits, largely in line with our expectations, given the continued softness in the market. Despite the near-term environment, we remain focused on strengthening the consumer experience and investing to make color selection easier and more engaging. This includes continuing to advance our AI-powered color selection tool along with recently launching a new marketing campaign, highlighting Behr paint as having the best quality at the best price. Together, these investments are further differentiating Behr and position the business to capitalize when market conditions improve. Operating profit for this segment was roughly flat compared to the prior year of $126 million, and operating margin was 20.1%.

Turning to capital allocation. Our free cash flow and balance sheet remains strong, allowing us to return $322 million to shareholders in the quarter through dividends and share repurchases. As we look ahead, we expect uncertainty in the macroeconomic and geopolitical environment to continue through the balance of the year and likely into 2027. Against this backdrop, we remain focused on executing our strategy and driving above-market growth. We'll also continue to implement the restructuring actions we previously discussed to better align our cost structure.

Based on our strong execution and operational performance year-to-date, we are raising our 2026 earnings per share guidance to $4.65 to $4.75 from a previous range of $4.40 to $4.60.

While we continue to expect sales to increase low single digits in 2026, our operating profit margin outlook has improved. We now expect operating profit margin to be in the range of 18% to 18.5% compared to our prior guidance of approximately 18%.

While the near-term environment remains uncertain, we are encouraged by the strength and resilience of our business and our ability to continue to execute. Our confidence extends beyond this quarter. The long-term fundamentals supporting repair and remodel activity remain compelling, including strong home equity levels and aging housing stock to pent-up demand for home improvement projects. And importantly, we are not waiting for the market to improve. We are investing in our industry-leading brands, innovative products, strengthening our customer partnerships and driving greater efficiency across the organization. Combined with our strong cash generation, these actions give us confidence in our ability to outperform in our markets and to create long-term shareholder value.

With that, I'll now turn the call over to Rick to go over our third quarter results and 2026 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Renee mentioned, my comments today will focus on adjusted performance excluding the impact of rationalization charges and other onetime items. Turning to Slide 8. Sales increased 3% or 4%, excluding the impact of our divestiture of Bristan in July and unfavorable currency. In local currency, North American sales increased 5%, international sales decreased 5% or decreased 1%, excluding the divestiture impact. Gross margin in the quarter improved 250 basis points to 37.1%. SG&A was 19.2% of sales, primarily reflecting higher employee-related costs, inclusive of inventive compensation.

Operating profit grew 13% to $351 million in the quarter, and our margin expanded 160 basis points to 17.9%. The increase in operating profit was driven by pricing actions, cost savings initiatives and lower year-over-year tariff costs, partially offset by higher commodity and employee-related costs. Our EPS grew 23% to $1.19 per share in the quarter.

Turning to Slide 9. Plumbing sales in the third quarter increased 4% or 5%, excluding the impacts of our divestiture and unfavorable currency. This strong performance was driven by pricing, which increased sales by 5% and higher North American volume, which contributed 2% to growth. This was partially offset by lower international volume and unfavorable mix.

In local currency, North American Plumbing sales increased 8%. This performance was led by strong growth at Delta. While year-over-year performance benefited from an easier comparison due to a softer Q3 2025, Delta continued to execute exceptionally well, delivering growth across the wholesale, retail and e-commerce channels. In local currency, international plumbing sales in the quarter decreased 5% or 1%, excluding the divestiture impact. This primarily reflected lower sales at Hansgrohe due to a difficult prior year comparison in some European markets as well as continued softness in China.

Segment operating profit in the third quarter increased 25% to $256 million, and operating margin expanded 320 basis points to 19.1%. The strong profit growth reflected the benefits of pricing, cost savings initiatives and lower year-over-year tariff costs, partially offset by higher commodity and employee-related costs.

Turning to Slide 10. Decorative Architectural sales were flat compared to the prior year. Our strong PRO paint performance continued with sales increasing mid-single digits in the quarter. DIY paint sales decreased low single digits, largely in line with our expectations, given the ongoing softness in the DIY paint market. Overall, paint sales continue to track largely in line with our expectations. For the full year, we continue to anticipate PRO paint sales to increase mid-single digits and for DIY paint sales to decrease mid-single digits.

Operating profit in the third quarter was $126 million operating margin was 20.1%. Profit was largely in line with the prior year as the impacts of higher commodity costs and lower volume were mostly offset by pricing and cost savings initiatives.

Turning to Slide 11. Our balance sheet remains strong with gross debt-to-EBITDA at 2.1x at quarter end. We ended the quarter with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 18.8% of sales at quarter end. We continue to anticipate working capital as a percent of sales will be approximately 16.5% at the end of the year.

Our strong cash performance enabled us to return $322 million to shareholders through dividends and share repurchases in the third quarter. We also continue to expect to deploy approximately $1 billion towards share repurchases or acquisitions in 2026 and have executed over $850 million in share repurchases year-to-date through the third quarter.

Now let's turn to Slide 12 and review our full year outlook. Our underlying performance year-to-date has been stronger than our initial expectations. In addition, we continue to estimate a net tariff refund benefit of approximately $85 million for the year. Reflecting the stronger operating performance, we are updating our full year guidance as follows. For Masco overall, we continue to expect 2026 sales to increase low single digits, and now expect an operating margin between 18% to 18.5% compared with our prior expectation of approximately 18%.

Turning to our segments. In Plumbing, we continue to expect full year sales to increase low single digits, but now expect sales growth towards the higher end of that range and operating margin to expand to approximately 20%. Margin expansion is being driven by the net tariff refund benefit, pricing discipline, operational efficiencies and continued cost savings initiatives.

In our Decorative Architectural segment, we continue to expect 2026 sales to be roughly flat with the prior year and now expect operating margin to be approximately 19.5%, up from our prior expectation of approximately 19%, supported by our continued focus on cost savings initiatives.

Finally, as Jon mentioned earlier, we are increasing our 2026 EPS guidance to be in the range of $4.65 to $4.75 per share, up from our previous range of $4.40 to $4.60 per share. Our updated EPS guidance assumes a 198 million average diluted share count for the year compared with our previous assumption of 200 million shares and an effective tax rate of 24.5%. Additional financial assumptions for 2026 can be found on Slide 15 of our earnings deck.

With that, I'll turn the call back over to Jon for some closing comments before we open up the line for questions. Jon?

Thanks, Rick. Before we open up the line for questions, I'd like to recognize the recent passing our Chairman Emeritus; son of Masco's Founder, Richard Richard played an extraordinary role in shaping Masco for over 5 decades, helping build our company into a global leader while establishing values, which remain deeply embedded in our culture today. On behalf of our Board of Directors and all Masco employees, we extend our sincere condolences to Richard's family, friends and all who are fortunate to know him, and we honor his lasting legacy and contributions to Masco.

Lastly, I want to thank our nearly 18,000 employees around the world. Our results this quarter reflect their hard work, focus and commitment to our customers and consumers. I'm incredibly proud of what our team has accomplished and how they continue to deliver. We have strong brands, great people and a clear strategy. We are making progress, and we have momentum. I am confident in our ability to build on that momentum, deliver above-market growth and create long-term value for our shareholders.

With that, I'd like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Matthew Bouley with Barclays.

So I wanted to ask around the targeted strategic investments from last quarter and if you made any decisions around how you're planning to spend that and if you've seen actually any early benefits from some of those investments here in Q3? Or if that's still something we should kind of look forward to any kind of timing around that?

Matt, it's Rick. Yes, as we discussed in our Q2 earnings call, unlike many of our peers, as indicated, we plan to invest a portion of our tariff refunds in terms of investments to really accelerate and enhance our growth initiatives. Importantly, these investments are consistent with the existing investments that we're making and they're really aligned around our strategy that we outlined in our recent Investor Day, really focused on investing in our brands, developing capabilities like digital marketing and revenue growth management and partnering with our customers to drive long-term growth.

We're not going to get into specific details in terms of the investment themselves. It's really as a general matter. But suffice it to say, we've got a very disciplined process in terms of how we evaluate the investment. And we look at financial and strategic objectives and monitor those. In terms of our investments, they'll play out over time. So to answer your question, it's still early days. We are deploying, but it's going to be over the course of a number of quarters and really align with our overall intent -- is the overall approach to invest in the long-term growth of Masco.

Got it. Okay. Secondly, thinking about kind of the fourth quarter revenue outlook, I think you're guiding to a little bit of deceleration. I know you don't quantify monthly trends, but obviously, as interest rates move higher and consumer confidence is not helping. Have you kind of seen any changes in demand, perhaps by channel, maybe your new construction business in plumbing. Anything kind of changing on the leading edge? And sort of how is that informing your fourth quarter revenue outlook?

Matt, this is Jon. I guess I would tell you we haven't seen a significant change in momentum across our businesses as we look to Q4, we still expect to grow sales low single digits as we look out. As you know, we play primarily in repair remodel, and we believe that repair and remodel is less cyclical, less impacted by short-term interest rate moves. So we feel good about where we're playing.

We haven't seen it change in our momentum. And as you know, we under-index when it comes to new home construction, and that's a strategy. And again, we like where we play today in our current categories and in repair and remodel.

Your next question comes from the line of Ketan Mamtora with BMO Capital Markets.

Maybe just following up on Matt's question. When I think about sort of the sequential drop in EPS from Q3 to Q4, obviously, there is the seasonal component, but it seems like the drop is kind of higher than what we've seen historically. Can you just talk about the puts and takes as you think about going from Q3, Q4?

Yes. Ketan, it's Rick. So Q3, we feel really good about our performance and our execution in Q3 and year-to-date, and that's what you gave us confidence to raise our guidance on the call this morning. In terms of sequentially, as you articulated, Q4 is generally a weaker quarter during the course of the year. It's really due to seasonality. So it's not surprising for us to have a reduction on a sequential basis.

What I would say is that in Q4, we do still expect to see revenue growth. So consistent with our guidance of low single digits. We would expect to see that in Q4, so on a year-over-year basis, primarily in plumbing. Our expectations for decorative are consistent with our -- roughly our year-to-date performance, which is roughly flat on a year-over-year basis on a top line perspective.

What I would say is what we're seeing in there's continued benefits of our growth and our cost savings initiatives. But we're also seeing elevated inflation from input costs. And that's as we've all seen in the industry accelerating in terms of copper prices as well as oil-based products, et cetera, in freight. I mean we've got a bit higher cost as it pertaining to employee-related costs and incentive comp medical, which had us a little bit more significantly in Q4. But overall, we're pretty constructive on Q4 as well as the year overall.

Got it. That's helpful. And then, Rick, can you just remind us in terms of what are you expecting in terms of input cost inflation as we are exiting in Q4 here because I know there is some lag here as we think about copper and other input costs?

Yes. So in terms of our inflationary expectations, in Q3, we experienced mid-single-digit inflation from input costs in both of our segments, and we expect that for the year in its totality, so mid-single-digit inflation in plumbing and similarly with regards to Decorative Architectural

Your next question comes from the line of Sam Reid with Wells Fargo.

I wanted to drill down on the third quarter plumbing EBIT. I realize you gave a fairly helpful bridge there. It sounds like pricing, cost saves, lower year-over-year tariffs were big drivers. Just making sure though there wasn't anything out kind of one-off in there. There weren't any potential, let's say, lingering tariff benefits that might have driven that. And maybe just give us a sense as to how that EBIT margin in plumbing contracted with your internal expectations heading into the quarter?

Sure. Sam, it's Rick. As pertains to Q3, obviously, very pleased with the performance. As you indicated, we articulated really the key components of the year-over-year performance, really driven by pricing, volume and mix is largely a wash. And I would say that the other benefits that we articulated are the lower tariff cost year-over-year. So as you may recall, in Q3 of last year, was really the peak of our tariff cost, and that was accentuated by the fact that we were at the peak. China tariffs at 145%, which added $15 million of cost in Q3 of 2025. So we're lapping a favorable comp in that regard.

I think the other thing to note, and we alluded to it, particularly on our Q2 call that there was a modest pull forward of volume from Q3 2025 to Q2 2025, which created the challenging comp that we faced in Q2, but slightly easier comp in Q3. All that said, I would say, in terms of Q3 this year, relatively clean quarter in terms of our performance, no real one-off in this particular quarter, just underlying strength on our both our domestic and international business. So we feel really good with the performance and the performance year-over-year.

Sam, this is Jon. The only thing I might add is that our increase in guidance that we communicated this morning is entirely driven by operational performance. Again, it's not impacted by tariffs or anything like that. So your question about expectations, we are performing stronger, particularly from an EPS and operating margin standpoint, stronger than what we expected as we came into the year.

That's really helpful, guys. And maybe just to piggyback on the prior quarter -- or the prior question, which was there's also the Q4 seasonal impacts you talked to, input cost inflation, higher employee incentive costs. I realize we're not talking 2027 quite yet, but would there be an expectation that those impacts the input costs and the higher employee costs, would those potentially spill over into Q1, perhaps sequentially worse Q1 versus Q4? Just trying to get a rough sense as to early 2027 modeling.

Sure. Sam, it's Rick. So as you indicated, we're not going to really delve into 2027 at this point. We'll do so in our Q4 earnings call next year. But what I would say is that we continue to see inflationary dynamics as it pertains to input costs. And as I articulated earlier part of the Q&A, we're expecting mid-single digits for the year. And so that is something that we would certainly expect to see continue. From an employee-related incentive comp, we have higher costs this year just due to the strong performance, underlying performance as well as the tariff refund. And so we would expect some normalization of that next year, but we do continue to kind of invest in our people resources as well.

Your next question comes from the line of Michael Rehaut with Melius.

I wanted to start off with the increase in sales growth outlook or maybe the slight increase for plumbing for the year, high end of the low single-digit range versus low single digits before. And maybe just speak to what's driving that? If you feel that maybe the market itself is more resilient? Or if you have any specific company initiatives that are maybe driving some gains in certain channels, would love to dial that in a little bit more.

Michael, this is Jon. We feel really good about the momentum in plumbing. As we mentioned in our prepared remarks, for North America were up 3% year-to-date. International were up 1%. So good momentum in tough markets. And I would take you back to our strategy, which is really growing above market by focusing on a consumer-driven strategy. We're building our brands. We've got leading brands really across the world. When you look at the U.S. Delta, as we mentioned, is the #1 faucet brand the U.S., which is fantastic.

In addition with Delta, we got upper premium luxury with Brizo and Newport are performing very, very strongly. And then globally, we -- a core part of our global business is homes growing corn, we like how we're performing there. So we -- obviously, it's a challenging market. As we mentioned, we are very focused on R&R as opposed to new home construction. We think that works for us now. I can tell you that we're growing share both from a dollar standpoint and unit share standpoint across all three channels in the U.S., whether that be trade, whether that be commerce or retail. So we feel like we have a really good momentum by focusing on our brands, innovating and really playing our game, and we recognize is tough out there, but really like how we're performing.

Great. And secondly, I'd love to dial in a little bit as well into the hire of Yaron Ben David, the CTO and AI Officer. And trying to get a sense for where you expect them to contribute if it's going to be more internal efficiencies and processes or external initiatives in terms of perhaps e-commerce? And how you see that contributing to the overall enterprise either through perhaps savings, let's say, on the general corporate side or maybe an acceleration in some external growth initiatives or both?

Yes. Yes. So Mike, this is Jon. Clearly, digital touches every part of our business today. And I can tell you, I think we're starting with a good place when it comes to e-commerce. We're leading in our categories with a strong share positions. But we recognize the world is changing and particularly with AI, the digital space is advancing at a rapid rate. So we did get to the outside of Yaron expertise when it comes to digital and AI, and he'll be working with our teams, creating a center of excellence that will certainly be focused on the consumer.

The reality is the way consumers interact with brands is changing dramatically, moving from traditional search SEO to GTO, which is really leveraging LLMs to learn more about products and ultimately purchasing through LLMs as well. So we need to make sure we keep advancing. So we're bringing Yaron to help focus on the consumer side. At the same time, he's got a lot of experience optimizing manufacturing and planning efficiency, thinking about procurement and logistics really, it's across our entire business well be focused. Obviously, you can't do it all at once, so he's relatively early days. He's assessing where we are and working to put plans in place to make sure that we keep advantage. So I'm very, very excited to have Yaron join us. and also excited about the starting point, which we feel is really industry leading at this point.

Your next question comes from the line of Anthony Pettinari with Citi.

I was wondering if you could give any further color on Watkins and I guess what you're seeing with spas and Sonos and just maybe higher income consumers. I think you pointed to strength in 2Q. Just wondering how that was trending in the back half?

Anthony, this is Jon. We feel really good about the underlying business in our wellness business, both with spas and Very much part of a secular wellness trend that we believe is really in the early innings. And we've got shared leadership when it comes to spas across North America, we continue to see good momentum there. Sona is one that we're very excited about. It's a relatively small household penetration, about 1% in the U.S. Growing very quickly. I think in pop culture, you're hearing more and more about Sona's and all the health benefits associated with them. So we feel good about that business. And when you look at the economy, it's certainly a case shaped economy, so the consumers at the top end continue to spend and continue to spend in wellness, which is benefiting our Watkins business.

Okay. That's helpful. And then I guess following up on plumbing, international slowed. It seems like China was tougher. You were asked earlier about sort of exit rate and 4Q assumptions. Can you just talk about sort of how we should think about international in 4Q and maybe what the comp looks like?

Yes. So -- this is Jon. So as I mentioned, year-to-date, we're up 1%. Obviously, you've got some fluctuations quarter-to-quarter. We had a strong quarter in international Plumbing last quarter. We feel good about our underlying business. So I'll tell you, we're share leaders across many big markets in Europe, and we continue to like how we're performing there. China is a headwind. Obviously, the market is more challenged, particularly for global brands. So that will remain a headwind as we move forward. So I would expect to see consistent performance to what we've seen year-to-date as we move through Q4. And obviously, as we move into the coming year, our goal is to accelerate that business. We're truly excited about the opportunities for Hansgrohe and Axor. While we have scale in several big markets, we've got many parts of the world that we've got a big opportunity in. And if you look at digital and how that can really help us interact with consumers and build brands around the globe, we think there's a lot more we can do with both Hansgrohe and Axor, excited about the opportunity.

Your next question comes from the line of Susan Maklari with Goldman Sachs.

My first question is thinking about just the price cost, you had guided last quarter to being price cost positive in both of the segments, just given the path for price relative to inflation. Is that something that we should still expect this year? And any thoughts on pricing and price elasticity as you look out to '27?

Sure. Sue, it's Rick. So with regards to our price/cost relationship, we do anticipate price/cost to be modestly positive in our Plumbing segment. It is from a standpoint from decorative architecture more flat. So as you know, we've got an arrangement with our large customer, Home Depot from a price cost neutrality standpoint. And so that's something that we are adhering to. So from an overall standpoint, the price cost positivity is more on the plumbing side of the business. And it's something that we're focused on going forward.

As we said earlier, we're not going to get into 2027 at this point. We do see continued inflation in the environment, particularly on the commodity cost. We're copper and where oil is trading including freight costs. And so it's something that we continue to take a look at. It's certainly something that we've been able to demonstrate over time that we're able to manage. And it's not just about pricing, of course, it's also about driving efficiencies, productivity, cost reduction, sourcing footprint changes as well to manage our tariff and commodity exposure as well. And so we're pulling all levers to try to moderate. And we'll continue to do that going forward.

Yes. Sue, this is Jon. Building on what Rick just mentioned pricing is really the last lever we pull, what I would say is we believe that we have a capability at Masco that is allowing us to win and market by having precision pricing, really understanding it less to see. Really understanding our different products and how they interact category. So increasingly, we'll continue. We're building out the capabilities. It's becoming much more digital, much more automated. And certainly, we will pull that lever only if we have to. But when we do, we have very good confidence that we can do it in the way that will limit the elasticity across our business.

Okay. That's encouraging. And then turning to the cash flow side of the business. You're making progress on the working capital. You reiterated the guide to get that to 16.5% of sales by year-end. Can you just talk a bit about your priorities for capital allocation? Have you seen any change in the M&A pipeline given the macro this quarter? And just any thoughts there on how we should think about the cash and where that may go?

Yes. Sue, it's Rick. So we're pleased with the cash generation of the business. It continues to be a hallmark of Masco in terms of our cash flow conversion at 90% to 100% of our net income. And so we're continuing to see that. From a working capital perspective, really consistent with prior year in terms of where we're at from a seasonality standpoint this year. And as you indicated, we're guiding towards the 16.5% of net sales at year-end.

As it pertains to our capital allocation framework, there's absolutely no change in that framework in terms of, number one, investing in the business. Number two, an investment-grade credit rating, and we'll continue to manage our leverage accordingly. Third is a relevant dividend, a 30% payout ratio. And then all available cash beyond that is available for share buybacks or M&A. In terms of our M&A pipeline, we continue to cultivate that pipeline. At the end of the day, our strategy is unchanged in that context as well. We're looking at primarily bolt-on acquisition opportunities, really in our fashion plumbing coatings and well necessary areas. And so really no change in terms of our prospect and we're pleased with how our capital allocation framework has served us and we've been able to leverage that to return capital to shareholders in a pretty assertive way.

Your next question comes from the line of Trevor Allinson with Wolf Research.

Your dec arc guidance implies that you're going to return to growth there in the fourth quarter, I think the first time since 2022. Given the outperformance that you've seen with your Pro, your DIY and your core businesses are much more similar in size to what they've been historically. So -- with that in mind and an expectation that you continue to outperform PRO. Is this something -- a business dearth that you think can get back to growth in 2027 as you think about PRO continue to take share?

Trevor, it's Jon. As you mentioned, flat is in a way a win for it's been a more challenged category over the last few years. I can tell you, we're not satisfied with flat though as we move forward. And we continue to feel really good about our PRO paint business where we've grown mid-single digits over a consistent period of time, working very closely with our retail partner at the Home Depot to really remove friction from the experience for PROs. We believe we have the best quality and the best price. We want to continue to communicate that. We've got a new marketing campaign really centered on just that. We're really working to make the experience easier with order online, pick up the store, order online, have it delivered to the job site. So again, we believe there's a lot more room to run. PRO paint is the largest single segment we compete in at Masco, and we have a relatively small share, so we think that continues to be an opportunity.

DIY has certainly been challenged and is highly correlated with existing home turnover, which is bouncing along at trough levels. That being said, we're taking action. We've invested in which is an industry-leading AI-powered color tool. And we know that choosing the Keller is the number one barrier for a consumer to do a paint job. So we're really excited about that. We're also working with the Home Depot to make sure the in-store experience is the best it can be and really focusing again communicating that we have the best quality and the best value in the category. So certainly not taking victory laps in Decorative Architectural, but the team is doing a really nice job and really stabilizing the business overall with good wins in PRO. And again, really door that we can to really stabilize the DIY business.

And then second question is on Europe. It seems to be holding up pretty well, excluding the divestiture. You guys talked about taking share in North America. I'm curious if you believe that, that commentary extends to Europe, how you're performing in Europe relative to the market is some outperformance in Europe as well, helping to support your performance versus overall trends in Europe?

Trevor, absolutely. So as I mentioned, we're up 1% in our international plumbing business for year-to-date. As we look at the markets, particularly in Europe, we think they're a little bit worse off than what the U.S. is. We think they're down low single digits. So again, we believe that we are outperforming the markets and many of the same capabilities and strategy that we're deploying in North America, we're just deploying on our Hansgrohe and Axor businesses as well. So I believe that we are gaining share. It's a little bit harder to track share across many, many markets across Europe and Asia, but feel really good about the trajectory of the business.

Your next question comes from the line of John Lovallo with UBS.

Maybe sort of dovetailing off that last question. I mean you guys have gained share in plumbing this year, I mean due in part to some competitive factors that could change. You just speak to your confidence in what you're doing to drive continued share gains into 2027, including on the e-commerce side?

Yes. John, this is Jon. So I can tell you we do have fierce competitors. We have many competitors plumbing really across North America and the world. We are very, very focused on playing our game, and we think it's a winning game. So as I mentioned, it starts with our industry-leading brands. We continue to build on, increasing in a modern way, which is very much digital and being very clear for what our brands stand for and how they deliver for consumers.

I would say innovation is a big part of our success as well. If you look at the vitality rate in our Plumbing business is close to 30%. So again, a percentage of products introduced over the last 3 years. We've had some real winners in terms of new products as well. I would tell you, capabilities as we build our capabilities, particularly in the digital space, they're going to benefit us from an e-commerce standpoint and how we show up again with consumers as they really go through their journey when they're starting to look for buying a new or buy a new shower. And then finally, one of the things that hasn't changed is really our operational effectiveness and efficiency, the Masco operating system has served us well for a long period of time. And I can tell you, I'm really pleased with how we're operating in a challenging environment around the world. So -- look, competitors will ebb and flow. What we can focus on is our business and our game, and we feel like we're on it at this point.

Okay. Understood. And then on the M&A front, specifically, I know you guys talked about sticking close to the core. Curious though, if you have interest in factory-applied wood coatings business, whether that's cabinet stores, et cetera. It seems like it could expand the Decor TAM, perhaps not conflict with the HD relationship and maybe provide a little bit of inroads into the new construction market.

John, this is Jon. I guess we've been pretty consistent that we like the categories that we play in today. They are amongst the fastest-growing and highest-margin categories. We like the strategy of being tied more to R&R as opposed to new home construction. New home construction is important for us. It's a business that we take seriously, but at the same time, R&R is the bulk of our business. So we would have a very high bar, adding an additional leg or really going outside of our core categories. I think bolt-ons is what we're focused on. But again, we tend to look at a lot of things that come across our desk just to make sure that we're looking at everything in the universe. But I think we'll stay clear to what we've been guiding, which is bolt-on acquisitions will be the focus moving forward.

Your next question comes from the line of Stephen Kim with Evercore ISI.

First question in Deck Arc. I think last quarter, you had indicated that you thought that the back half of the year would among other things, like employee costs and commodity headwinds and stuff. You also mentioned you expected to have some additional investments that might weigh on the margins in the back half. And obviously, you beat our expectations. And I'm curious, was there any benefit this quarter from maybe a reduced level of planned investments relative to what you had previously expected?

Stephen, it's Rick. So your collection is correct. We did -- and we do expect increased investments in the back half of this year in Decorative Architecture. We've got the employee-related costs as cited. There's also investments in terms of in-store displays, et cetera. Those are unchanged. What I would say is what we've realized in terms of our margin expectation is improvement in cost reduction efforts, so restructuring and other cost reduction efforts that are benefiting our P&L to an increased impact than we had initially anticipated, and that's why we brought up our margin guidance from 19% to 19.5%. But our investments are intact.

Great. That's the best answer that we could have had. So that's good. Broader question than I have, you talked about specifically with DIY paint, you brought up the historic correlation with AHS, our existing home sales. And I was wondering if we could touch on that, maybe particularly in paint, but also could apply to the Plumbing business as well. I'm curious if you could talk about what that historic correlation is with existing home turnover versus people doing a discretionary remodeling job in the home that they are going to continue to live in? I was wondering if you could sort of talk about like how much of the business or the demand is related to people actually moving?

And then obviously, EHS is very depressed. So to the degree that it is impacted by that, obviously, that's a negative that's weighing on you. And yet, I would think that dilapidation happens regardless of turnover, right? So you have a housing stock that's sitting out there. And there is the pit that also drives the need for remodeling, particularly paint. And so I'm curious, in this period where you've had very diminished EHS, are you actually seeing evidence that, let's say, paint usage per home -- per existing home sale is rising or not?

Yes. Stephen, this is Jon. I'll take a crack at this. Maybe more broadly, as you look at other categories beyond paint, we see some different dynamics. When you look at our plumbing business, break/fix is a fairly significant part of our business. So again, something breaks a faucet or a shower and it's replaced. Paint isn't quite that way, although, again, what you described does happen where over time, people recognize they need to put a fresh coat of paint on. As we look at what impacts DIY paint by far, the item that correlates the highest existing home turnover.

And it makes a lot of sense, and it's pretty simple. If you think about if you're selling your house, you typically paint it. And then if you buy a house, in many cases, you paint it again because you don't like the colors and you want to make it your own. So -- we definitely see when we get back to more historical existing home turnover, we should see an inflection in the market. Even then, we need to make sure that we keep, again, making it easy for consumers to shop the category. We need to make sure that we continue to understand that consumers to understand that bears the best quality and the best value in the market. So there's a lot of things within our control. I would say I think DIY is going to remain a bit more challenged until we see existing sales pickup here.

Your next question comes from the line of Phil Ng with Jefferies.

This is Maggie on for Phil. I wanted to ask first about the lag on raws flowing through to your P&L? I understand you're not giving '27 guidance at this point. But just given that lag, and where commodities and inputs are trending now, we're starting to get a better idea of how that inflation equation is going to look at least in early '27. So -- why don't you get your thoughts on how that's informing your approach to pricing next year and any of the other mitigating factors that you talk about like cost savings and those actions?

Sure. Maggie, it's Rick. So as we've described before, that really our lag, as you articulated, for plumbing is really a 2-quarter lag roughly speaking, commodity prices that you're seeing in the market this quarter, we would expect to see in a couple of quarters' time. On decorative, it's a little bit more accelerated. It's more of a one quarter lag. So the commodity costs that you're seeing in this quarter more of a next quarter type of dynamic. And so that's generally the rule that we leverage.

And so it does provide a bit of a time window for us to be able to visually see -- visibly see commodity costs in the market and allow us to react accordingly. And as mentioned earlier, there was a number of levers that we look at. We look at our sourcing footprint in terms of optimizing that cost reduction and has required pricing. And so that's something that will factor into our equation, not just next year, but as an ongoing basis in terms of mitigating -- what continues to be an inflationary environment.

Your next question comes from the line of Keith Hughes with Truist.

Questions on Plumbing. If you could talk about how much price and volume contributed particularly to the pretty strong domestic number here.

Sure. Keith, I think as -- we indicated in our prepared remarks that pricing for plumbing was a 5% contributor on a year-over-year basis. And then volume was up in North America, down in international, but basically volume mix was a wash, and that's all ex the divestiture.

Okay. That's from a total Plumbing. So if we look domestically, it was price any different domestically, I guess, really my question.

Yes. Domestically, we're not going to get in terms of details. I mean what we did indicate is that our North American plumbing tells were up 8%. So you can imagine our performance is a bit stronger in that context, but we don't provide a specific bridge on a country-by-country basis.

Okay. So one other question on that, particularly domestically, if you could talk about the channels, was there any one channel that was particularly better than that 8% number?

Yes. So what we'll say, Keith, to that is we were up really across all three channels, so trade, retail and e-commerce. We continue to perform really well in terms of our e-commerce. We continue to be a leader in that context. But it was encouraging to see that we were performed up on a net sales perspective, really across all three channels. So it was a very balanced performance for the quarter and quite frankly, year-to-date.

Your next question comes from the line of Mike Dahl with RBC Capital Markets.

Just a couple of quick ones, a follow-up on the fourth quarter guide. I think you mentioned you still expect price cost positive and incoming neutral in deck arc. In total, I know there's a range in there, but the midpoint of the implied guide would suggest margins down year-on-year. And so I'm just trying to get a better sense of your performance to date has clearly been much better than that. So is that really have the price cost differential narrowing? Is the employee cost help us maybe get into a little more detail on why you see that inflection in margins than Nate?

Yes. Sure, Mike. Yes. We don't -- I know you're implying a lot in terms of our Q4. So we don't get into specific quarterly guidance. But that said, you're directionally right. I would say that -- in terms of our -- as I mentioned on an earlier question or response to an earlier question, in terms of top line performance, we do expect continued low single-digit sales improvement in plumbing and roughly flat in Decorative Architecture kind of consistent with what we've seen year-to-date.

In terms of the margin question, we're basically expecting an operating profit and margin to be roughly in line on a year-over-year basis. And as articulated earlier, that's the trade-off between slightly increased sales on a year-over-year basis and cost reduction efforts. That's being offset by higher commodity costs that are mid-single digits and growing as we finish out the year. a well as higher employee-related costs, incentive compensation and medical costs, which are notably higher as we finish out the year. So ultimately roughly flat, but we feel really good, quite frankly, in terms of the resilience of the business given the macroeconomic backdrop and our performance in terms of where we're going to end up for the year and our momentum in the business going forward.

Okay. That's helpful, Rick. And then just -- sorry for another follow- on the kind of price cost dynamic. But this year, you obviously had a lot of things that you executed well against both on the pricing side and your internal initiatives while still taking share. I think another as alluded to kind of competitive dynamics, but when you survey kind of the landscape for next year, there has been a lot of price that's been put into the market. I think you guys kind of led the pricing this year.

And so I'm just wondering, just kind of if you had to rank order in the near term, what the most likely levers would be to offset inflation? Is it still going to be kind of the same where you're kind of -- where next year, you might be a little less aggressive on price and try to focus on the operational and cost -- some of the other cost down efforts? Or how would you think about kind of all things considered when you're balancing what you're seeing competitively, what you're seeing in terms of kind of channel response or customer discussions and how you approach that dynamic next year?

Yes. Mike, this is Jon. So we clearly won't get into a whole lot of detail about 2027. We're not announcing anything today, obviously, related to pricing. As I mentioned earlier, pricing is really the last lever that we pull. It really starts with making sure that we optimize our footprint to make sure that we're procuring and producing as efficiently and effectively as possible.

We talked a little bit about self-help. We've taken some initiatives from a restructuring standpoint that have been more aggressive than what we've done historically at Masco that had a benefit this year. We'll continue to have a benefit in the coming year as well and really leveraging the Masco operating system to drive cost out.

And then finally, I think we've proven over time that we can't pull the price lever if needed, and do it in a way that allows us to realize the price that we need without impacting the market to a large degree from an elasticity standpoint. And I can tell you our capabilities in that space continue to grow. It's a really important area for us to continue to invest in to make sure that we can do it with as much decision as possible. So maybe I'll stop there. And obviously, as we get into 2027, we can talk more about 2027 and our thoughts around price.

Our last question comes from the line of Adam Baumgarten with Vertical Research Partners.

Just on the topic of freight, maybe if you could run through what you're seeing -- there and perhaps how much that represents as a percentage of total COGS?

Adam, it's Rick. So Yes. Freight, like we're seeing across the industry and the market, freight costs are elevated, both inbound and outbound and by fuel costs. We haven't articulated the proportion of COGS that represents for Masco. It's not a huge driver, but it is something that we're keeping a close eye on, and something that we factor in, in terms of mitigation activities. So what I mean by that is when we refer to mid-single digit input cost inflation that's inclusive of both the raw materials as well as freight costs and transportation costs. And so we look at that holistically and look to pull the levers that Jon articulated in terms of mitigation.

This concludes the question-and-answer session. I will now turn the call back to Renee Benedict for closing remarks.

We'd like to thank you all for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a great day.

Thank you for attending. You may now disconnect.

Good morning. Thank you for attending the 2026 Deutsche Bank Industrials Conference. This morning, I'm excited to have Rick Westenberg, the CFO of Masco, with us.

And we're going to be hosting a fireside chat. So I'll just start off with some questions. If anyone in the room has any questions, just raise your hand and we'll try to pivot to that.

So I guess I just want to start off with some of the bigger-picture questions, since you guys laid out some targets at the Investor Day. 3% to 4% average annual organic growth, at least 18% adjusted operating margin by '28, and a CAGR of 10% in EPS growth. I guess just starting beneath those financial targets, what are the most important indicators investors should really be watching over the next 12 to 24 months to make sure that you guys are gaining traction on your strategy here?

Yes. Good morning, everybody. Thanks for joining. It's good to be here at the Deutsche Bank Industrials Conference here in Chicago.

Yes, Collin, as you mentioned, we laid out some pretty specific goals for our 2028 expectations in terms of growth and margin expansion. And it's really underpinned by our focus on driving both top line and bottom line growth, driven by consumer-driven strategy, leveraging our industry-leading brands, expanded commercial capabilities, enhanced operational excellence. And as you articulated, we laid out some specific objectives.

What I would say is in terms of how we're approaching that, it's really investing in growth and looking at areas that we can expand our top line even despite a tough environment as we've all been faced with, as well as driving operational efficiencies in terms of our bottom line. And that includes leveraging our Masco Operating System as well as some of the restructuring activities that we announced earlier this year in terms of driving that.

And although those are objectives that we've laid out for a couple of years from now, I think in terms of seeing progress towards those is really what we're focused on doing. So seeing some growth this year, low single digits is our expectation in terms of top line growth, as well as some margin expansion in our underlying performance. Putting aside the tariff refunds for a moment, seeing margin expansion there as well. So making that incremental progress this year, particularly as we move into 2027.

Helpful. And I guess as you think about after you've laid out those targets at your Investor Day, I guess where do you think people are sort of under-appreciating the story here and sort of your internal confidence at Masco versus some of the external expectations that you're hearing?

Yes. I would say we've got a pretty strong track record with regards to delivering operational performance in terms of bottom line, both in terms of EPS as well as margin and margin expansion. And that's been through a cyclical environment. I mean, challenges in terms of commodity, commodity inflation, tariffs and a number of kind of challenges in the industry, we've been continuing to deliver growth.

And we've got -- we've continued to deliver really strong cash flows as well. So I think those are, I think, appreciated by the Street in terms of how we've been able to manage through and deliver performance through those challenging environments.

I think in terms of opportunities, would be growth. I think that's been one of the challenges, particularly in this environment where we've been faced with a down R&R market for really the fourth year in a row, we continue to drive market share performance, but really pivoting to growth. And I think that's something that you'll see more of us in terms of not only the narrative, but also delivering in terms of investments and reaping the benefits of those investments in growth.

That's a great pivot into my next question. Switching into more detail around the Plumbing strategy. I mean you just referenced the weakness in the residential repair and remodel activity over the past several years, and plumbing volumes have been part of that facing that pressure. And you talked about the share gains that you've been seeing with the strong execution across channels.

I guess, where do you think the plumbing category sits today relative to a normalized demand environment? And as the market returns to growth, what gives you confidence that you can maintain your share or even compound those share gains as things begin to recover?

Yes. So as I already mentioned, and I think it's pretty well appreciated, that the overall R&R industry, including the plumbing subsegment of that, has been under pressure from an overall growth perspective. It's been down, really from a volume standpoint, really I think this will be our fourth year in a row in terms of the sector being down.

That said, we've -- we're disciplined on cost, but we're also continuing to focus on continuing to make investments where we see opportunities for growth, both in terms of categories as well as in terms of market share. And we'll continue to do that. And I think we're really well positioned to capitalize on the market as it comes back. There are some calculations that indicate there's over $20 billion of pent-up demand in terms of the R&R space.

And we don't expect there to be a hockey stick. Obviously, the continued macroeconomic and geopolitical environment remains dynamic, and so we're not expecting an inflection in the immediate future. But as the long-term fundamentals of the industry improve, including leveraging the continued strength in the housing market as it pertains to equity values as well as aging of the housing stock, I think as we get some churn in some of the other metrics, we'll be well positioned to leverage our growth, not only to continue to drive market share performance, but also ride the benefit of the industry recovery as well.

That's helpful. And I guess just following up on that, what leading indicators would give you more confidence that the category and Masco's share trajectory are beginning to reaccelerate? I know no one has a crystal ball, but I guess, what would be the indicators that you would suggest people watch more closely that would probably lead into a better top line performance?

Yes. I think it's been humbling in the last few years in terms of the crystal ball analogy because I think the expectation has been a recovery period through the last number of years. And we're continuing to invest.

I think as it pertains to the metrics, I think it's probably not particularly unique. The fundamentals, I would say, Collin, the fundamentals of the industry, the R&R market, are strong. So as I mentioned, strong home equity values, near record levels, aging housing stock. So the fundamentals are there.

I think what will be catalysts for change are things such as existing home sales. I know existing home sales came out this morning and they were -- remain tepid. So that's still something that is we keep a close eye on, as well as consumer confidence. And so I think there's the equity value out there, but in terms of the confidence of consumers to invest in their homes and to make that move, is still something that we're waiting to see.

Again, we're not predicting a hockey stick type recovery. But as those other type of leading indicators manifest themselves over time, we see a gradual improvement towards the longer-term range of R&R growth, which is more in the kind of the 2% to 4% range.

Well. And I guess just in terms of investments in order to sort of drive growth in the near term. I know on the 2Q call, you guys discussed using a portion of that IEEPA tariff refund benefit to make some strategic investments, and I think particularly in Plumbing. Can you just frame the strategic rationale and sort of the mix of drivers behind those investments? How much of this reflects leaning to share opportunities versus maybe supporting category growth and then customer channel initiatives?

Yes, sure. So I mean, just as you'll hear me and Jon Nudi, our CEO, talk often about, our focus on investing in growth. And that takes a number of forms in terms of programs, marketing capabilities. We've stood up a couple of centers of excellence, or COEs, in terms of digital marketing, commercial excellence, revenue growth management. We hired a CMO, Brad Hiranaga, just recently, a couple of weeks ago as well.

So we're investing in attributes and capabilities to drive that growth. And so that's something that we're going to continue to focus on.

And I guess on the IEEPA tariff refund specifically, I mean, any sort of color you can provide as sort of like what the investments are going towards, top of the funnel versus bottom of the funnel? I mean, any sort of -- would be helpful.

Yes, sure. So in terms of the IEEPA tariff refunds in particular, so the refunds are really a recoupment of expenditures that we incurred over the last 12 to 18 months, primarily in 2025, where we had to be lean and implemented austerity measures. And so the recovery of some of those IEEPA tariffs gives us a unique opportunity to really double down on some of the growth initiatives.

So it's not that we aren't doing those investments. It's an enhancement or pull-ahead or acceleration of those investments. And it's the types of things that I referenced before: customer programs in terms of displays and merchandising, marketing expenses, capability builds and things of that nature.

And these are anticipated investments. These are things that we accrued for in Q2 along -- to be alongside the tariff refund benefit, so that we could publicize a net number. But these are investments that we're going to make. But you would expect us to make a normal course, but this is an ability to enhance and accelerate some of those investments.

Helpful. And since you're -- it's characterized as driving acceleration, but it's something you do in normal course of business. I guess on an annual basis, like when we're thinking about sort of the underlying OpEx of the business, does this sort of indicate that you're going to be continuing to operate maybe with a higher OpEx than normal? Or is this more transitory just because you get a pull forward from it? I guess, how should we think about the investments as we look out to maybe '27 and kind of rolling off for '28?

Yes. One thing we looked to do in Q2 was to capture and accrue for those investments in the quarter to line up with the timing of when the tariff refunds were recognized, to really make it as onetime in nature as possible from a P&L standpoint to isolate it in Q2. The expenditures will be over time, kind of later this year and potentially into next year as well. But ultimately, those types of P&L impacts are largely going to be captured in Q2.

That's helpful. And then, I guess just some bigger-picture questions on the more exciting areas in Plumbing that you guys talked about in your Investor Day was the wellness area and the global projects. I guess wellness appears to be pretty under-penetrated from a TAM perspective, while global projects are more directly tied to Masco's core, it feels like, and your premium brands. I guess from a capital allocation standpoint, how do you compare those 2 opportunities in terms of growth potential, sort of execution risk, margin profile and sort of the required investments in order to kind of capture that above-market growth?

Yes. They're both the opportunities that we're very excited about and have track record of performing in. And maybe just to take one at a time, in terms of the wellness business, our Watkins Wellness business, which really sells hot tubs and spas and saunas, and now it's getting into cold plunges, there's really a couple of things at play there. First of all, there's a secular trend in terms of wellness. And we feel really good about the secular trend, as I'm sure many of you could appreciate, the increased focus on health and well-being.

And in addition to just the secular trend, in the particular categories in which we play, spas and saunas are under-penetrated from a household perspective. Spas are about 6% household penetration; saunas are about 1%. So much less than some of the other wellness products that you find in the house like pools, et cetera. And so we feel really good about the space we're playing.

And then our position within that space is really strong. We're the #1 or #2 player in each of those areas. We've got strong brands like HotSpring and Caldera. And so we feel really good about that positioning in terms of our industry-leading brands and our market share position, but also very good as well about our strong independent dealer network. So we've got the largest dealer network -- independent dealer network in the U.S. at over 700 dealers, of which over 70% are exclusive to the Watkins brands.

And so we feel good about the sector, the secular trends and our positioning within the sector, to really continue to deliver on the wellness space. And that really translates into what I would say is, we gave, as you mentioned before, Collin, the 3% to 4% growth expectations. I expect that would be on the upper end of that or greater than that as it pertains to wellness.

In terms of the global projects, and that's, for those that aren't aware, is in the Plumbing space, primarily our hansgrohe and Axor brands. And it's really in the hospitality, hotels, resorts space. And that's -- we disclosed in our Investor Day about a $400 million business, and I'll call it another mid-single-digit type of growth opportunity. We're really well positioned. We've got a good program, good customer relationships. And this is really with architects and designers, which serves us well.

And so those are a couple of really strong opportunities, coupled with our real optimism in terms of the luxury and premium plumbing business. So our Brizo and Newport Brass as well as hansgrohe and Axor brands, as well as our Pro paint positioning as well. So I think what you'll see is a common theme of where we're investing in areas where there's strong secular or category opportunities in growth, as well as we are well positioned to be successful and to compete effectively in those particular sectors or categories.

That's helpful. I guess following up on that, how do you drive further penetration within wellness? It sounds like that's a big part of the strategy. So I guess like how do you continue to expand that TAM? And what does the pace of that really look like?

Yes. I think it's really leveraging our independent dealer network that I mentioned before. We've continued to grow that. The exclusivity dynamic is very helpful in terms of making sure that our -- we've got heavy focus in terms of our products as the category expands, and continue to make sure that we've got really the commercial capabilities to leverage that, as well as the operational excellence to be able to execute and deliver and keep up with that growth.

Those are the areas in terms of execution that we're focused on in terms of meeting. But we feel pretty -- it's not linear, but pretty confident in terms of the structural trends and secular trends of that particular sector.

Okay. And then I guess a follow-up on the global projects. How should investors think about sort of the visibility there? It sounds like that should be like a longer lead time kind of thing you got going on with your architects and your designers. So any color, just the conversion of the pipeline just given that dynamic with the lead times?

Yes. I mean that's certainly something that we track, both the relationships with the architects and designers that are spec-ing those particular projects, as well as you mentioned it's a longer lead time than residential plumbing. But that's something that we have really operational excellence and focus on. And those are metrics that we track very specifically internally in terms of really at hansgrohe and at Masco overall in terms of making sure that we're delivering on that and leveraging those opportunities going forward, making sure that we've got not only the brands, but also the products and the service and the relationships.

Any questions in the room around Plumbing, before we move on maybe to the Decorative Architectural? All right. Awesome. Keep going then.

So I mean, Behr remains obviously very strong in DIY. But it feels like the incremental growth opportunity here is really around the Pro. I guess how should investors be thinking about key milestones? I mean, you guys have already seen very strong growth relative to your peers in Pro. So I guess as we look forward, how should we be thinking about that level of growth and the key milestones investors should be looking for?

Yes. We feel really good about our paint business overall. We've got a really established, strong position in DIY, and a really strong, growing position in Pro. And what I would say is, in terms of our track record of growing the Pro, and absolutely there's a secular trend happening there in terms of the growth in Pro, and that's exactly why we're focused there with our partner, The Home Depot.

In terms of some of the metrics, we've been growing really at a mid-single-digit clip, which we believe is at or better than the industry. And really since 2019, we've, in the Pro segment, Pro category, we've grown share by 200 basis points. And where that leaves us is in a Pro paint industry of about $10 billion here in the U.S., we've got a business that's about $950 million. So it's just under 10% of the market share of that particular subsegment of paint.

Contrast that with our DIY position, which is about 30% penetration -- or market share with regards to the DIY paint sector. And so that gives us confidence that we've got, certainly, from a comparison perspective, opportunities for further expansion and growth. And we're continuing to invest along with The Home Depot to try to capture and grow that share as well as benefit from that secular trend as well.

And on the market size, the $10 billion, I guess, how much of that do you think Masco can address? Because you're looking at maybe the Pro from -- differently from maybe like a Sherwin-Williams who has their Pro stores. So I guess, can you maybe dive into the differentiation there?

Yes. So as you pointed out, Collin, there's sub -- $10 billion is a big sector, there are subcategories to that. And historically where Masco or Behr have been more successful, particularly with The Home Depot, is doing the Pro who also paints. So it allows, the format of The Home Depot store, allows for one-stop shopping for Pro to come in, and lumber and other products and windows and lighting as well as the paint for their particular project. And so it's well situated for that.

Where we continue to focus is develop those relationships and expand that, as well as really focused on making sure we're competing successfully for the professional painters that are singularly focused on painting. And so those represent subcategories.

I would say in terms of the addressable market, it's well over $5 billion of the $10 billion that we're able to be able to be meaningful players. And I think that the overall growth of that sector continues to expand. And so it's in that vicinity, but it's an area that we feel really good about our momentum in the projects and initiatives that we have in place.

And you touched on this in my prior question, but I guess diving into the DIY shift away -- or the shift away from DIY towards Pro most recently. How much of that do you feel is like cyclical versus structural or, I guess, a combination of both? And kind of what your view of what the paint market could look like from a DIY versus Pro in the next 3 to 5 years?

Yes. That's a crystal ball question, Collin. But what I would say is the move from DIY to do-it-for-me has been a secular trend that predates COVID. And so we expect that secular trend to continue.

There is some embedded cyclicality and largely a pull-forward effect from COVID because we did have a spike -- the industry had a spike in paint sales in DIY during the 2020, '21 period of time. And so there's a little bit of implication of that in terms of a hangover from the COVID pull-ahead. So there's some, don't know if we could call it cyclicality, but certainly an implication.

But that's something that we feel that there is some opportunity for stabilization in the DIY space. We're going to continue to focus and invest to make sure that we're really well positioned to continue to be the leader in DIY paint. We've got a really strong brand. We've got a really strong product in terms of quality and value.

So we feel really good about our position there, while continuing to focus on growth initiatives on the Pro side of the business. They are not mutually exclusive. We can continue to be successful and competitive in DIY and be the leader while continuing to invest in the Pro paint side.

That's helpful.

I have a question for you. [Technical Difficulty]

Yes. So for those online, the question is really, between plumbing, paint and wellness, in our margin profile, where we're most optimistic? I would say that for our guidance, our margin performance has been pretty robust, and our margin guidance for this year, for example, is for 20% margins in Plumbing. And that includes the tariff refund benefit. Excluding that, it'd be about 18%.

19% for Decorative Architectural, which is really our paint business. And really 18% overall, 17% excluding the tariff refunds. And so kind of in that 17%, 18%, 19%, 20% range. And so really strong and consistent across the board.

And I think from a margin perspective, we talk about expanding margins as one of our key tenets, growing the top line and expanding margins, and we have opportunity to expand margins in all of our business lines. And so that's something -- some maybe more than others. And there's other growth initiatives that we're focused on in terms of the wellness space, as we talked about, the global project space, the upper and premium luxury plumbing space, Pro paint, et cetera, in terms of growth. But with growth, we also expect margin expansion.

And part of that is hinged by the fact that, as you would anticipate, our incremental margins really run about 30% -- 25% to 35%. And so incremental sales drops down at an accretive margin to our baseline margins of 18%, 19%.

[Technical Difficulty]

So the question is really one of the competitors are maybe shifting their focus from market share growth to more pricing. And we've seen some pricing in the market. We've got an arrangement just because we've got a partnership with our biggest customer, The Home Depot, which is in principle price/cost neutral. So effectively, as commodity costs increase, there's an agreement to increase price. And the inverse is true if commodities deflate.

And so for us, it's more about driving growth and value and driving market share gains in terms of performance. Pricing is really the decision -- in terms of consumer pricing, is really the decision of our partner.

[Technical Difficulty]

Yes. One of the benefits, and this is for paint as well as plumbing and some other areas in which we compete, we're in really good spaces where there's rational players in place. And so we're able to -- and continue be disciplined on pricing and being able to focus on driving growth with strong margins as well.

I guess on margin expansion, you talked about sort of the flow-through from better volumes. I guess I'm curious as to, getting to your '28 targets of at least 18%, any color just to how much like the margin recovery is cyclical -- like the cycle-driven in terms of volumes getting better versus how much of it's in Masco's control?

Yes. So in terms of -- and we laid this out in Investor Day, there are really 3 buckets or drivers that are going to translate into margin expansion for Masco over the next couple of years. And they're unchanged really in terms of what have underpinned our margin performance in the last x number of years.

And that is, first and foremost, volume. And that's, as we articulated -- or as I articulated, incremental volume, both in terms of growth in the industry, but also growth idiosyncratic for Masco in terms of market share performance, drops down at an accretive margin level relative to operating profit margins. And so that's a contributing factor.

But the second contributing factor is really cost performance and operational excellence, as I mentioned, leveraging the Masco Operating System, which is really a continuous improvement mechanism that we use internally here at Masco, as well as taking incremental actions like we announced earlier this year in terms of restructuring, that we've communicated about $50 million of restructuring actions this year and that you'd expect us to continue to look at opportunities going forward.

And then third is pricing, and pricing above commodities. Now that is a volatile situation just given commodities are volatile in and of themselves. But over an extended period of time, particularly in our Plumbing side of the business, having price exceed our input cost is another contributing factor. So it's really volume and the margin accretiveness of that, cost performance, as well as the price/cost performance in our Plumbing business.

That's helpful. And I guess pivoting over to maybe capital allocation and cash flow. I mean you guys generate a lot of cash, you have a long track record of returning that to shareholders. I guess, how do you think about sort of the priorities here? I know you lay them out as reinvestment, dividends, buybacks, M&A.

But I guess acquisitions, are there enough attractive bolt-on acquisitions out there? Or should we be thinking about maybe a larger deal if the right asset emerges? And then if that doesn't happen, like how willing you are to spend on share repurchases, which I think history would tell you're very willing, but hey, this would be helpful for you to frame it.

Yes. So appreciate it, Collin. I mean our capital allocation framework is unchanged. It's been very consistent over the years. And that's really -- you mentioned -- you referenced it, but effectively, it's probably worth reiterating for the group, that, first and foremost, our number one priority is reinvesting in the business. And we do that generally at about 2% to 2.5% CapEx as a percent of sales.

Second is a really strong, investment-grade balance sheet measured by itself our credit rating, which is roughly BBB or Baa1, as well as a leverage ratio that is gross debt-to-EBITDA of 2.5x or less.

And the third is the dividend, and we target a 30% payout ratio. And then we have effectively all available cash after 1, 2 and 3 available for share buybacks or M&A. And the reason we do the or is because M&A is episodic. And so it's really driven off of the opportunities and the right opportunities for M&A.

To your question specifically in terms of bolt-ons, that is really our focus in terms of we're actively cultivating our pipeline at any given point in time and we're focused on opportunities that are really in our Plumbing, paint or wellness categories. We're not looking further afield. We're going to stay disciplined in one of those areas.

And bolt-ons has been really our area of focus because we feel that's the best value proposition from a risk-return perspective. We're not averse to doing something bigger, but I would say that it would have to certainly meet our kind of strategic rationale, fall within one of those areas and make sure that it makes sense from a shareholder return standpoint.

Got you. I guess following up on a larger opportunity. Any more color as to what those characteristics that matter most from Masco's perspective, if we were looking at maybe like a third business or something like that?

Yes. We wouldn't -- I mean, we would -- the focus really, Collin, is to stay disciplined in terms of the opportunity, whether it's large or medium or small. Quite frankly, it's just the same attributes, which is it has to be a category fit for us, a strategic fit and that would drive shareholder returns. And so those are -- from an economics and pricing perspective. And so those are the things that we're going to remain disciplined on. And we're not going to do anything that we don't feel very confident that we can deliver value on.

Okay. Any more questions in the room here?

Great. Well, we're running up on time anyway, so it's perfectly fitting there. But thank you so much. We really appreciate the time.

Perfect. Appreciate it, Collin. Appreciate it being able to participate in the conference today. Good to see all of you.

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Second Quarter 2026 Conference Call. My name is Rob, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes.

[Operator Instructions]

I will now turn the call over to Renee Benedict, Vice President, Investor Relations and Corporate FP&A. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2026 Second Quarter Conference Call. With me today are Jon Moody, President and CEO of Masco; and Rick Westenberg, 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 cannot 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 will now turn the call over to Jon.

Thank you, Renee. Good morning, everyone, and thank you for joining us. We have delivered strong results in the first half of the year while navigating a macroeconomic and geopolitical environment that remains dynamic. As I outlined at our Investor Day in May, we are committed to driving above-market growth through our consumer-driven strategy by leveraging our industry-leading brands, expanding our commercial capabilities and enhancing our operational excellence. Our teams have remained focused on execution, and I am pleased with the progress we are making. Please refer to Slide 5, where I will highlight a few recent examples that demonstrate how our teams are creating value through strong brands, innovative new products and exceptional customer service.

First, Delta Faucet Company continues to execute on its new product road map, successfully launching 5 new kitchen and bath collections across is Delta, Brizo and Newport Brass brands. These launches broaden our portfolio with compelling new designs and finishes, enhancing consumer choice and supporting our focus on innovation, brand strength and long-term growth. Additionally, Delta received the JD Power customer service certification for the fifth straight year, a testament to the team's unwavering focus on customer satisfaction and is a long-standing commitment to delivering industry-leading service and support. Then lastly, we celebrated Hansgrohe's 125th anniversary. We are proud to recognize the brand's remarkable legacy of innovation, craftsmanship and design excellence, which has helped make it a global leader in premium water experiences, and a key contributor to Masco's success.

With that, let's turn to our second quarter financial results. Please refer to Slide 6. Overall, our underlying second quarter and first half performance was in line with our expectations and reflects the resilience of our business and the strength of our execution. In addition, during the second quarter, we began to receive IEEPA tariff refunds and recognize the benefit. The benefit of these refunds was partially offset by targeted strategic investments to support growth as well as by employee-related incentive compensation costs associated with this favorable impact. Overall, we recorded a net tariff refund benefit of approximately $95 million during the quarter. Our net sales in the second quarter decreased 3%, which were impacted by a challenging comparison to the prior year as well as the targeted strategic investments we recognized in the quarter. If you exclude the impact from the strategic investments, net sales in the second quarter will be roughly in line with the prior year, and our sales in the first half of the year would be up low single digits consistent with our expectations.

Operating profit was $482 million, an increase of 17%. Operating profit margin was 24.2% and earnings per share grew 26% during the quarter to $1.64 per share. Turning to our segments. Plumbing Products sales decreased 3% in local currency. However, excluding the impact of the targeted strategic investments, Plumbing segment sales would have been in line with the prior year. North American sales decreased 6% in local currency, driven by the strategic investments, which accounted for more than half of this year's year-over-year impact. In addition, North American sales were also impacted by a challenging comparison to Q2 2025 with sales increased mid-single digits. When you viewed over the first half of the year, excluding the impact of the strategic investments, our North American plumbing sales grew low single digits, in line with our expectations, and we remain confident in the strength of our competitive position across our channels. We continue to gain share through our e-commerce leadership, innovative products and exceptional customer service.

Turning to international Plumbing. Sales increased 4% in local currency, driven by growth across many European markets, particularly in Germany, partially offset by the ongoing weak market in China. This strong performance driven by volume growth and pricing actions demonstrates the strength of the Hansgrohe brand and the team's execution across our geographic markets. Operating profit for the Plumbing Products segment grew 26% to $361 million and operating margin expanded to 27%. Turning to our Decorative Architectural segment. Sales decreased 4% and our momentum in propane continued in the second quarter, with sales growing mid-single digits as our offering continues to resonate with Pro customers. As we invest alongside our partner, the Home Depot, we are confident in our ability to drive further share gains and capitalize on the significant growth opportunities ahead. DIY paint sales decreased high single digits given the ongoing challenging industry dynamics.

In addition, Performance in the quarter was impacted by the customer transition of our primary and applicator business we discussed in our fourth quarter 2025 earnings call in February. We do not expect this transition to have a meaningful impact in the second half of the year. Despite these factors, our expectation for full year DIY paint sales to be down mid-single digits remains unchanged. We believe Bayer is well positioned as the #1 DIY brand with leading positions in color, quality and value. Operating profit for this segment was in line with the prior year at $148 million, and operating margin was 22.6%. Turning to capital allocation. Our strong cash flow and previously announced accelerated share repurchase program allowed us to return $454 million to shareholders this quarter through dividends and share repurchases. Additionally, as we continue to actively manage our portfolio and focus on our core industry-leading brands, we recently divested Bristan Group, a U.K. plumbing business. We believe Bristan has a strong future with FM Matson Group, while allowing us to focus on Hansgrohe as our core international plumbing business combined with the actions we are taking to improve efficiency and strengthen execution across the business.

We are encouraged by our first half performance, which reflects our team's strong execution and focus on operational excellence. We are also continuing to implement the restructuring actions we previously shared in order to better align our cost structure and enhance our flexibility to invest in future growth opportunities. As we look to the balance of the year, uncertainty in the macroeconomic and geopolitical environment remains However, our first half performance reinforces our confidence and the resilience of our business, the strength of our brands and our ability to execute in a challenging environment. With our strong first half performance and the benefit of the net tariff refund impact, which represents an estimated $85 million for the full year. We are raising our 2026 earnings per share guidance to $4.40 to $4.60 from our prior range of $4.10 to $4.30. Consistent with our prior guidance, we continue to expect that our sales will be up low single digits for 2026 and that commodities will remain elevated in the back half of the year. Rick will share additional details of our guidance in a few moments.

While uncertainty remains in the near term, we continue to focus on executing the actions within our control and positioning the business to capitalize on the opportunities ahead. The long-term drivers of repair and remodel activity, including strong home equity levels an aging housing stock and pent-up demand for home improvement projects remain firmly in place. As market conditions improve, we expect these fundamentals to provide meaningful support for growth. At the same time, we're making investments in our business and taking actions to improve operational performance, ensuring we are well positioned to capitalize when market conditions return to more historical growth rates, supported by a portfolio of market-leading brands, robust cash generation, and the investments and actions we are taking to strengthen our operating performance and enhance execution across the business, we believe Masco is well positioned to deliver above-market growth and continue to create long-term shareholder value.

With that, I'll now turn the call over to Rick to go over our second quarter results and 2026 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Renee mentioned, my comments today will focus on adjusted performance. Turning to Slide 8. Sales decreased 3%, with currency having a minimal impact on our second quarter results. In local currency, North American sales decreased 5%, while international sales increased 4%. North American sales were impacted by a challenging comparison to a strong Q2 last year. as well as targeted strategic investments to support growth. Gross margin in the second quarter was 43.8%. The overall performance versus prior year was primarily driven by the net benefit from the IPA tariff refund with underlying performance largely in line with the prior year.

SG&A as a percent of sales was 19.6% and was impacted primarily by higher employee-related costs, including incentive compensation. Operating profit grew 17% to $482 million in the quarter, and our margin expanded to 24.2%. Operating profit was driven by the approximately $95 million net tariff refund benefit, pricing actions and cost savings initiatives. This was partially offset by lower volume and higher commodity, tariff and employee-related costs. Our EPS grew 26% to $1.64 per share in the quarter. Turning to Slide 9. Plumbing sales decreased 3% in the second quarter. Currency had a minimal impact on our results. The year-over-year performance was primarily driven by lower volume and the recognition of targeted strategic investments in North American plumbing, partially offset by higher international volume and pricing actions across the segment.

In local currency, North American plumbing sales decreased 6% in the quarter. This was primarily driven by a challenging comparison to a strong second quarter last year and the targeted strategic investments. Looking at our North American plumbing performance in the first half of the year, sales increased low single digits, excluding the impact of the strategic investments. This performance which was driven by strong growth at our Delta Faucet and Watkins Wellness businesses was in line with our expectations, giving us confidence to deliver low single-digit growth for the year. In local currency, International plumbing sales increased 4% in the quarter. Hansgrohe grew in many of its European markets, including its key market of Germany. This growth was partially offset by continued softness in China. Segment operating profit in the second quarter increased 26% to $361 million and operating margin expanded to 27%. Operating profit was driven by the net tariff refund benefit pricing actions and cost savings initiatives. This was partially offset by lower volume and higher commodity, tariff and employee-related costs.

Turning to Slide 10. Decorative Architectural sales decreased 4% in the second quarter. Our strong PRO paint performance continued with sales increasing mid-single digits in the quarter. DIY paint sales decreased high single digits in the second quarter, reflecting ongoing weakness in the DIY paint market and the unfavorable impact from the customer transition of our primer and applicator business. We do not expect this transition to have a meaningful impact on our results in the back half of the year. Overall, our paint sales remain largely in line with our expectations and we continue to anticipate full year PRO paint sales to increase mid-single digits, and DIY paint sales to decrease mid-single digits. Operating profit in the second quarter was $148 million operating margin was 22.6%. Operating profit was in line with the prior year, with cost savings initiatives and increased pricing, offset by lower volume and higher commodity costs.

Turning to Slide 11. Our balance sheet remains strong with gross debt-to-EBITDA at 2.1x at quarter end. We finished the quarter with $1.5 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 19.8% of sales at quarter end. As expected, working capital balances in the first half of the year remained elevated due to the impact of tariffs. However, we continue to anticipate working capital as a percent of sales will be approximately 16.5% at the end of the year. Our strong cash performance enabled us to return $454 million to shareholders through dividends and share repurchases, including the repurchase of $390 million of stock in the second quarter, as we executed on our $300 million accelerated share repurchase program that we announced in May. With our ASR and the benefit from the tariff refunds, we now expect to deploy approximately $1 billion towards share repurchases or acquisitions in 2026, up from our previous expectation of at least $800 million.

Now let's turn to Slide 12 and review our outlook for 2026. Our underlying performance in the first half of the year was strong and largely in line with our expectations. As a result, we are maintaining our full year outlook while incorporating the estimated $85 million full year net benefit from the IPA tariff refunds, essentially all in our Plumbing segment. For Masco overall, we continue to expect 2026 sales to be up low single digits and now expect our operating margin to expand to approximately 18%, up from our previous guidance of approximately 17%. Turning to our segments. In our Plumbing segment, we continue to expect 2026 full year sales to be up low single digits and now expect our operating margin to expand to approximately 20%, p from our previous guidance of 18%, driven by the net tariff refund benefit, pricing discipline, operational efficiencies and continued cost savings initiatives. In our Decorative Architectural segment, we continue to expect 2026 sales to be roughly flat with the prior year and our operating margin to be approximately 19%, with a continued focus on cost savings initiatives.

Finally, as Jon mentioned earlier, we are increasing our 2026 EPS estimate to be in the range of $4.40 to $4.60 per share, up from our previous guidance of $4.10 to $4.30 per share. This continues to assume a $200 million average diluted share count for the year and a 24.5% effective tax rate. Additional financial assumptions for 2026 can be found on Slide 15 of our earnings deck. With that, I would like to open up the call for questions. Operator?

[Operator Instructions]

Your first question comes from the line of John Lovallo from UBS.

The first one is just on the thought process behind, including the IEEPA tariff refund in the core numbers. And then also along those lines, why is the full year benefit of $85 million, $10 million less than the $95 million that was incorporated in the first quarter?

John, it's Rick. In terms of incorporating the IEEPA tariff refunds, we thought it was appropriate to include in terms of providing financial forecast for the full year and obviously provides explanation in terms of our guidance for the year. We did, obviously, as you saw throughout our prepared remarks, quantify the impact on a net basis for the quarter at $95 million and for the year at $85 million. So we created that visibility. In terms of the difference between the quarter impact and the calendar year impact is really an accounting convention. It's really related to employee-related incentive comp that is not able to be booked in the full amount in the quarter in Q2 gets amortized over the remaining part of the year. So that $10 million delta you'd expect to see in the second half of the year.

Okay. Understood. That's helpful. And then what drove the strength in the deck a margin of 22.6% in it seems to imply a deceleration in the back half? And what would be driving that?

\

John, it's Jon Nudi. We feel overall good about our momentum on Behr, particularly on the PRO paint side of things and very much remain on track with our business up mid-single digits. DIY was more pressured, obviously, in the quarter. Part of that was the primary conversion at one of our key customers last year. I'd say our underlying performance was very much in line with what we expected. From a margin standpoint, we recognize that the market is challenging, and the Behr team has been taking actions to really reduce cost and really try to mitigate as much inflation as possible. So I would say the margin impact is really due to the efforts of the team to focus on driving cost out, while recognizing the market is likely to remain soft, particularly in the DIY side of the business moving forward.

Your next question comes from the line of Sam Reid from Wells Fargo.

Wanted to drill down a little bit on the plumbing top line in greater detail. You talked to strategic investments in plumbing as being a key driver behind the year-over-year change in revenues. Could you just elaborate on what those strategic investments were? And did that involve stepping up promos in any way?

Hey Sam, it's Jon. I guess maybe taking a step back and ladder back to our strategy that we one or an Investor Day in May, really, we're trying to accelerate growth through a consumer-driven strategy. And 3 key focus areas: one, really industry-leading brands, second expanded commercial capabilities and finally, enhancing our operational excellence. We had the opportunity in accord to make some investments to really jump start our strategy and really set us up for accelerated growth as we move to the future. And for competitive reasons, we're not going to detail each of those investments, but rest assured that they align squarely to those 3 areas and our strategy that I talked about.

We feel like there's going to be a strong ROI. And particularly when it comes to promo, I can tell you that's not necessarily the focus. And certainly, we're trying to invest for the longer term to make sure that we can deliver our strategy.

That's helpful. Maybe just following up here. You obviously sell a lot of plumbing product into the home centers and the home centers are very notorious for being quite price sensitive with their customers. Have you -- how is the dialogue gone with the home center channel? And are they looking for any reinvestment back in price as you receive tariff refunds?

Yes, I would say that channel like all of our channels, obviously remain competitive. And I think that the conversation is really about how do we drive the category. And our plumbing business, particularly in North America, has been strong for quite some time, really growing faster than our competition. and that's what we continue to focus on. So I would say our conversation is more about the category, how do we grow, and how do we innovate, how we continue to build our brands and really leverage our portfolio.

We talked at the Investor Day about our luxury portfolio and how strong momentum has been, and we continue to make sure that we grow really across all of our different parts of the business. So specifically, again, we're focused on the long term. Our partners are as well, and that's where most of our conversations have been.

Your next question comes from the line of Matthew Bouley from Barclays.

Just another one on the strategic investments in Plumbing. I guess the question is this kind of onetime? Or should we assume that this is kind of all gone by Q3? Is there sort of a customer transition situation here like we're seeing in decorative architectural right now? And then you mentioned the improvement in ROI over time, but just how should we think about what the eventual benefits of these investments might look like and when that would arrive.

Matt, what I would say is we try to contain the impact of the EPA tariff refunds in 1 quarter. So I would say they were onetime in nature. And again, for competitive reasons, where I can give a lot of detail, but the ROI is strong for the longer term. And I think it will play out in future quarters. And again, importantly, it very much ladders back to our strategy of accelerating top line growth. So we feel good about these investments. I wouldn't expect just hear about these ongoing really isolated to Q2 of 2026.

Okay. Got it. And then secondly, just wanted to kind of drill down into the raw material environment and looks like some of the metals, copper, especially may still be drifting higher relative to your prior quarter. So just curious what you're assuming from a raw material perspective going forward and sort of timing of all that.

Sure, Matt. It's Rick. So what we've seen in terms of the commodity inflationary landscape is for the first half of the year, a low single-digit inflationary dynamic, both in terms of our plumbing and our decorative segment. But as you articulated, we've seen upward pressure, both from a copper and metals input standpoint, as well as from an oil as we've always seen across the sector. And that's putting pressure in the second half of the year. Our commodity inflation expectations in H2 are in for the calendar year overall. Our mid-single digits, both for the Plumbing and Decorative Architectural segment. It's something that we're monitoring very closely that's factored into our guidance for the year. But it's something that we are managing. And as we've articulated in the past, and have a track record of doing its work to offset and mitigate those headwinds, and that's what we've contemplated in our expectations for the rest of this year.

Your next question comes from the line of Stephen Kim from Evercore.

On the strategic investments. I guess something I was curious about is, are you implying that you would not have investment had the IEEPA refund occured? Or would you have spread out over a longer time -- if you can just give us some color on [indiscernible]

Stephen, it's difficult. There's some interference. Would you mind repeating your question?

I'm sorry. Yes, I was asking whether the strategic investments you made, would you have made them had you not received the refund?

Yes, Stephen, it's Rick. I think if I understood your question correctly, effectively, what we've done is, overall, we're investing in growth. You see that as a continued theme in terms of investing in our brands, our products or services and so that's a continued effort from our standpoint to double down on our growth narrative. I think as it pertains to the IEEPA tariff refund, we send opportunity to be selective in terms of redeploying some of that to enhance our investments in growth. So it is opportunistic and is building upon our other growth initiatives overall.

Okay. Got you. And then I guess second question relates to Behr, sort of following up on your comments that you had -- you drove some costs out I guess I was curious if you could elaborate a little bit more on that. And again, if this is something that you see as sort of a onetime in nature sort of event? Or was the timing accelerated this quarter for a particular reason, if you could just give us some color on that.

Yes, Stephen, it's Jon. So as we exited 2025, we were clear that the core remain challenged, particularly in DIY. So we announced some restructuring actions coming out of 2025, which we're playing out in market today. And we're going to continue to stay aggressive, obviously, in driving our top line try to get back to the growth that we expect to see. But at the same time, making sure we have the appropriate cost structure with where the market is today. So this isn't something new. It's something that, again, we have talked about in the past. You're starting to see the benefits of those restructuring actions start to hit the P&L.

Your next question comes from the line of Trevor Allinson from Wolfe Research.

A follow-up question on your inflation expectations. I think a peer of your words yesterday was talking about pain inflation maybe exiting the year closer to high single digits. So across both of your businesses, maybe can you talk about where you're expecting input cost inflation to be kind of exiting 2026? Or if you think the year-over-year inflation impact would be pretty similar between 3Q and 4Q?

Sure, Trevor. It's Rick. What I would say is it's obviously a volatile situation out there. We monitor it closely. But as you've seen, as we've all seen oil prices jump around just given the conflict in the Middle East. So it's a tough one to call per se, but I would say our expectations for the balance of the year as we articulated a mid-single-digit inflation, and that's a reasonable run rate as we think about as we exit the year. But again, that's something that we're tracking very closely, and we'll respond accordingly.

Okay. Makes sense. And then second question on debt Arc margin guidance. It seems to imply that margins could be down more than 100 basis points in the second half of the year, presuming there's some volume headwinds there. DIY is still pretty weak. But is it -- is there also a price cost headwind that is more timing related with your largest customer, just given the nature of the relationship you have there? And if that's the case, then would you expect some price cost recovery as you get in early next year?

Trevor, it's Rick. In terms of the back half of the year for Decartes a couple of factors at play. One is employee-related costs in terms of incentive compensation, which we've referenced a little bit earlier, but also to -- you've been is a bit of timing in terms of our investments for growth. I mean we talked about strategic investments in the plumbing space. But as I referenced earlier, we're making investments across the board. And there's just some timing elements to that in the back half of 2026. And then finally, the commodity headwinds that we referenced before. We're not going to talk about pricing with our customers. It's something that we track.

And as we've articulated before, we look for -- we have an agreement with our biggest channel partner to be price cost neutral. And so it's something that we aim to do. But as we've articulated a couple of times and I know a dialogue more broadly in terms of the commodity inflation, it's a factor that we're seeing in the second half of the year.

Your next question comes from the line of Susan Maklari from Goldman Sachs.

Good morning, everyone. My first question is maybe referring a bit more to the wellness part of the business, which is something that you talked a lot about at your Investor Day. Can you give us an update on how Watkins performed in the quarter, and how that aligns with the overall strategy that you talked to? And then maybe within that, just an update on the health of the consumer and especially at the higher end, what you're seeing there?

Sue, it's Jon. We continue to remain excited about our wellness business, as we talked about at the Investor Day. It's really driven off a secular long-term trend with a lot of tailwinds. And we continue to see good growth. We saw a good quarter overall and wellness with spa going up nicely and saunas continued to grow at a very rapid rate. And the reality is, it is a case shipped economy, and I think the upper income consumer continues to hang in there pretty strongly. So we've seen good momentum on that business. We expect to see good momentum as we move throughout the year as well.

Okay. All right. That's helpful. And then one of the initiatives that you've also talked about is improving your working capital this year and focusing on some of the cash generation of the business. I guess just given all the puts and takes that we're seeing coming through, talk about the ability to generate that cash? Any thoughts on working capital and what that implies in terms of your priorities for capital allocation?

Sure, Sue. It's Rick. So in terms of our working capital expectations, we articulate, at least in my opening comments, where we're trending year-to-date, which is a bit higher just given the tariff impact on working capital and what I mean by that is with the higher tariff and commodity costs for that matter, you have higher input costs that flow into inventory and receivables. And then in terms of payment terms, the tariff payment terms are shorter than our regular payment terms. And so that has implication on our working capital.

That said, we continue to be very disciplined on working capital to make sure we've got enough inventory and safety stock, but otherwise really focused on being lean and focused on managing that for cash flow purposes. And as I articulated earlier, our expectations for the ending working capital balance is at about 16.5% of sales, which is consistent with historical levels. And overall, taking a step back, our cash flows were strong. I mean it's one of strong attributes of our business model as we convert much, if not all, of our earnings into cash. And that really enables us to reinvest in the business. make sure we have a very strong balance sheet and returning cash to shareholders through dividends and share buybacks.

And as you heard earlier, we've increased our expectations of cash available for share buybacks or M&A to $1 billion for the year. And that's a reflection not only of the ASR and the funding through a term loan, but also the cash flows from the business. And so we feel really strong both the cash health and the cash performance of the business.

Our next question comes from the line of Phil Ng from Jefferies.

It's Maggie on for Phil. I just wanted to go into the pricing impact in the quarter. Maybe if you could break out any color by segment? And then just more overall how you would characterize the current pricing environment? Are you seeing any change in price elasticity or pricing fatigue following several years of kind of outsized pricing?

Yes. Maggie, it's Jon. I would tell you that we saw on an underlying basis, the pricing consistent with what we would have expected. So taking out the onetime impact of the tariff refund to that benefit and some of the investments we made pricing for plumbing, it was up mid-single digits and pricing for pain was up low single digits. That's very consistent with what we would have expected. We continue to work hard to limit the amount of price we have to take. It starts with and really optimizing our footprint. And the team has moved quickly over the past year to really do that after tariffs were put into place a year ago, April.

In addition to that, we are working on restructuring and taking cost out of our own company so that we can be as efficient as possible. And then finally, where necessary, we will price and really pleased with how the team has approached pricing. It's taken a strategic [indiscernible] to it. We're leveraging some of our strategic revenue management tools. and overall feel like we priced it in an appropriate way. We continue to see good momentum in our market, whether it be on plumbing or other businesses as well, as where we believe that we continue to gain share across almost every channel. So feel good about our initiatives and the way that we're pricing and we'll continue to assess the market and commodities as we go through the back half of the year.

Okay. Great. And then obviously, a dynamic cost environment. But any update on how potential changes in Section 232 or the 301 tariffs are impacting you? And then does the back half guide assume any incremental pricing coming through? Or is it all already in place?

Sure, Maggie. It's Rick. You articulate is a dynamic environment out there in many respects, but certainly with regards to the tariff environment, and what I would say is our guidance and our expectations for the rest of the year do contemplate the tariffs that are in place as we stand today. So inclusive of the 232 tariffs on copper, steel and aluminum, as well as the Section 301 tariffs that were just implemented a few days ago, that amount to about 10% to 12.5% that effectively replaced the Section 122 tariffs that expired on July 24. So that's all contemplated in our guidance.

Obviously, it's a dynamic environment, there is discussion in investigation for further Section 301 tariffs. While I would say those aren't contemplated in our guide. As we get closer to the end of the year and the timing of when tariffs flow into our P&L. And just as a reminder, effectively, it's about a 1 quarter lag between when tariffs are announced or implemented and when they ultimately flow through our inventory into our P&L. And so as we get closer to the end of the year, any changes in tariffs will likely to have a significant impact for this year. it'd be something that we'd be looking into -- looking at as low as we roll into next year, et cetera. But what I would say is we're pretty confident that the current tariff environment is fully contemplated in our guidance for the year.

Your next question comes from the line of Keith Hughes from Truist.

Back to the strategic investments. Is that in plumbing? Is that going to one [indiscernible] end-user market, big box versus wholesale versus builder, how is that playing out?

Yes. So Keith, as I mentioned before, we're not going to get into a whole lot of details just for competitive reasons. What I would say is it's very much focused on our entire business. It's not certainly one channel. And I would tell you, it's likely longer term in nature as well. So again, really focused took the opportunity to make some investments and down payment on really getting after our strategy of accelerating growth. And again, as they play out over the quarters ahead, we're going to be pleased with the results and the ROI. But to answer your question is across all of our customers and businesses and not focused on one particular area.

Your next question comes from the line of Mike Dahl from RBC Capital Markets.

Can you help us understand, you have some -- a lot of nets against the tariff refunds. What were your gross refunds just so we can contextualize what some of those offsets represented?

Mike, it's Rick. So we're not going to break down the composition of the net tariff refund impact. We want to be transparent and provide visibility in terms of the net impact. We believe that's most meaningful in terms of understanding the impacts to our financial performance. And so at the end of the day, we are disclosing the fact that on a net basis, we had a favorable impact of $95 million in the quarter.

What I would say is, Jon alluded to this before, as we endeavor to capture as much of the impact in Q2 as possible. And that includes all of the refunds. So we have received much of the refunds in cash, but that which we haven't we booked as a receivable. So that full benefit in as much as possible the full impact in terms of our investments and employee-related costs are captured here in Q2 with a bit of a spillover for an earlier question of incentive comp, that translates into an $85 million impact for the year. But at this point, Mike, that's where we're planning to disclose in terms of the implications on our financials.

Got it. Okay. Understood. And sorry to harp on this, but the investments, I think Jon mentioned in response to an earlier question that it's not promote -- if not leaning on promos, but at the same time, some of the other commentary was talking about underlying pricing ex some of these investments? And then also you don't expect to be talking about the impact going forward, it sounds like there is something maybe pricing related to this.

And so then the question would be, why wouldn't that be an ongoing impact to the balance of the year? Is it because the offset on volume comes through fairly immediately or something else? I mean it's still a little in our view, like a little too vague in terms of the description and impacts understanding that there are some sensitivities around competitive dynamics?

Yes, Mike, it's Rick. I understand the question. as it pertains, it's really a function of our intent to capture as much of the impact in Q2 as possible as previously articulated, as well as kind of the accounting around it. Much of our -- our investments will impact our various parts of the P&L. Effectively, many of our investments in our programs run through net sales. So that's where we've captured the impact in the quarter. And as John articulated, we captured what is our best estimate of the investments we plan to make. They're still being deployed.

And so from a time perspective, we'll see that impact future quarters, hopefully, to the benefit in terms of incremental sales. But our expectation and our estimate is that we would capture it here within the quarter in terms of the accounting P&L side of things. And we'll obviously track it going forward, but the intent is to capture our best estimate here in the quarter.

Your next question comes from the line of Rafe Jadrosich from Bank of America.

On the strategic investments, were they contemplated in the previous guidance? And are they associated with any specific opportunities to gain shelf space or share?

Yes, I would say they weren't contemplated the previous guidance. And again, we were opportunistic given the tariff refund situation in Q2 and took the opportunity to make a down payment on our strategy moving forward to accelerate growth. So again, opportunistic and again, not really focused on a particular channel or a customer. There will be broad-based investments that again will help accelerate growth as we move forward.

Okay. That's helpful. And then just following up on that, if the investments were not in the guidance at the beginning of the year, what's sort of the offset that's letting you hold the full year plumbing revenue guide? Is it that you'll start to get the better volume by the end of the year? Obviously, it's like incremental to the -- an incremental price headwind in the second quarter, what's the offset that's letting you hold the full year guide?

Yes. Rafe, maybe I'll tackle it from a couple of ways here. In terms of the impact, and I'll get to the revenue side in a moment. But from a P&L standpoint, as we've articulated, we've captured the net impact of the $95 million for the full net tariff refund net impact in the quarter. And so that is on an overall operating profit and P&L standpoint, incremental to our guidance on a net basis. From a revenue standpoint, we were still very confident in terms of delivering low single-digit top line growth for plumbing. I mean that is inclusive of these investments that we referred to.

So we believe that we've got enough momentum in terms of the underlying performance, which has been strong in the first half of the year, our Plumbing business is up low single digits even net of the strategic investments. And so our expectation is that we'll be able to deliver low single-digit performance in the back half of the year and for the year overall.

Yes. I would just reinforce, while there's certainly some noise in the quarter given the tariff refunds. Our underlying plumbing business remains quite strong. We have seen no shift downwards in terms of the trajectory and impact of anything very confident as we move throughout the back half of the year. So I just want to make sure that's not lost and some of the noise of this tariff refund in the quarter.

And your final question comes from the line of David McGregor from Longbow Research.

This is Joe Nolan on for David. First, I just wanted to ask about international sales with those up 4% employment. Could you just talk about what you're seeing in some of your international markets?

Yes, absolutely. International business is primarily Hansgrohe and Axor and we're seeing good momentum across that business, particularly in Europe and our key home market of Germany was quite strong. offset by softness in China. We're bullish about our global business, and we mentioned in our prepared remarks, the divestiture of Bristan, which is really nice U.K. brand, but we're very committed to making sure that we focus on our core, which is really has growing Axor. And that's going to be our focus moving forward. As I mentioned, first, we good buyer for that business that's going to be very focused to Sweco, SMBs want to affect the Bristan team for all they've done over the many years at Masco. I know that they're set up for success moving forward. But we feel very good about applying business globally and had good momentum in the quarter.

Got it. Okay. And then there's been a few questions and discussion on pricing and costs. Just wondering, is there enough pricing put through right now to maintain price cost neutrality into the second half of the year?

Yes. Maybe just to clarify the point of the question. In terms of our segment, price on our plumbing side of the -- our Plumbing segment, we do expect price cost positive for the year and for our decorative architectural price cost neutral for the year. And that's consistent with our prior guidance.

And I'll now turn the call back over to Renee Benedict for some final closing remarks.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, everyone. Welcome to Masco Corporation's 2026 Investor Day. I'd like to thank all of you for joining us, whether you're in person at the New York Stock Exchange or online.

I'm Robin Zondervan, Vice President of Investor Relations and FP&A. We have a full schedule for this morning. You'll hear from many of our senior executives as we share more about the next evolution of our strategy, including our various initiatives to drive both top and bottom line growth.

At the end of our presentation, we have time allotted for Q&A and look forward to taking your questions then. For those of you who are here with us in person, we hope that you will join us for lunch following the Q&A session.

Before we begin our presentation, I ask that you please review the following slide. This slide acknowledges that our presentation today includes our views about our future performance, which constitute forward-looking statements. Today's presentation will also include non-GAAP financial metrics. We reconcile these adjusted metrics to GAAP on our website, masco.com under Investor Relations.

With that, I'd like to introduce our first presenter of the day, our President and Chief Executive Officer, Jon Nudi.

All right. Thank you, Robin, and good morning, everyone. We greatly appreciate you joining us today whether in person or online for a focused look at our strategy, growth priorities and long-term value creation. Our goals are clear. And we aim to instill your confidence in our strategy and path forward.

Specifically, we expect you to take away the following: Masco will deliver above-market top and bottom line growth through a consumer-driven strategy. Leveraging our industry-leading brands, which we'll bring to life today, expanded commercial capabilities; and finally, enhance operational excellence. We have a strong history of consistently delivering on our commitments and we are absolutely committed to delivering on this strategy and accelerating our growth moving forward.

Now to set the stage for how we will execute against this commitment. I want to walk you through three key areas. First, our strengths. Second, our opportunities; and then finally, our strategy. I'm going to start with Masco's strengths. What we've done well because they are substantial and help build the strong foundation we have today, and we'll continue to build on this foundation moving forward.

We have significantly streamlined our portfolio of businesses over the past 2 decades. We went from five segments and over 40 business units in 2005. And down to four segments and 17 business units in 2015. And today, we have two segments and in eight business units.

When we last had an Investor Day in 2019, we discussed the plan to sell both our Cabinets and Windows businesses, which we successfully executed shortly afterwards. This leaves us with a more focused and simplified portfolio of businesses.

Our portfolio today is focused on some of the most attractive categories in building products, Plumbing, Paint and Wellness. These categories have similar characteristics, including a larger repair and remodel composition, generally lower cyclicality and finally, ongoing share growth opportunities. Additionally, these categories are all driven by strong brands, excellence in design and innovation.

The Plumbing, Paint and Wellness categories were intentionally chosen due to the strong EBITDA margins and high ROIC. We exited categories like Cabinets and Windows with lower margins and returns. These portfolio decisions have resulted in a more focused company with higher shareholder returns. Another strong at Masco is our leading brands. In plumbing, our North America brands include Delta, Brizo and Newport Brass.

Internationally, we have the Hansgrohe and Axor brands. In paint, our Behr and KILZ brands are sought after by DIYers and Pros alike. In Wellness, we have the Hot Springs and Caldera Spas brands and our TyloHelo and Finnleo sauna brands. We are category leaders in North America as Delta Faucet as the #1 faucet brand, Behr Paint the #1 DIY brand and Hotspring spas are the #1 hot tub brand.

Our brands are known for their performance, quality, design and innovation. Our streamlined portfolio of businesses with leading brands focused on the most attractive categories has led to our strong and consistent financial performance through cycles. Since 2019, revenue has a compound annual growth rate of 2%. Adjusted operating profit also has a compound annual growth rate of 2%. And and adjusted EPS was a compound annual growth rate of 10%.

We grew adjusted EPS from $2.28 per share in 2019 to $3.96 per share in 2025, which is a credit to the focus and diligence of our teams across our businesses. As a reminder, during this period, we now navigated through supply chain challenges, a global pandemic, significant inflation and sizable increases in tariff costs. Yet, we still generated strong results, including double-digit adjusted EPS growth.

This strong financial performance drove shareholder value. We returned over $9 billion to shareholders since 2015. Our ROIC averaged 45% annually since 2019, and our dividend has increased annually for the past 13 years. So there's a lot we've done really well over the past several years. And we have a very strong foundation to build upon. Yet we do have opportunities and with focus and strong execution, we can drive additional shareholder value.

Now when I came on board as CEO last year, I completed a listening tour. And one thing I heard consistently is our largest opportunity is to accelerate top line growth, which hasn't grown since 2022. We are energized by this opportunity and absolutely believe we can drive additional top line growth across our businesses. You'll hear a lot more about that over the course of this morning.

Now at the same time, we will stay true to delivering strong bottom line performance. So you'll also hear more about our strategic initiatives around margins and profitability. Accelerating top line growth is a priority, and you'll hear today specific plans to do just that. From the leaders of our four largest business units. Each business has key focus areas and opportunities to drive growth.

In Plumbing, we have three key growth opportunities: first, advancing e-commerce leadership. We have consistently gained share in this channel through differentiated capabilities. And these capabilities are increasingly important as technology rapidly advances and consumers embrace digital experiences.

Next, we have an opportunity to accelerate the growth of our luxury brands, Abrazo, Axor, Newport Brass brands resonate with consumers and have performed very well over the past few years. Yet, they are still a smaller portion of the portfolio, so growth opportunities remain.

Finally, we have an opportunity to drive global projects. We have a significant international presence and we can use our scale to deliver products which meet the needs of our customers, investing in large global projects, including hospitality and multifamily luxury projects.

Jill Ehnes and Hans-Juergen Kalmbach will bring these opportunities to life in just a few minutes.

Now on paint, we intend to strengthen our DIY leadership a mix of backdrop of a challenging environment. Our Behr brand delivers amazing quality and value, so we want to clearly communicate these benefits to consumers. At the same time, our investments in propane are paying off. We plan to continue to drive share gains and win with the Pro by offering services and support, which meet the day-to-day needs -- their day-to-day needs.

We remain tightly aligned with the Home Depot around driving growth of the Pro. And propane, we have less than a 10% share of the category. So there's a large opportunity for us to continue to grow and gain share. VJ Teenarsipur will walk you through these plans in more detail later this morning.

Finally, in Wellness, Steve Stigers will detail the strong secular trends in this space as well as the opportunity to increase household penetration in both hot tubs and spas. Collectively this business provides an outsized opportunity for growth. And as I mentioned earlier, we also remain focused on driving our bottom line. We certainly won't ask shareholders to fund our investments to accelerate the top line. Instead, we'll grow margins and generate investment dollars by leveraging our scale and managing our costs effectively.

Now we've already begun taking actions, which include further streamlining our business with the recent announcement of the integration of Liberty Hardware into the Delta Foster Organization. We're standing up centers of excellence and disciplines where advanced capabilities will drive performance across all of our businesses, optimizing our footprint across our manufacturing and distribution facilities and continuing to utilize our Masco operating system to adopt best practices across our enterprise, which drive productivity and efficiency and take costs out of the business.

As an example, we have the opportunity to optimize indirect purchasing to leverage our global scale and reduce our overall costs.

So after detailing our strong foundation, and our opportunity to accelerate growth. Let me take a step back and really walk through a key message for the day. As I mentioned earlier, we plan to deliver above-market top and bottom line growth through a consumer-driven strategy, leveraging our industry-leading brands, expanded commercial capabilities and enhance operational excellence.

Now let me spend some time on packing each of these key components of our strategy in a bit more detail. Now a key driver to above-market growth is leveraging our industry-leading brands, and we've got a great stable brands. A consistent differentiator of our brands ever since Alex Manoogian founded Masco and invented the single-handle faucet, has been the focus on innovative products.

We combine innovation, design, quality and performance, which makes our brands stand out and lead in the market. We also innovate to meet consumer needs and solve their problems, is driven by a pull from the market versus a push into the market. In Plumbing, our portfolio of plumbing brands is uniquely positioned to meet the needs of both consumers and pros. Leveraging our brands means developing products based on consumer insights, focusing on function, design, form and sustainability. And Paint, our Behr brand has industry-leading quality at an incredible value.

We're also further communicating our value proposition with PROS as Behr paint and KILZ Primer have both the performance and price they want. We're the top rated interior paint the top-rated exterior paint and top-rated exterior stain by consumer reports. We've always been a leader in sustainable products and will continue to be a leader moving forward.

In Wellness, we will leverage our brands to drive increased household penetration. Spas are only in about 6% of U.S. homes, and sauna are only in 1% of U.S. homes, representing a large category growth opportunity. Our Hot Spring, Caldera, Emmis Pools, TLO and Finleo brands are either #1 or #2 brands in their respective markets. So with the continued rollout of innovative products, we can capitalize on this growth opportunity in this sector.

Now a second key driver to above-market growth is expanded commercial capabilities. One of these capabilities is digital marketing and e-commerce. Digital marketing is the way forward. Consumers typically start their search online, and they're increasingly making purchases there as well. Delivering a personalized experience is now essential.

We intend to accelerate investments in these digital capabilities, which can be leveraged across all of our businesses to drive growth. We've appointed a digital marketing leader for our organization, Lauren Weston and you'll hear more from Lauren letter today on this topic. You'll also hear more from VJ and Lauren about how Chat Hu helps us solve our paint customers #1 biggest challenge, picking the right color.

Additionally, you'll hear about how we'll continue to expand our marketing capabilities to optimize and tailor the consumer experience based on individual needs and preferences. Our business units are already making progress in implementing various commercial excellence capabilities. We've developed tools, which bring greater visibility into what's driving our commercial performance. We've created processes, which allow for faster and more structured pricing and trade decisions.

And we're growing our data and analytics capabilities to better inform the choices we make, which impact our revenue and our margin.

Now finally, the final key driver to above-market growth has enhanced operational excellence. The how behind the strategy. This really consists of a new executive committee, which for the first time in Masco's history includes direct representation from our largest business units.

Simplification and scale as evidenced by bringing Liberty Hardware into Delta and centers of excellence to develop key capabilities, which can be applied across our business to move with increased speed and drive enhanced results.

Our Executive Committee consists of leadership from Delta Faucet, Hansgrohe, Behr Paint and Watkins Wellness, all of whom you'll hear from today. In addition, our executive committee includes key functional leaders, including two recently announced additions our Chief Supply Chain Officer, Arun Iyer; and our Chief Procurement Officer, Steve Nikolopoulos. All of our executive committee members are here today, and you have a chance to meet them if you're with us in New York City this morning.

Now we're standing up centers of excellence as well to develop common tools, capabilities, guidance and insights, which are business units can tailor to their strategies and customer needs, resulting in faster decision-making, enhanced customer experiences and high-quality execution. But finally, we have a consumer-driven strategy. Approximately 90% of our sales are branded consumer-facing products. This includes sales to professionals who are loyal consumers of our products as well.

As we talked about earlier, consumer insights drive our product development and innovation pipeline, products which meet the needs and preferences of our consumer accelerated top line growth and drive incremental profitability. Winning today requires a relentless focus on consumers and everything we do. Our strategy is an evolution, building on our strong foundation to capture the opportunities in front of us.

As you've heard from me, Masco will deliver above-market top and bottom line growth through a consumer-driven strategy, leveraging our industry-leading brands, expanded commercial capabilities and enhance operational excellence.

Now let's dive into each of our businesses in a bit more detail. We'll start with plumbing. So please join me in welcoming Jill Ehnes to the stage.

Thank you, John. Good morning, everyone. My name is Jill Ehnes. I am the President of Delta Faucet Company in North American plumbing. Today, my colleague, Hans-Juergen Kalmbach and I are going to share how Masco's Plumbing platform is built to win, by taking share, expanding margins and compounding value through any point in the cycle.

What we're going to walk you through is not theoretical. It's grounded in data, it's proven in performance, and it's already showing up in our results. Now, we win by doing three things exceptionally well. First, we build structural advantages that are anchored in our industry-leading brands. Second, we invest in targeted growth accelerators by expanded commercial capabilities.

And third, we drive operational excellence that supports best-in-class cost structure and margin durability.

So let me start with our structural advantages. We operate in a $32 billion market that's growing at about 3% to 4% through the cycle. And within it, we are the largest branded faucet and showering player globally. At $4.5 billion in revenue and with about 90% of our business in faucets and showering, we hold leading share positions across our core markets, and we serve customers in more than 100 countries.

Our scale is a structural advantage, allowing us to leverage our brand leadership, our channel strength and our cost position. As a result, we are one of the most profitable decorative plumbing businesses amongst our global peer set. Our model is built for resilience. We are intentionally less exposed to new construction, with the majority of our revenue coming through repair and remodel.

And where we do participate in new construction, we focus on builders that really align with our brands with higher spec homes, and they deliver more attractive margins. And we complement this with our global project business, built on Marquee developments, specified by world-renowned architects and designers.

That business is supported by a multiyear pipeline that provides brand visibility and a more predictable multiyear demand for our global Hungary and Axor brands. The results, lower volatility, more durable margins and more consistent performance through cycles.

We create demand, as John said, by winning with decision makers, and our strategy starts with that deep consumer insight, understanding how they research our products how they purchase our products and then ultimately how they use our products. We take a targeted approach across a broad set of decision makers, starting from those consumers, also professional installers, architects, designers and showroom associates.

And that insight advantage allows us to tailor our brand positioning, our product innovation, our pricing and our channel access by segment. The result is consistent share capture across market conditions and independent of market growth.

Now a cornerstone of our ability to win is branded product leadership. Our platform includes our seven core brands with the scale, positioning and economics to grow profitably over time. Together, they form what we believe is the strongest brand portfolio in decorative plumbing. Our Hero brands, Delta and Hansgrohe are each over $1 billion in revenue and hold leadership positions in their domestic markets.

We complement that with a highly attractive $450 million luxury portfolio. That includes Brizo, Axor and Newport Brass. These brands are selectively distributed, their designer and architects specified and they serve a more resilient, higher-margin consumer. Collectively, this portfolio positions us to win across price points with strong economics.

Our business is anchored in the most attractive profit pools in decorative plumbing. Faucets and showering represent roughly 1/3 of the $90 billion global market. Yet they capture over 50% of the profit pool. These categories are less commoditized, more brand-driven and enable meaningful differentiation through design, finish and functional innovation.

That creates a strong foundation, not only to win in our core categories, but to expand selectively into adjacencies by leveraging our brands, our channel access, our innovation capabilities and our global reach. So we'll continue to deploy capital where brand matters most and commoditization is lowest.

In our categories, distinctive new products create demand and reinforce brand relevance, conversion and pricing power. And this is where we excel. Our approach is repeatable and disciplined. First, we start with deep consumer insight. Then we translate insight into differentiated designs and innovations. And then we work quickly to deliver those new products to market at speed. And the results reinforce that.

Today, our new product vitality or percent of revenue coming from products that have been launched in the last 3 years is approximately 25%, with a clear path to 30%. And we are well positioned to deliver on that goal with a prospective pipeline of over $1.5 billion.

Now we reach our decision makers where they choose to shop. Our data shows that consumers engage with our brands across approximately 10 touch points before making a purchase. And we take a true omnichannel approach, walking alongside them throughout their journey across trade, retail and online. We do this while maintaining selective distribution of our luxury brands to protect exclusivity and brand positioning.

We have deep trusting relationships with all of our decision makers, and we'd like you to hear from a few of them.

[ Presentation ]

Now that video has a focus on the Delta brand. This message is reflective of the sentiment of our decision-makers across all of our brands. Our omnichannel model ensures that we capture demand wherever it's created and translated into share across channels. While also reducing reliance on any single channel or customer.

We have 1 of the broadest global footprints in decorative plumbing. Through Hansgrohe and Axor, we sell in over 100 countries with dedicated commercial operations in approximately 35 markets. That local presence enables tailored execution and sustained demand creation. We will continue to leverage the strength of Hansgrohe and Axor to expand our global leadership, particularly in the attractive global project segment.

And finally, we're seeing several market trends that are structurally favorable to our business. First, the purchase journey is increasingly digital. In the U.S., approximately 27% of faucet and sharing revenue is now online, growing at an approximate 15% CAGR over the last decade. And we expect that online growth to continue to outpace the overall market.

Currently, over 50% of consumers and Pros begin their home improvement shopping journey online. And with the continued proliferation of social media and AI tools, the use of digitally assisted sales will only continue to accelerate.

Second, the luxury decision-maker has remained resilient across cycles, supporting our premium and luxury portfolios. And third, we are seeing increased glocalization this trend were globally brands win when they're locally relevant, which plays directly to our operating model.

Combined, these trends align with our strengths and reinforce confidence in our strategy. Building on these structural advantages, we are investing in targeted growth accelerators to extend our leadership. We're focused on four areas where we have the right to win and the ability to scale. Digital, Luxury, New Product Development and Innovation and Global Projects.

Together, these growth accelerators expand our commercial capabilities and position us to drive above-market growth and gain share. As I said, the purchase journey is increasingly digital, and we are winning. We invested in online early, building a dedicated e-commerce team and set of capabilities nearly a decade ago. And as a result, we hold an outsized digital shelf position.

Digital influences the purchase even when the transaction happens in-store or through trade with 95% of shoppers researching online, winning digitally means winning overall. Our performance reflects that leadership with an approximate 15% CAGR over the past 5 years, well ahead of the market, which grew at an approximate 8% CAGR and gaining over 800 basis points of share.

Today, with the majority of our online sales coming through pure-play e-tailers and our channel partners' online platforms, our online faucet share is approximately 1.5x that of our nearest competitor. And looking ahead, we're scaling this advantage in partnership with our digital COE to drive continued share gains and profitable growth.

Our omnichannel leadership is powered by a connected set of digital capabilities that we've built over time. And at the core is advanced analytics, which helps drive our decision, including what products we're going to launch, where to compete and how to win the digital shelf. We also take an online first product launch approach, allowing us to test, learn and unlock incremental revenue opportunities.

That capability is already producing tangible outcomes, including stronger e-commerce vitality at 35%. But it's not just about online sales. That online first product launch approach allows us to take the learnings and extend those top-selling products into other channels and customers, generating meaningful omnichannel revenue created from white space opportunities that we identified online.

And now, we're introducing AI to help us identify those opportunities faster, optimize our performance in real time and automate execution at scale. The takeaway is simple. We've built the digital foundation, and now with AI, we're ready to multiply it.

As I shared earlier, Luxury is a highly attractive profit pool and a key growth opportunity for us. The Luxury kitchen and bath market in North America is roughly $2 billion. It's more resilient than the mass market. It offers higher margins and it's growing at roughly 2x the rate, making it an important segment for share expansion.

Today, our portfolio is well positioned to accelerate growth with demand in brands, strong advocacy from key influencers and deep existing channel partnerships. Not every competitor can play in this segment and even fewer can scale profitably. Luxury is not one consumer, one channel or one aesthetic. It's a continuum. And that is why we compete with a portfolio of distinct brands. Each has a clear role and differentiated positioning.

In a fragmented market where exclusivity and personalization drive demand, portfolios win where single brands are more challenged. And we have a proven track record of building brands in this space. Brizo's 14% CAGR over the last decade and strong influencer advocacy are clear proof.

Today, Brizo is the #2 luxury brand in North America, the fastest growing in the segment, the most recommended by associates, and it has 84% awareness with designers. Now we're applying that same luxury playbook to Newport Brass to move the brand upmarket and sense integration into Delta Faucet Company. Just last year, we have sharpened the brand positioning, accelerated product launches and leverage our scale and relationships to drive growth.

Early results are encouraging. Within 9 months, we've outpaced market growth and we've gained share. We were also awarded the Architectural Digest Great Design Award. We've garnered over 100 million or media impressions and increased our digital engagements by 40%.

And as leading global luxury brands, we know there's significant opportunity to unlock further growth from Hansgrohe and Axor North America. By increasing coordination across our portfolio and establishing dedicated leadership, we're driving synergies and scaling more effectively.

Our unique brand portfolio provides differentiation that drives preference and our scale drives faster, more profitable growth.

Now I'd like to turn it over to Hans-Juergen, who will share more with you about our innovation and global project growth strategies.

Thank you very much, Jill, and so good morning to everyone of you. Innovation is the fuel for growth. Innovation creates demand for. Innovation strengthens our brand relevance and innovation supports margin development. Water is live and our passion as we keep saying that. We create inspiring moments with water while treating this precious element in a responsible way. We focus our innovations where it matters most in function, design, form and sustainability.

Let me share with you a few examples of our water innovations. First, function. In water quality, the faucet is the delivery point. But looking at the consumer desires, we saw the opportunity to do more. We converted our faucet into a complete reverse osmosis system. Our drinking water systems are now highly differentiated, the most certified in the class and already scaling quickly, exceeding our sales expectations.

Second, Design, in premium and luxury design really matters. Consumers increasingly expect products to deliver both performance and design aesthetics that are on trend. Resource for clear collection is a great example for that. By pairing unique design and performance for clear one already multiple design awards.

Let me talk about Forum number three. We also innovate by rethinking how our products are coming together as a complete solution and our customers experience our product. With Hansgrohe Avalegra Solution, we integrated a faucet, a basin and an upward spraying face shower into one single wash place system. Therefore, we created a new water experience so that the consumer can use the face shower to rinse the face after showering or after shaving or to remove makeup.

Number four, sustainability. Of course, sustainability is also top of mind of our consumers. With innovative technologies like Hansgrohe EcoSmar or CoolStart, we reduced the water consumption in a shower or faucet by up to 60% without compromising the comfort of a shower. Therefore, we improve water and energy efficiency, and we also, of course, reduced by that, the carbon footprint of the product.

With a proven high vitality rate, and our $1.5-plus billion pipeline for water innovations, we are well positioned to continue converting consumer insight-led innovation into sustainable growth across the categories, the markets we play, channels as well as price tiers.

Let me talk about the global project business, which is a significant growth engine for plumbing. We achieved profitable growth of approximately up to USD 400 million with a growth rate of plus 8% over the past 5 years. And our ambition is clear. We will further drive accelerated growth in the premium and luxury hospitality as well as residential project segment.

At its core, the global project demand in premium luxury continues to expand at a strong pace. That makes our project channel not only resilient but also a powerful lever for sustained profitable growth.

With our portfolio, particularly our brand Axor, Hansgrohe as well as Brizo and Newport Brass, we are strongly positioned because we have a strong partnership with global architects and designers, leading hospitality brands, and luxury and premium real estate developers and investors.

Regionally, Asia and the Middle East stand out as the most attractive area for the global projects business. So for example, as you see on the chart, as a guest, you can experience our Axor facets and showers, for example, in the Mercedes-Benz tower in Dubai or at luxury hotels and resorts such as the Burgery, Mandarin Oriental, Four Season, Suricaton and many more.

For these kind of properties, the design of collections from our Axor designers, Philip Stark, Antonio Citterio or Barber & Osgerby from London are very well demanded. Our growth trajectory is well founded in our approach to project business as we created a robust global project pipeline for the next years.

And to further expand the pipeline as well as the conversion, we will strengthen our presence in global design hubs where we treat architects and designers directly to support specification.

In London, for example, in Dubai, Singapore, Hong Kong here in New York as well as in Miami, in order to help scaling large projects with architects and design office. Our growth strategy focuses on three priorities. First, strengthen Luxury leadership with Axor, Brizo and Newport Brass to fully capture the expanding high-end segment, in particular, in the fast-growing branded residence segment such as the Louis Vuitton, Mercedes-Benz or Aston Martin residences.

Second, gain market share with our brand Hansgrohe in the premium and mid-segment that offer scalable growth opportunities; and third, position Masco as the trusted partner for complete bathroom solutions for projects. As we execute with discipline, and deepening our relationships with architects and designers, we will leverage the Global Projects business as a scalable engine for further profitable growth.

Fueling and sustaining growth requires also operational excellence. As a plumbing platform, we have been invested in our operations and supply chain capabilities for several years. Now we are taking it to the next level with a robust fast multipronged program and a simplified North American platform.

To improve our operational excellence, we are executing focused initiatives across three areas that drive new capabilities and meaningful margin improvement over the next years.

First, let me talk about footprint optimization. We are actively managing our production locations and our utilization while increasing the use of third-party and contract manufacturing. This includes, for example, moving portions of our Hansgrohe faucet manufacturing, finishing and assembly in Germany to our new plant in Eastern Europe, Serbia.

Additionally, we are optimizing our North American manufacturing and distribution network.

Second, automation and productivity. We are driving value engineering across materials and also invest in automation to reduce labor dependency while improving speed and production flow in our facilities.

And third, sourcing and scale leverage. In partnership with our procurement center of excellence, we are optimizing spend across direct and indirect categories to increase and scale the buying power we have.

These initiatives are executed to build upon our strong track record of delivering productivity and cost savings. To deliver on our growth strategy, we also need the right operating model. Historically, our North American business has been organized as multiple distinct operating entities. We've been consolidating that structure to create a more scaled, integrated organization that can move faster and execute more effectively.

As a result, our North American plumbing business is larger, more diversified and better positioned to drive sustainable long-term growth. This consolidation positions us to scale shared capabilities including innovation, analytics and e-commerce and drive cost synergies across supply chain and overhead roles.

And it also unlocks growth by expanding our brands across a wider set of complementary offerings. Together, this drives stronger execution and operational synergies, enabling reinvestment in growth and also improved profitability.

At its core, Masco's Plumbing Platform with its industry-leading brands is built on structural advantages that compound over time. We operate at scale in categories where brand and innovation matter. With a portfolio and mix that have proven resilient through economic cycles.

From this, strong foundation. We are expanding our commercial capabilities to accelerate growth where returns are the highest. We are extending our share through a consumer-led innovation strategy investing in digital, scaling luxury with a differentiated portfolio and steadily expanding our global project pipeline.

Just as important, we're enhancing our operational excellence as we execute with discipline. We are streamlining the North American business, optimizing our footprints, and leveraging global scale to drive lower cost, more flexible operating models, not as an end in itself, but as an enabler. That discipline allows us to reinvest in our brands, in our innovation and in our capabilities while continuing to expand margins.

The combination of structural advantage, targeted growth and cost discipline is what differentiates Masco.

And now I would like to invite VJ Teenarsipur, President of Behr to be with you on stage, VJ.

Thank you, Hans. Good morning, everyone. I'm VJ Teenarsipur, President of Behr Paint Company. It's my pleasure to share with you today how Behr is well positioned to deliver above-market profitable growth through our industry-leading brands, expanded commercial capabilities and enhanced operational excellence.

Our value proposition is straightforward. Behr wins with industry-leading brands powered by innovation and a continuous improvement operating system that enables adjacent category expansion.

We have a fast-growing Pro platform and an exclusive scale partnership with the Home Depot. This combination is difficult to replicate and underpins sustained above-market growth and attractive returns. Behr is the #1 brand in DIY with approximately 30% share, and we are top rated across all paints and stains categories.

Behr is also the fastest-growing program in the U.S. That brand equity and quality leadership drive pricing and mix strength and create a solid foundation for sustainable, high-quality performance. We continually invest to strengthen the Behr and Kilz brands product performance, color leadership and ability to deliver a seamless omnichannel experience.

Our brand strength is a clear competitive advantage. We are a leader in consumer-centric innovation. We have over 300-plus granted patents and we consistently lead the category by solving real-life consumer and professional painter pain points. Innovation is a core driver of our growth and has supported premiumization and margin expansion. You will see that on the next slide.

As mentioned, innovation is a core driver of growth and profitability for Behr. We have built a repeatable innovation engine that improves customer experience, it drives share and expand margin.

Whether it's about simplifying a job by introducing a product like Paint & Primer in One or improving performance by having features like scuff resistance or advancing sustainability with a plant-based acrylic product, Behr has consistently introduced industry first in terms of category defining innovation.

We will continue to invest in innovation and remain an industry leader on this front. Adjacencies provide meaningful growth opportunity. We see an opportunity to expand in over $2 billion in adjacent categories, and that includes aerosols, stains, Cox and sealants and patch and repair. These are one-step adjacencies where we have the license to play and the right to win, leveraging our brands, our channel access and our operating capabilities to take meaningful share over time.

Our Pro business has delivered 12% CAGR over the last 10 years, and we have over 98% awareness with the Pro. This momentum emphasizes our focus on expanding commercial capabilities.

We and our partner, the Home Depot, are investing behind the Pro in the places that matter most expanding outside sales coverage, expanding intro specialists, improving pro relevant capabilities like job site delivery and significantly scaling training and other engagement events.

The goal is simple. We want to make it easier for PROS to specify Behr, by Behr and stay with Behr. Our exclusive partnership with the Home Depot is a key differentiator and a meaningful competitive advantage.

We have been named Partner of the Year 16 times and we hold over 80% category share of the Home Depot. This partnership is built on solid strategic alignment and strong commercial execution.

Our partnership has scaled from $5 million in 1979 to about $2.4 billion today, and this is across 2,350 stores. This reflects consistent disciplined execution and a strong alignment to support growth. Our success is built on a long-term proven partnership model, and this partnership has never been stronger.

We're well aligned on innovation, digital and winning with the Pro. Currently, we have 15-plus initiatives underway to improve product and customer experience, accelerate digital tools and expand Pro penetration. These programs are designed to drive conversion, improve attachment and strengthen loyalty.

Before we move into segment dynamics and our strategic focus areas, this is a good point for us to hear from Home Depot's merchandising Vice President for our categories, Mr. Chris Wates, and he's going to talk about the strength of our partnership and the run way ahead.

Good morning, and thank you for the opportunity to be a part of Masco's Investor Day. I'm pleased to speak about the importance and continued strength of our partnership with Behr. At The Home Depot, our focus is simple: deliver the best products, value and experience to both DIY and Pro customers. Behr has been a critical partner in supporting that strategy.

Together, we've built one of the strongest partnerships in home improvement, one that consistently delivers growth for both companies and meaningful value for our customers.

What sets Behr apart from the rest is the combination of innovation, brand strength, product quality, which all lead to exceptional value for our customers. Whether it's industry-leading pay performance, best-in-class color capabilities, our continued advancements in sustainability, Behr brings differentiated solutions that scale effectively across our platform.

Looking ahead, we see meaningful runway for continued paint category growth. On the DIY side, Behr continues to play a key role in converting inspiration into purchase through strong digital and in-store experiences. On the Pro side, momentum is building as we expand a more complete one-stop solution that combines product, service, delivery and dedicated support.

Our teams are deeply integrated across merchandising, supply chain and in-store. That alignment allows us to move quickly, scale innovation and execute consistently. Behr is not just a supplier to the Home Depot. They're a strategic growth partner. Together, we're well positioned to drive continued category expansion and deliver long-term value for both customers and our shareholders.

Thank you for the time. Have a great meeting.

I'm glad you got to hear from Chris and the passion he has around our partnership. Now moving on to segment dynamics. The DIY segment is roughly $4.5 billion. Over time, that market has shifted from a do-it-yourself to a do-it-for-me model and broader macro factors, pressure discretionary projects.

That said, we anticipate DIY to stabilize in the short to mid-term as existing home sales and other drivers stabilize. Pro is a $10.5 billion segment, and it's growing at roughly 4.5% CAGR with tailwinds from this DIY to DIFM shift, particularly in the residential repainter segment. We are positioned to continue to win with our DIY leadership while accelerating Pro share gains.

In DIY, we are the #1 brand, and we have a leading position in color match, quality and value. The seamless omnichannel experience that our brands deliver reinforces that leadership. We will continue to strengthen and extend the DIY leadership position we have through innovative new products, delivering best-in-class customer experience and service leadership.

In Pro, we have delivered approximately 200 basis points of share gain over the last 5 years. Further investments in service, delivery and our sales force to expand coverage and improve the pro experience will unlock additional growth. Pro is our largest incremental growth opportunity.

As John mentioned, we will win by doing three things extremely well. We will leverage our industry-leading brands to establish Behr as the color leader -- as the leader in color. We will accelerate Pro growth by expanding commercial capabilities. And we will lead in service and customer experience through enhanced operational excellence.

Our strategy is simple: strengthening DIY leadership and winning with the Pro. And we will enable this with continued development of best-in-class service and operational capabilities. Our tools leverage 10-plus years of color data to improve the digital to in-store experience, drive conversion and build loyalty.

Our Chat.hu AI application now includes improved visualization, and we are building towards significantly enhanced chat features. We have seen a huge increase in customer satisfaction ratings with some of the new enhancements we have rolled out, and we have seen several thousand photo uploads to utilize the visualization feature.

The possibilities of how this can assist and aid end users in their purchase journey in the future is very exciting. We're also consistently gaining consumer mind share in the category. In 2025 alone, we generated over 16 billion impressions, and we are ranked #1 on Pinterest, and we have seen very strong year-over-year growth in terms of share of voice.

Connecting the digital experience seamlessly at the store level, drives higher conversion. To execute this well at the shelf, we have trained over 15,000 plus associates and conducted 160,000-plus training sessions just over the last year. The goal is to build consistent in-store expertise that improves conversion and drives loyalty.

We're modernizing training with AI-enabled tools to scale best practices quickly and keep in-store teams current as assortments and features evolve. Our training team is continuously investing in our capabilities to deliver the best customer experience. Just recently, we have implemented a new AI-enabled training platform.

Our strategy to win with the Pro is centered around building a fully integrated one-stop shop experience at the Home Depot. We are simplifying the job for contractors by bringing together product, delivery and coverage into a seamless solution. This drives higher share of wallet and makes Behr easier to do business with. We have scaled a dedicated Pro sales force with the Home Depot.

Now collectively, we have over 500 reps, and they're focused on building relationships and converting customers in a segment that has historically been relationship-driven. We're investing in fulfillment. So PROS can get what they need when they need it. In this category, speed and reliability directly translate to loyalty.

We're also deepening engagement. We've had over 300 Pro events this year alone, and that drives trial and repeat usage. By combining scale, service and execution, working closely with the Home Depot, we're positioning Behr to win with the Pro.

We see significant runway to grow in the Pro by targeting the largest and most attractive subsegments. As an example, the residential repainter segment alone represents a $4.5 billion opportunity with additional scale across adjacent segments where we are currently under-penetrated.

We're approaching this with tailored offerings partnering with the Home Depot, we want to provide digitized transactions, expanded rep coverage, have in-store Pro specialists and provide financing options and combine all of this with targeted outreach and marketing.

By segmenting the market and aligning capabilities to specific Pro needs, we're positioning Behr to drive sustained share gain and realize higher customer lifetime value. Operational excellence strengthens both service levels and cost performance.

We have made targeted investments across operations and commercial excellence to run the business more efficiently while improving customer experience. Over the last 2 years, we have invested in automation in our distribution centers and our manufacturing facilities, and we are scaling those improvements at a faster pace going forward.

In closing, we have the platform, the capabilities and the momentum to accelerate from here. We are leaning into our strengths to go after the most attractive parts of the market with confidence. With our industry-leading brands, we're establishing Behr as the clear leader in color and delivering a best-in-class consumer experience.

We're expanding our commercial capabilities to drive a comprehensive offering to the Pro to accelerate growth. And we have established leadership in service and customer experience through our enhanced operational excellence. Through our brands, strategy and execution, Behr is well positioned to deliver above-market growth and sustained value creation.

With that, I want to thank you all very much for the time. We're going to go into a short break now. So if you could please rejoin us in 15 minutes, that would be great. Thank you very much.

[Break]

Good morning. I'm Steve Stigers, President of Watkins Wellness. It's a pleasure to be here with you this morning to share why Watkins is positioned to be a powerful growth engine within the Masco portfolio. As you have heard throughout today's presentations from my colleagues, we are focused on leveraging our strategic enablers to drive growth.

For Watkins, we are operating in a highly attractive yet deeply fragmented space. Over the next few minutes, I will walk you through our three-pillar strategy to accelerate our core category leadership position while driving growth and margin expansion.

Let's begin by looking at the robust market fundamentals that are supporting our sustainable growth outlook. Watkins is well positioned to be a growth engine within the Masco portfolio capitalizing on a $1.5 trillion global wellness trend. In the United States alone, wellness represents $500 billion in annual consumer spend growing at an impressive 8% compound annual growth rate.

Over 50% of consumers now prioritize wellness routines in their daily lives. The wellness categories in which Watkins participates are high interest yet low penetration which presents a large expanding market and a sustainable long-term trajectory for growth and value creation.

We operate across four highly attractive wellness categories: hot tubs, saunas, aquatic fitness and coal plunge. Watkins is uniquely positioned as the only player at scale that participates across all of these segments. Our portfolio has evolved far beyond recreation. We provide essential health solutions that accelerate recovery, improve sleep, promote detoxification, offer low-impact exercise options and build resilience among others.

These benefits make our products non-negotiable for today's modern consumer. The upside opportunity for our product categories is immense. As mentioned, our segment portfolio has high awareness with low penetration, ranging from 1% to 6% and in U.S. household penetration against the 8% penetration benchmark for residential swimming pools.

This white space is our greatest asset, an increase of just 1 to 2 additional points of penetration translates to a substantial industry opportunity within our $400 million to $3 billion addressable subsegments.

Now I'll walk you through how Watkins will continue to win in a dynamic and fast-growing wellness space by building on strong foundation of structural advantages. These include leveraging the strength of our industry-leading brands across the portfolio, deploying expanded commercial capabilities that meet the consumer wherever they are in their buying journey with relevant and compelling information making it as easy for them to research, purchase and ultimately use.

And finally, by delivering on our commitment to be a world-class supplier through enhanced operational excellence. Our brand portfolio was architected to capture consumers at every stage in their wellness journey, from fitness to mindfulness to recovery, anchored by Hot Spring Spas, the founding brand of Watkins and the world's #1 selling hot tube brand, we have strategically acquired complementary brands in the hot tub category and closely adjacent wellness categories.

This strategy enables Watkins to capture more share through geographic and channel expansion within the hot tub category and enables access to leading brands in our newer wellness categories. Our brand in designed to ensure we have a clear right to play and a clear right to win. We meet consumers exactly how they want to shop through a robust multichannel model.

We are the established leader in the dealer channel, leveraging robust dealer management capabilities and trusted long-standing relationships. In our omnichannel segment, we are the online leader in hot tub sales, driven by strong established partnerships with major retailers like Costco, The Home Depot and Wayfair.

In our emerging direct-to-consumer channel, we are unlocking new revenue streams in high-growth wellness segments that complement traditional retail channels through our endless pools and LiveSmart brands.

A little bit more about our dealer network. Watkins has built the industry's largest exclusive dealer network. In North America, we have more than 700 dealers representing more than 1,500 locations with a 70% exclusivity rate. This means that 70% of our dealers only carry our brands for these wellness categories within their businesses.

Internationally, we export to more than 70 countries with a 100% exclusivity rate. This approach provides a captive audience for our products and facilitates a seamless and consistent shopper journey from manufacturer to retailer. Our highly trained network delivers exceptional expertise-driven customer experiences that strongly differentiate us in the marketplace, fostering deep, sustained customer loyalty.

This capability of our dealer network is further bolstered by Watkins ability to drive brand and operational alignment across the network, generate high-quality leads at scale that direct prequalified traffic to showrooms and to provide comprehensive retail training programs to our partners that improve their core retail excellence competencies.

Highlighted here are key competitors for Watkins across our four wellness product categories. The market is highly fragmented and populated primarily by privately held niche companies with limited scale.

This lack of prevalent consolidated public players presents a distinct opportunity for Watkins to leverage both our operational efficiencies and our marketing scale while also leveraging our broad global distribution network to capture incremental market share across these segments.

On the product front, our research and development efforts are intently focused on making our products as easy to own as they are to use, but more importantly, use frequently. Frequent use of our products is really what enables the health benefits derived from daily use to accrue. Therefore, our approach to product development and innovation isn't just about adding new features, it's strategically designed to enhance the ownership experience by directly eliminating the primary barriers to purchase such as time and complexity of water management and daily operating costs we unlock the daily wellness routine for our consumers.

We have an active pipeline of projects within our four innovation pillars of water management, energy efficiency, customer engagement and health and wellness. From an investment perspective, this product leadership approach also makes a substantial and direct contribution to our financial performance.

Today, this engine is driving a roughly 40% product vitality rate and a robust $400 million product pipeline in development. A real world example of this R&D strategy coming to in life and improving the ownership experience is the revolutionary freshwater IQ remote water management system.

This first-of-its-kind technology automatically test water chemistry and provides user recommendations directly through our Connected Spot app in which the chemicals can be remotely adjusted and dosed. Our simpler, cleaner, fresher approach turns what was once a maintenance chore into a simple, automated process.

More importantly, for our business model, it creates a persistent digital link between the consumer and the brand. The Freshwater IQ System is also a powerful driver of recurring revenue and margin growth, both for Watkins and our dealer network.

The comprehensive system, which includes the saltwater chlorine generation cartridge, proprietary water monitoring sensor, dosing engine and connected Spa app is forecasted to deliver roughly $30 million in revenue in 2026, targeting a 60% penetration across compatible units. Watkins has a proven highly successful track record of driving growth through acquisitions.

In fact, every brand in our portfolio today outside of our flagship Hot Spring brand has been acquired. These strategic additions of leading brands have expanded our geographic reach, our channel access and our category presence firmly establishing Watkins as the definitive player at scale across these markets.

Crucially for our financial profile, approximately 50% of the Watkins top line is now driven by the successful acquisitions of leading wellness brands.

Watkins is also defined by deep market leadership and trust. Hot Spring Spas has achieved the #1 rated hot tub trade brand status over multiple years, a metric determined by a third-party survey of dealers across all hot tub manufacturers.

Furthermore, our Hot Spring and Caldera brands maintained the industry's top 2 net reputation scores, which are metrics driven directly by consumer satisfaction.

This exceptional trade and consumer brand equity built a strong competitive advantage for our business. And it has fueled our position as the market share leader in the hot tub category for more than 25 consecutive years.

Looking forward, Watkins is deploying three strategic priorities to accelerate growth in our established hot tub and aquatic fitness categories, expand our Sauna leadership position and optimize our manufacturing and distribution network. This cohesive strategy is designed to drive both top line growth and margin expansion.

To accelerate growth in our established hot tub and aquatic fitness categories, Watkins is deploying advanced analytics to drive commercial excellence. We are leveraging large data sets to optimize our marketing spend, product mix and dealer retail footprint. Furthermore, we are empowering our dealer network with these data-driven insights to unlock growth and expand margins at the local level.

On the product front, our long-term road map is to defend our leading position in the hot tub category through refreshed cutting-edge products in enhancing the digital connectedness across our suite of products. But we're also focusing on adjacent product categories that are on trend with today's consumers, such as cold plunge vessels.

In parallel, we are executing a three-pronged strategy to lead the sauna category and maximize our wallet share per household. The Sauna360 acquisition offers a prime category expansion opportunity, allowing us to take our highly successful hot tub playbook and apply it directly to the high-growth sauna segment.

By cross-marketing our sauna brands alongside our hot tub brands, we can create an immediate multiplier effect for our existing dealer base and efficiently leverage our overall scale.

Additionally, we will utilize our strong mass.com partnerships and direct-to-consumer capabilities to capture share in currently untapped channels.

In combination, these initiatives will drive us toward our target of increasing our Sonic category market share from 15% to 25% by 2030. While we aggressively are executing on our top line growth initiatives, we are also equally focused on scalable margin expansion.

Our strategic plan involves optimizing our supply chain by deploying a best country sourcing strategy. This optimization is designed to insulate the business from global supply chain volatility.

Furthermore, we're streamlining our manufacturing and distribution footprint to ensure that as we execute our growth levers, our profitability accelerates even faster through better leverage of fixed cost driving increased long-term shareholder value.

In summary, Watkins is uniquely positioned to remain a strong growth engine within the Masco portfolio backed by a proven track record of delivering an 8% compound annual growth rate over the last decade.

Moving forward, our strategy is laser-focused on three high-impact pillars. Number one, strengthening our definitive #1 position in our established hot tub and aquatic fitness businesses by capitalizing on our industry-leading brands.

Number two, expanding our sauna leadership position in the fast-growing category by deploying enhanced commercial capabilities; and number three, driving margin expansion through network optimization and operational excellence.

By executing this plan against the backdrop of a booming wellness megatrend, Watkins is perfectly positioned to drive substantial long-term value creation for Masco and our investors in the years ahead. Thank you.

I'm now pleased to announce Lauren Weston to the stage. She is our Vice President of Enterprise Digital Acceleration.

Thank you, Steve, and good morning, everyone. Like you said, I'm Loren Weston, Vice President of Enterprise Digital Acceleration. I'm going to take you through how we are building an enterprise digital capability designed to accelerate growth across each of Masco's business units.

The opportunity in front of us is significant. Consumer behaviors are shifting rapidly and digital touch points are multiplying. Our role is to help Masco lead with clarity and speed so that our brands can deliver the experiences that customers expect. Our digital center of excellence exists to serve the business units not to operate in a silo.

Scale means that we build capabilities once establish best practices and deploy them across brands. Talent means that we develop and share deep digital expertise across the organization. So the right skills can be applied wherever there is business need. And speed means that we can press the time from idea to execution by reusing proven methods and delivering repeatable solutions.

Think of the COE as a force multiplier. Once a new capability proves value, we capture it, standardize it and ensure the relevant brands benefit. The result is greater efficiency through scale and sustained impact as those wins compound across a portfolio of leading brands.

Here are the centers of excellence that have launched or are in development. I will now share more about the Digital Center of Excellence. The digital COE unlocks value across brands through three distinct modes, Innovation. We build new capabilities once and unlock them across the business. Acceleration, when a brand proves something works, we scale that proven playbook across the enterprise faster than any single B you could on its own.

And Enablement. We raised digital fluency across the organization so that every business unit can execute confidently in digital channels.

This isn't about the COE doing everything centrally, it's about building the muscle inside of each business unit while we're moving the friction that slows them down. The end state is an enterprise where digital excellence is the norm, not the exception.

Our strategy is built on consumer behavior. First, digital is the front door. As Jill mentioned, a majority of shoppers now start their home improvement journey online and that trend is only growing. Across our categories, digital experiences are not necessarily as mature. This represents an opportunity to establish an early leadership position.

Second, personalization is the expectation. Consumers want personalized digital experiences for their home projects, and that's not aspirational that is today.

Third, visual and social creative content directly drives spending. Homeowners report spending more on projects because of content they sell on social media. Pinterest, Reddit, TikTok, Instagram or shaping purchase behaviors in real time.

And fourth, AI is emerging as a trusted decision-making tool already shaping considered purchases. Consumers are using AI to narrow their options once they have a shortlist. And research shows that they trust AI even more for practical purchases like home improvement than for other categories.

So these four trends, digital first discovery, personalization, creative influence and AI-assisted decisions are only accelerating. And these are the four trends that you will see shape every priority from here.

So this slide maps a high-level home improvement journey. And this is really rooted in the distinct journeys that we see across our categories. I'll walk you through it because the complexity here is the point. What you see is only representative, not exhaustive. It starts with inspiration and trigger.

Consumers see something on Pinterest, watch HGTV, visit a friends, newly remodeled home or scroll pass and influencers posts. Then they move into research and idea gathering YouTube videos, Reddit threads, retailer sites, early store visits start to happen. This is where they're forming opinions and exploring options.

Evaluation and consideration is where it gets really interesting. Reviews, augmented reality visualizes, comparison tools, AI TAP pro recommendations, consumers are cross-referencing multiple sources before they commit. And the purchase phase spans online checkout, in-store transactions and combinations like buy online, pick up in store.

Lastly, post purchase includes insulation support, loyalty programs, customer service and community engagement on platforms like Reddit. The key takeaway here is that -- the key takeaway here is that consumers are touching dozens of platforms throughout this journey, and there is no single moment of truth anymore. There are many.

That said, the stark reality is that the journey here is not linear. You can see it up here, emphasizing the need for us to have a credible presence across each of these spaces.

Consumers move fluidly between digital and physical experiences. Even what we think of as in-store decisions such as picking a paint color are heavily influenced by research that happened online days or weeks earlier.

The consumer is often made up their mind before they walk in the door. That's why our digital strategy isn't a channel strategy, it is the strategy. We need to show up with consistent, relevant messaging at each touch point and our job is to orchestrate a cohesive experience across every one of these moments so that when a consumer is ready to act, a Masco brand is the obvious choice.

Now let me show you where we're focusing the COEs efforts. We've identified four focus areas aimed at improving efficiency and accelerating top line growth. First is digital marketing and e-commerce, improving how our brands are discovered and how effectively we convert demand once we have it.

Second, content for commerce, creating better content faster. Third, audience activation and journey orchestration, connecting the dots across touch points, leveraging first-party data so consumers get a seamless experience.

And fourth, media effectiveness, making our media spend work harder by applying it smarter. Underneath all four sits digital intelligence. This is the foundation that powers the scaling of capabilities through insights and training and enablement.

And importantly, anchoring these efforts, we have insights and analytics, tech and data and legal to provide governance and guardrails, enabling speed with appropriate discipline around privacy, compliance and responsible use, all in order to accelerate value creation.

This framework will let us scale proven capabilities with both discipline and confidence.

Diving in, we see three major opportunities within our framwork to brand leadership position and this is what we have prioritized. AI optimization for both humans and agents. We're optimizing for human shoppers and AI-driven discovery tools. So our brands show up accurately and convincingly whatever decisions are made.

For people, our sites need to tell a compelling visual story that builds connections to our brands and products. For AI agents, those same sites must have readable structured content so that models such as Claw, Perplexity and ChatGPT, you can accurately interpret our offerings and service us as an authoritative source in these categories.

Next, hyper-personalized creative at scale. This is about using technology and AI to increase relevance without increasing cost to be able to deliver the right message to the right person at the right time and customer intelligence.

We will enable a much deeper data-driven understanding of who our consumers are and what influences their decisions by unlocking and activating that first-party data.

We're also investing in marketing technology, rationalizing and connecting our technology stack and talent development to ensure that we are equally advancing skill sets as much as we advance our technology.

So let me bring each of these to life with real examples from our brands. Here is a concrete example from Hansgrohe in our plumbing business. Today, getting product content to market globally requires a pain-staking transcreation process. By the time it's done for one round of updates, the next round is already waiting. We are accelerating now with native language AI translation, combined with SEO optimization and quality checks.

This alone is dramatically reducing turnaround time and cost. And in the future state, will have personalized copy and imagery generated at global scale, tailored to local markets so that we can show up authentically and with authority. We're not just translating faster. We're fundamentally changing the economics of global content.

And what we built here for Hansgrohe, we can deploy across every brand.

In our paint business, we've launched Chat.hu, as VJ highlighted. An AI-powered chat assistant for Behr. Today, it handles color questions, product recommendations and basic project guidance.

We're accelerating now with a genetic visualization where AI can help consumers see what a color looks like in their specific room. That is a game changer for reducing purchase anxiety, which is one of the biggest friction points in paint.

The future vision, though, is a true one-stop service where Chat.hu can solve any question across the entire paint journey from inspiration to color selection, to application tips all the way to purchase.

For shower doors in our plumbing business, we're transforming how we create product imagery is simply not feasible to have traditional photography of shower doors and all types of bathrooms.

So we've been using CGI, which can be expensive, slow and rigid. So we are now running a hybrid approach that combines designer sketches with generative AI to produce photorealistic imagery at a fraction of the cost and time.

And here's what matters. It's already working. We're seeing a lift in conversion rate and an add to cart on live product pages using these new images. Those are real measurable results. And the future state is generative AI at scale where we can produce tailored visuals for each audience segment, retailer and channel.

In faucets, we're applying the same personalization principle to our advertising. Today, many of our ads are one size fits all for audience. Generic creative serve to broad audiences. We're moving to dynamic creative optimization, where we assemble ad components in real time based on who's seeing the ad, different imagery, different messaging, different cost action.

The end state, though, is fully scaled, hyper-personalized creative where every consumer sees the most relevant version of the message. A first-time homeowners see something very different from a professional contractor and both see something very different from a luxury remodeler. This is how we aim to compete relevance at scale across channels.

And lastly, in our Wellness business with Cold Plunge, we're applying customer intelligence across the full marketing funnel. Today, we're optimizing content through rigorous A/B testing, testing headlines, images and page layouts to find out what actually drives action.

We're accelerating now by converting higher quality leads through smarter audience targeting. We're moving beyond broad demographics to behavioral and intent-based signals.

Going forward, we will continue to build these deeper audience insights, understanding not just who our customers are, but what motivates them. And as Steve mentioned earlier, we will see the consumer as a whole person focused on health and wellness, delivering a cross-marketing messaging to a Cold Plunge customer to ideally convert them to a sauna owner as well.

And what we learned here about data-driven marketing, we will apply across the entire portfolio.

So I will bring it all together with three key takeaways: One, AI-driven discovery is the new reality. Consumers are already using AI to research, compare and decide. We have built and will continue to expand capabilities to win in this space.

Two, we're orchestrating a cohesive journey from discovery to purchase, continuously sharpened through data and insights.

It's not about winning one touch point -- it's about winning the entire journey, whichever one the consumer takes. And three, the digital COE will enable and accelerate these capabilities across all Masco businesses. Digital innovation is already happening at Masco.

You saw real examples today from plumbing, paint and wellness. The digital COE's role is not only to build new innovative capabilities, which we will, is also to take what's working and scale it enterprise-wide faster. That is how we will turn digital from a series of individual wins into what will be a competitive advantage.

Thank you. I will now hand it over to Rick.

Great. Thanks, Lauren ,and good morning, everybody. Thanks for joining us today. I'm Rick Westenberg, CFO and Treasurer of Masco. I've been with Masco for nearly 3 years now. And I'm continually impressed by the strength of our brands, our portfolio and our operational execution as well as the resilience of the financial performance of the company.

This morning, I'm excited to share with you our long-term financial goals and how we plan to achieve them.

Today, I will focus on three areas. First, I'll share our perspective on the key fundamentals that drive our industry. Second, I'll reflect on Masco's demonstrated resilient performance through cycles as well as through recent market challenges. And finally, I'll discuss our long-term financial outlook.

The U.S. repair and remodel market is a large and attractive industry, with total spend exceeding $500 billion. Historically, the industry has grown about 1 to 2 basis points above GDP.

This slide highlights the long-term strength of the U.S. residential R&R market. Except for periods of disruption from COVID and more recently, macroeconomic headwinds, spending has continued an upward trajectory, supported by solid underlying fundamentals.

Over the past 3 years, the industry has been facing a decline. However, the rate of decline has moderated more recently and industry experts project the market to return to growth in the medium term. The same dynamic exists in many of the global markets in which we participate in around the world.

The historical growth profile and projected recovery reinforce our confidence that the repair and remodel industry remains a very attractive market with meaningful long-term growth potential for Masco. The fundamentals supporting the repair and remodel market remain very strong.

One of the primary drivers is home equity. For many consumers, their home represents their largest asset. And rising home values increased both their willingness and confidence to invest in their homes.

At the same time, the number of single-family homes entering their prime remodeling years, generally 20 to 39 years old, continues to grow driven by previous construction cycles.

Together, these factors create an attractive long-term demand backdrop for repair and remodel activity and support continued growth opportunities for Masco.

The industry, however, is currently facing some near-term headwinds. Consumer confidence, which is highly correlated with repair and remodel spending, remains below historical averages. We believe this has been a key factor driving homeowners to defer discretionary remodeling projects.

While confidence levels have fluctuated over time, the recent environment of economic uncertainty has continued to weigh on consumer sentiment. As confidence begins to improve, we expect it to serve as an important catalyst for recovery in demand.

Another near-term headwind facing our industry is existing home sales, which for our business are most correlated with the DIY paint activity. Existing home sales remain at low levels. impacted by higher mortgage rates with 80% of homeowners with mortgage rates below 6%, housing mobility remains constrained, limiting turnover in the existing home market.

While this dynamic is expected to continue in the near term, it also creates an opportunity for homeowners to invest in repairs and in remodeling projects in their current homes.

Lastly, we believe recent underspending on remodeling also supports future growth potential. An estimated 3.6 million homeowners have deferred remodeling activity over the past 2 years alone primarily in small and midsized projects.

At an average spend of $6,200 per project. This represents roughly $22 billion of deferred spend creating meaningful pent-up demand that is expected to further support R&R activity as macro conditions improve.

In summary, the underlying fundamentals of the repair and remodel industry remains strong. While the industry is facing some near-term headwinds, we believe that as the macro and geopolitical conditions begin to stabilize, the industry will return to growth, supported by pent-up demand. And we are confident that Masco is well positioned to capitalize on this recovery.

Now let's turn to our financial performance. Masco has delivered solid sales adjusted operating profit and earnings per share growth during the challenging macroeconomic environment. From 2019 to 2025, Masco achieved approximately 2% compound annual growth in both revenues and adjusted operating profit while expanding margin in the operating space.

Even more notable, we delivered compound annual growth in earnings per share of approximately 10%, reflecting Masco's disciplined execution, effective cost management and cost capital allocation strategy focused on driving shareholder value.

In addition to growth, Masco has demonstrated consistency in performance over time. As illustrated by our strong and resilient operating performance and margins, Masco has delivered robust results through economic cycles and in the face of significant challenges such as COVID, supply chain constraints, a dynamic tariff environment and inflationary pressures just to name a few.

This performance underscores the strength of Masco's brands and portfolio and the team's ability to execute effectively in challenging environments.

Masco has demonstrated a strong commitment to shareholder returns with more than $9 billion returned to shareholders between 2015 and 2025 through a combination of share repurchases and dividends.

Share repurchases have been a key component, driving roughly a 40% reduction in our share count over this period. Dividends have increased steadily over the last 13 years. reflecting confidence in our earnings and cash flow performance.

This sustained level of shareholder return underscores Masco's financial strength, disciplined capital allocation and long-term focus on shareholder value creation.

As you heard today, a key pillar of our forward-looking strategy is accelerating top line growth. Our pathway to growth lies in three key areas: First, we will leverage our industry-leading brands that drive consumer loyalty, pricing power and share gains across our markets.

Second, we are expanding commercial capabilities, investing in how we go to market, leveraging consumer-driven data and insights. Third, we're enhancing operational excellence with a continued focus on productivity, cost discipline and supply chain optimization. Together, these priorities will help drive sustained revenue growth.

As we accelerate our top line growth, we also remain focused on further expanding our profitability. We have already begun taking steps to optimize the organization by simplifying our structure and aligning resources to our strategic priorities.

We will continue to leverage our Masco operating system to successfully drive operational efficiencies and cost savings, and we will work to leverage Masco's scale and further drive cost savings mitigating risk and volatility through areas such as global procurement.

As we look at Masco's long-term algorithm, our targets are as follows: average annual organic growth sales -- sales growth of 3% to 4% and operating profit margin expansion through volume leverage and ongoing cost productivity. Combined with our disciplined capital deployment, these drivers support average annual EPS growth of approximately 10% over the long term.

As we look more specifically over the next 3 years, we expect net sales growth to be more modest in 2026 due to the overall industry. But to accelerate in 2027 and 2028 to approximately 3% to 4% per year as repair and remodel market returns to low single-digit growth.

By 2028, this translates into net sales for Masco of over $8 billion.

Turning to operating profit. We expect meaningful growth over the next 3 years, driven by volume, favorable cost savings initiatives, including from the restructuring actions announced earlier this year and a positive price/cost benefit.

As a result, we expect operating profit margins of at least 18%, representing a meaningful expansion from 16.8% in 2025. Turning to our capital allocation strategy.

First and foremost, our disciplined capital allocation strategy has not changed. We remain committed to a consistent balanced capital allocation designed to drive long-term shareholder value. Our priorities start with reinvesting in the business.

Masco is a low capital-intensive business. with capital expenditures typically running about 2% to 2.5% of sales, were roughly $75 million relates to maintenance capital. The majority of our capital spending is focused on value-creating initiatives including new product development, innovation and automation.

Our second priority is to maintain an investment-grade profile. For us, that means maintaining gross debt to EBITDA below 2.5x. We are currently comfortably below that threshold and feel confident in our ability to remain within this target.

The third priority is to -- is a relevant and growing dividend. We intend to continue targeting a dividend payout ratio of approximately 30%, with annual dividend increases driven by our strong and growing profitability.

Finally, we plan to deploy excess free cash flow towards share repurchases and selective acquisitions. With respect to acquisitions, our strategy remains focused on both on opportunities that complement and strengthen our existing portfolio.

In terms of share repurchases, we expect to be active in the market while remaining opportunistic. Looking more closely at our cash flow expectations. It is important to highlight the strong cash -- strong cash flow generation has long been a hallmark of Masco with free cash flow conversion of over 90%.

Over the past 3 years alone, we have generated strong cash flows, deploying $3 billion through reinvesting in the business and returning cash to shareholders.

As we look over the next 3 years, we anticipate surpassing that level deploying an estimated $3.3 billion to invest in the business and to distribute to shareholders.

As you've heard throughout today, accelerating growth is a key component of our strategy, and we plan to deliver growth in our cash flows as well and to use this increase in cash in turn to invest in further growth.

Our speakers today have highlighted a number of exciting growth opportunities, and we are committed to investing in the people and the capabilities to execute on these initiatives. Equally important is our steadfast commitment to delivering shareholder returns.

We remain focused on continuing to create shareholder value through disciplined capital allocation, including robust dividends and share repurchases.

In summary, Masco has a proven track record of delivering strong financial performance with consistent above-market revenue and profit growth. Our goal is to continue to deliver above-market performance by capitalizing on the strength of our brands and portfolio while investing in the key drivers of future growth.

Our disciplined cost management and ability to further leverage scale supports our ongoing margin performance. And our strong cash flow generation enables both reinvestment in the business and meaningful returns of capital to our shareholders.

Looking ahead, we are confident in our strategy and our ability to continue creating long-term value through disciplined execution, targeted investments and balanced capital allocation.

With that, I'd like to invite John back on the stage to close out the session before we move to Q&A.

All right. Thank you, Rick. I want to wrap up by summarizing our key messages for today. So you heard the leaders of our four largest business units, detailed their plans and key initiatives to drive growth above market over the next 3 years. You also heard about our centers of excellence, which will accelerate decision-making, enhance the customer experience and drive high-quality execution.

And finally, you heard about the leadership structure, which has been optimized to drive agility and results across our organization. Our commitment to these initiatives sets us up to achieve our 2028 goals, which include sales growth averaging approximately 3% to 4% annually, adjusted operating profit margin of at least 18% by 2028, and and an adjusted EPS compound annual growth rate of approximately 10%.

Now as you heard today, we have consistently delivered on our financial commitments, and we believe we have the right strategy to deliver the long-term return and value for our shareholders.

And the strategy that we walked through today is clear. It's Masco will deliver above-market top and bottom line growth through a consumer-driven strategy, leveraging our industry-leading brands, expanded commercial capabilities and enhance operational excellence.

With that, we'd now like to turn to the Q&A portion of the day. We'll take a couple of minutes to flip the set, and we'll welcome Rick, Jill Handergen, VJ, Steve and Lauren back at the stage. So hang with us for a couple of minutes, and we'll get it into Q&A. Thank you.

[Break]

Your hands are up already, and Rob and Rene will bring you a microphone. If you could please introduce yourself and your firm and limit yourself to one question. And with that, we will get started.

It's John Lovallo from UBS. Rick, maybe just to start off, you provided the 3% to 4% organic growth target and the 18% margins. I was just hoping you can give a little bit more color by segment in terms of the top line growth, the cadence and some of the drivers of the margins and the ultimate margin targets by segment?

Yes, John, appreciate it. So today, our focus is really on the Masco performance on a consolidated basis to lay the strategic vision, the strategy, the growth initiatives, et cetera, in terms of how we're going to achieve the 3% to 4% growth which really is a significant improvement to where we've been over the last number of years as well as to achieve 18-plus percent margins.

And so we're very convicted around those objectives and those goals. In terms of by segment, I understand the interest, but at this point, we're not getting into the segment details. We'll provide that as we continue to roll forward.

So for example, in 2026, we provided our margin expectations for the segment. we will do that as we go into '27 and beyond. But really, we're focused on a consolidated basis in terms of the cohesive team delivering on those Masco-level objectives and financial goals.

Keith Hughes from Truist. My question is on the paint segment. You talked a lot about Pro. It's been a great winter over the years. to get to the 3% to 4%, can your Pro initiatives are they enough to get to that number? Or do we need some kind of rate change in the DIY thing, which has been down for years?

Maybe I'll kick that off and VJ, you can fill on the gaps. I mean, certainly, DIY has been challenged as of late, really driven by existing home sales, which are highly correlated with DIY. -- paint. So we do expect that to get back to more moderate levels of flat overall type of performance. Pro really is where the growth has come from.

And again, as VJ mentioned, there's a a secular trend that's happening. It's been happening over 20 years, where do it for me is growing very quickly. And we have a very small share in the scheme of things in that space. So again, really proud of the partnership with the Home Depot and everything that we've been able to do together and there's a lot more to get.

So maybe, VJ, I know you hit on some of the key initiatives, but what gives you confidence we can grow the way we need to from a propane standpoint?

Yes, absolutely. Thanks, Keith. I'll start with DIY. So -- so the trend from DIY to DIFM, certainly, that's there, right? But the DIY market is anchored in the repair and maintenance cycles, and that's really tied to the aging housing stock -- and as existing home sales stabilize, et cetera, we do expect DIY to stabilize in the short to midterm.

However, even beyond that, with all of the initiatives we have going on, which is digitization, using of AI in that consumer journey connecting the digital to install experience, having great quality paint and driving that message to consumers, et cetera, we do look forward to strengthening our DIY position even further. That's on that side.

On the Pro side, yes, as John said, absolutely the largest and most impactful growth opportunity for us. And we think by putting that playbook together and going after some of the most -- largest but also the most attractive segments, that's a good formula to win, and we are very aligned with the Home Depot on that in terms of expanding rep coverage, having that in store pro-specialists, having the right fulfillment model, having the right financing options, having the right relationships, that's how we're going to approach the Pro.

And and it is an attractive market for us for sure.

Anthony Pettinari from Citi. Just following up on John's question on the financial targets. I think previously, you targeted 3% to 5% organic sales growth and 1% to 3% from acquisitions. And I don't remember exactly what the slide said, but I think the acquisition said something like continue to pursue bolt-ons.

And I'm just wondering if you could provide any kind of context around that. Do you still think you could do 1% to 3% or maybe you're at the low the Wellness Platform kind of built out to the extent that bolt-ons are just any kind of context there?

Yes, it's a great question. And I've been on board for almost a year now, and I've gotten a lot of questions about how we break out our top line guidance or M&A included or not. I think what we're saying is M&A is episodic. So we're going to give you our organic targets that you can expect from us a year in and year out.

Look, we remain active in looking at M&A opportunities. I will say, though, as I detailed earlier, we really like the categories that we play in and building products. are amongst the most attractive categories. And the focus of what we're looking at is really bolt-on acquisitions. So again, I wouldn't expect to see another leg to the stool in the short term for sure.

And we think based on what you heard from our team today, we've got a great brand lineup today, but at the same time, we think there's opportunities within our existing categories as continue to add bolt-on.

So moving forward, if we do an acquisition, obviously, that would be on top of what we do organically, but we're going to be focused on the organic number moving forward.

Tim Wojs from Baird. I guess in both segments, I mean, adjacencies have always been an opportunity to kind of expand your brands to other areas of the project. With your customers and some of your home center partners and builders and things getting a lot bigger, has there been any change internally in terms of trying to make those adjacent more trying to accelerate the adjacency to include things like white goods or sanitary wear and bathrooms or some of the products that VJ was talking about.

I wonder if Hans might take that one. I think in Europe, we're seeing a lot more of a trend along those lines and Hans-Juergen addressing that.

I appreciate the question, Tim. We have been -- just to give you some historical development, we have been investing into drainage solutions for the shower because we have a very strong shower position. That was a bolt-on medium-sized business, which help us really to fully own the shower. And that has been going through a retail business as well as project business because we specify them the entire shower.

And in addition to the showering solution, as we see a lot of trends from a consumer that they want to have a product or bathroom completely equipped with products that fit perfectly together. Force and a basin are also toilets as well as accessories because we see this color match issue in a lot of racing projects because the broadband is not looking like a brush or some other competitors.

So therefore, we see a big trend in adjacencies around your core assortment. So that's why 5 years ago, we started in Asia, we have also basins, some furniture and some shower toilets, which is a very attractive category, so they're like electronic shower toilet.

And we have been doing a good development on these categories. The multiple -- multi millions added in Europe as well as in Asia, in particular, with project specification.

Matt Bouley, Barclays. Thanks everyone for all the detail today. So questions on pricing for both John and Rick. So John, when you joined, you spoke a lot about maybe tweaking the pricing algorithm of the company and trying to understand better where you could push price and perhaps more inelastic categories.

Question is how has your understanding of pricing changed as you've now gotten more into the weeds with the company? And for Rick, how is price contemplated within that guide kind of annualized price over cost. I'm curious if there is an assumption of price over cost on an annual basis?

Yes. Great question. Thank you. Starting with price, but what I would say is, hopefully, you took away that we have business leaders that really understand their businesses and their industries. And I think it starts there, right? Because we have a dynamics across channels and across categories. And we've been really proud of what we've been able to do from a pricing standpoint over the last few years, which has been very, very dynamic.

As I've come in, one of the things I observed at the time was an opportunity to continue to build out our strategic revenue management capabilities. So using digital tools to really analyze where we are from a pricing standpoint versus our own products and also versus competitors and to make sure that we're optimizing that. And that's something we continue to look at.

The other thing that's frankly different than the world that I came from is the channel dynamics are very acute, so really being thoughtful about planning out our pricing strategy not only for 1 year but 3 or 4 years out and having product assortments that match channels.

And again, these aren't new. These are things that Jill and the team have been doing for many years, but just trying to make sure that we have the best tools and capabilities and what we've been focused on. Again, feel really good about what we've been able to do and how we've been able to execute in a really challenging environment. But with that, I'll let you finish the rest of the question, Rick.

Yes. Sure, Matt. Yes. And just to emphasize John's point, very pleased with the pricing execution the team has delivered. But to get to your question with regards to the margins and how does price cost factor in, you may recall on my materials, we've got basically three drivers of margin expansion.

One is volume growth and that's really driven based off of the initiatives and our top line acceleration that we talked about today. Second is cost saving initiative this and hopefully, you appreciate the success that the team has had leveraging the mass operating system and driving productivity.

And on top of that, the additional restructuring actions that we announced earlier this year is also a big contributor. And then the price/cost dynamic, we do expect that to be -- continue to be positive for -- now by segment, a little bit different dynamic.

So plumbing, we expect price cost positivity like we've delivered in the past. There might be some ebbs and flows in that because commodity cost is volatile. But over the long period of time, we would expect that to be a positive contributor to our profitability and to our margins.

And then on the decorative architectural, obviously, with the arrangement with our retail partner is more of a price cost neutral dynamic. But in aggregate, it's a contributor. But I would say it's a combination of volume savings and positive price that are going to fuel our margin expansion going forward.

Thanks very much Steve Kim from Evercore, I wanted to follow up on the M&A commentary. I guess you addressed a little bit, I guess, on plumbing. I was curious if you could extend that to paint wellness where the -- where do you see the opportunities, particularly from an M&A pipeline perspective?

And digital acceleration was something that was discussed at length that could also potentially be an area where there might be some opportunities through M&A. I was wondering if you could comment on that?

Yes. So maybe I'll kick off and then we can go to the business leaders for some color. Obviously, we won't talk about specific targets, just know that we continue to look across our categories. I think Steve laid out our Watkins Wellness business, which is really built off of acquisitions. And Steve, I don't know if you want to comment again about the strategy and over time, what that's done for us -- but I think it's a great example of both acquisitions and putting out a category.

Yes. So from a Watkins perspective, we do have a strong track record of successful acquisitions. Typically, when we look at acquisitions, we're looking at targets that would improve our channel access, broaden geographic reach or give us access to new channels. All of our prior acquisitions have checked those boxes.

As the wellness space continues to grow we'll certainly be looking across all four of our product categories, hot tubs, so as aquatic fitness and cold plunge to see if there are opportunities out there that would accelerate our growth in those three areas.

And in terms of other areas, so again, digital, I think it's a great point. Clearly, the digital world is advancing very, very quickly. And we're working to build capabilities internally. We're partnering with folks that have already developed these capabilities in terms of partnerships.

And then certainly, in the AI world, there's a lot of start-ups and smaller companies that perhaps could be an opportunity -- so again, we have a lens.

Zack Gordon is in the back of the room. He leads our corporate development group. He's a part of our executive committee moving forward, and he and his team do a really nice job just scanning the horizon for all the things that could be possible.

And we look at many, many things, as you can probably imagine. But we are going to be very disciplined. When we do do a deal, it's going to have to really make align with our strategy and align with our core strength as a company.

It's Mike Rehard, JPMorgan. Thanks for all the comments. I wanted to ask about broadly speaking, the accelerated growth -- top line growth strategy. And John, when we sat down, I think it was maybe 18 months ago, it was a top mind focus of yours. And I think today, we've seen a lot of good examples, articulating that strategy, the opportunities, be it wellness or propane or luxury plumbing.

When I come back to the growth algorithm of 3% to 4% top line long term, does look though similar to perhaps prior slides where we've seen like a 3% to 5% top line.

So I'm just kind of curious what's changed between then and now? And certainly, there's some, as I said, really articulated big opportunities out there. What could be the areas of upside and what could make that 3% to 4% look conservative in hindsight?

It's a great question. And I -- although it feels like 18 months some days, it's only been 10 months since we first met that here. But clearly, growth is a focus. And at the end of the day, we aspire to grow faster than market.

And over the last few years, it's obviously been challenging. We talked about that. Rick detailed that. Masco has not grown the top line since 2022. So for us, we laid out kind of goals by 2028 to get back to 3% to 4%. That's a pretty good inflection there.

What I would tell you is if we get back to historic growth rates for the category, again, our goal would be to grow a point or 2 faster than that. So -- as we go along, I think that would be the thing keep us honest in terms of what are you seeing in the categories. We want to be growing faster. We feel like we've got the ideas. We've got the brands we've talent. And it's obviously been a very dynamic environment.

So as we get back to a bit more stability, we're building the capabilities now and putting the initiatives in place that we believe will allow us to grow more quickly as we get some of those market tailwinds, which, again, I've only been in this industry for 10 months. Everyone tells me they do come. But whether it's next year or the year after, I think we're going to be well set up.

And look, we had a good in Q1 with some good growth that we haven't had in a long time. We're going to continue even in this challenging environment to keep pushing ourselves and pushing our teams to grow faster than the market, and that's really our goal.

Sam Reid from Wells Fargo. I wanted to ask another question about the algo, but just the thought process behind going with a narrower range, the 3% to 4% it is a fairly tight range. So just curious kind of the thought process behind that.

And then also, it's exciting to see you moving deeper into some of these luxury more high-end categories, but there's also an element of cyclicality with those. So just perhaps talk through how you manage through that cyclicality in the context of that all go?

Yes, 3% or 4%. Again, the point is we want to grow ahead of market, right? And as we put that all go out there, it's really through 2028. We'll continue to look at that. And if we get back to more normal market conditions, we'll likely revise that up over time.

But as we look at where John burns and all the industry, folks are they're kind of two is what they're looking for, for the next couple of years, and we're saying we want to be that. So we're going out there and saying, we're going to do better than market and that's really the key takeaway as opposed to whether it's 3 or 4 or whatever the case may be. I don't know if you'd add anything there.

No, I think that's right. So I think it's just more of a sharpening of the pencil, so to speak. I don't know in terms of luxury, we're very bullish about the luxury space. I don't know, Joe...

I think maybe Jill, if you want to add.

Yes, happy to address that I think what we've seen in the luxury market is it's actually been the most resilient segment of the market, even over a period of time. But I think what positions us uniquely is we have a broad portfolio of brands to compete in the market from mass to premium to luxury. And so we feel -- we really feel good about the scale that, that provides and the resiliency that provides overall over a period of time.

Jill, maybe just another second on just the market itself in luxury. It's very fragmented. So there's a lot...

Yes, it is extremely fragmented. There are a multitude of players. And so again, I think that's an advantage that we have is we have the scale and we have multiple brands, and we have the ability to grow at scale, which most competitors do not.

Guys. I'm Phil Ng from Jefferies. Global projects was an area you guys talked about. I've always felt like that's an area where we're under penetrated. You've always had really strong brands. So how are you tackling that perhaps differently? Is it going to market with bringing all these brands together actually expanding your capabilities from an M&A standpoint by selling a broader offering?

Just kind of help us think through perhaps how you're approaching it differently? And how does that segment perform through a cycle? Is it synced up to resi? Is it more bigger macro trends?

Thanks, Phil. I think Hans-Juergen maybe tackle that one. One of the things that was a good learning for me is just the length of time it takes to really go from a lead to actually selling something. But maybe talk about the process and what we're doing differently as we move forward as well.

So when we think about the global project business, we have about $400 million through the Hansgrohe organization. And so this Global Project business specification business, it usually takes 15 to 24 months until the project is from specification executed. We feel really strong about that because we have a big pipeline to beat this $400 million in the next couple of years.

Like Jill mentioned, we see very strong stability in the premium and luxury area of the global project business because these segments are rather growing faster.

We see hospitality brands that are further expanding across the globe. A lot in Asia, a lot in the Middle East, also in Europe and the U.S. But these brands are further growing. We see good demand and high-end residential.

And as I mentioned, you see a big trend in branded residences like Louis Vuitton and Aston Martin and many more. So that's a growing trend. So there is very stability and stable growth, but we do not only have luxury portfolio with Hansgrohe and for the Delta organization. We also have with their brands, a broad portfolio for the U.S. market and our portfolio for the international markets.

We have a good growth opportunity, as you mentioned, when we look at the luxury and high end, we have a high share when we look into the volume business because we also see residential developments, multifamily homes that are growing so there, we have a lot of opportunity to even grow beyond where we are today.

But we focus predominantly on premium and luxury because this is where we create strong margins also for the future. How we are approaching this. As I mentioned, we are trying to be very early in the specification process closed with the architects and designers.

We managed the global projects business in verticals. So we have a vertical team for hospitality, for residential, for shipyards and yards, cruise ships, also one for prefabricated bathroom manufacturers because they all play together in this network of managing global projects.

And in addition to that, we try to be very close to our partners in the countries now as we play with our overall business network and subsidiaries in more than 50 countries.

We're very close to the different stakeholders that manage the different projects. So therefore, we feel good that with our network, the portfolio. And I mentioned adjacencies that's very, very big in projects because we can specify not only the faucet and the shower, but also the adjacent complementary products so we can increase the ticket items for the project back.

That's great. Thank you, Andre. And the only thing I would add is just the simplification of our business, I think, will help us in this space as well. So Jill mentioned Newport Brass up until recently, was its own business unit that really didn't tap into the resources of Delta and Brizo and what she has going on.

So as we continue to simplify the business and really put our brands to capabilities that we have at our big business units, we think that will allow us to show up and market different.

And then we need to be where the designers are I mean there are several cities around the world that the vast majority of these specs are written. And we've got initiatives in place to build our presence in those markets and become a bigger player in the space.

And Again, I mean, I think the historically, the BU independents work for us at one point, Masco on something like 60 different businesses. Today, we're much more consolidated, right? So we want to make sure we leverage our scale and I think the scale will help us build out capabilities in when and spaces like projects, luxury projects as well.

Sue Maklari, Goldman Sachs. Thanks for all the information today, when you think about some of those underlying consumer trends that you talked about in wellness, -- do you see those developing more globally? And is that an opportunity to perhaps take your global competitive position within Plumbing and kind of leverage it across more of the business?

Yes, Steve, do you want to take that?

Yes. So I think that from a Macro perspective, the same wellness trends that we're seeing here in the United States are taking place worldwide. The numbers I threw out today, the annual global wellness spend is $1.5 trillion, about $500 billion of that is here in the United States.

SAUNA360 acquisition was a prime example for us to be able to acquire very well-established brands, particularly in the European marketplace and then be able to drive those brands through our established distribution network, not only in Europe, but globally.

So that is part of our strategic synergy case for that brand, and we'll certainly also look to leverage our other wellness categories in an emerging global marketplace for wellness products.

It's Steve. I mean, household penetration for sauna is 1% in the U.S., what's it in the Nordic countries?

Yes. So in the Nordic countries, household penetration is upwards of 75% or higher. It's also very high in DAC countries. So these are very established categories. If we could get anywhere near that level of penetration here in the United States, obviously, that would be a significant upside.

Susan, to further build on your question, I mean, if you think about it, again, as we simplify it and we work a bit more across, if you think about channels and Jill's world, they are selling hot tubs and sauna today.

So again, we do think there's an opportunity over time. for us to better leverage some of our wellness brands and wellness products into some of the plumbing channels around the U.S. and certainly around the world as well.

Mike Dahl, RBC. Question is on digital and e-com. It's admirable the growth in share gain that you've been able to demonstrate and articulate pretty thoroughly your strategy here. If we look across building products and consumer products, everyone's, kind of, doing more to focus on that. So the question is really how do you compare and contrast versus what you see your largest peers doing and ensure that you can kind of maintain and press your advantage and share gain there?

Jill, you were heavily involved with starting the initiative at Delta a decade ago. Do you want to talk a little bit about where you see us today and maybe a little bit where the industry is as well?

Yes. I mean, that's a relative share position that I talked about has been pretty sustained over a period of time. So I think you're absolutely right that this is a space that a lot of people are investing in, but we feel really good about the capabilities that we've built already in the, kind of, the advanced state that we're at. We have a really deep bench of talent and as both Lauren and I mentioned, we're now making step-change investments in new capabilities, AI being one example of that, where we really feel like we can accelerate our growth at a much faster pace than the competitive set.

What's exciting about, I think our space and our industry is just the consumer engagement levels are so high. When someone decides to do a remodel, they really put the time in. And again, as Lauren demonstrated, they look at a lot of different resources, most of them online. So I do believe that we have an opportunity to really up our game. I'm not sure we're seeing anyone that is well ahead today. We think this could be a competitive advantage for us if we do it right. And certainly, that's what we aim to do. And look, AI, too, I mean it changes almost on a weekly basis. But it's becoming a really powerful tool, particularly as consumers search and learn about products, and it's just going to become table stakes. And again, we think we've got a lot of work to do. We've got the right initiatives in place. And I think over time, again, this can be something that could be a competitive advantage for us.

There are two things that I might add to that. One is, really, that's unique to us, is our understanding of the consumer and the pro and their journey to really understanding what those touch points look like. The other one is across Masco, we have a ton of first-party data that we can now bring to life and get deeper insights to be able to build out. So I would say that's something that's very unique to Masco across our categories that we have.

Good point.

Rafe Jadrosich, Bank of America. Jon, you've reorganized the management structure. And I believe some of the segments are reporting directly to you now. Can you just talk about the changes you made, why you made them, and how it better positions the company for growth going forward?

Yes. So look, I mean, there's so much to like in Masco, when we've got, again, great brands. We've got really talented teams. We've got terrific leaders across Masco. And as I look at the organization, I think one of the things we're trying to do is just move with pace and with agility. Obviously, the world around us is moving more quickly than ever before. So really, the goal is just to flatten the organization to make sure that again, we are making decisions at speed. And you heard today from the 4 leaders that now report directly to me. They lead the vast majority of all of our business in Masco and combined between the four of them, they have over 80 years of experience. So again, I have -- I don't lose sleep over our leaders we have running our businesses and the teams that we have. So that was one of the goals.

The other goal was to really beef up our capabilities and technical areas. So at the end of the day, you heard a little bit about data and analytics from Lauren. We need to keep beefing up our expertise there, and that probably means going to the outside to get some resources where necessary. We hired Steve Nikolopoulos, who's here today who has a 30-year career in procurement, a deep technical expert in that space. And I think he's going to bring some really unique ideas as well as processes and some tech as well that will help us as we move forward. So we have, again, a really deep bench. I couldn't be more pleased with the leaders that we have on the team. The goal was really just to flatten the organization, move with pace. And we're operating a bit differently as well.

So again, we were very decentralized in the past. We were not centralizing, I want to be clear about that. We will, again, build some centers of excellence where we can get scale across and move more quickly. But we want to make sure that our businesses run their businesses and we want to communicate a bit more than maybe we have in the past in terms of -- in real time. So we, as an executive committee, have a meeting every Monday -- Monday morning, where we talk about what happened in the past week, what are trends in the market. What's working, what's not. And again, that probably wouldn't be on that cadence in the past. So the way that we operate, the way we interact, we can share across much more quickly, I think, will help us as we move forward.

Eric Bosshard, Cleveland Research. Jon, you highlighted the narrowing of the portfolio through the years. I'm curious as you think about wellness. Obviously, you talked about a $1.5 trillion market, and maybe the biggest market you all participate in, but how you think about that business expanding, investing to grow in that market, or how it fits in the portfolio. I'd just like to understand that a little bit.

Yes. It's a great question and one that we frankly anticipated just because we haven't really put the spotlight on wellness in the past. But as we look at our businesses, we like the category. We like the trends. And the reality is it still ties very much to Masco in terms of water and our expertise in that area in manufacturing.

So we like wellness. We will continue to invest where it makes sense. Again, if you look at our more recent acquisitions, they have been in this space. Sauna360 was just a few years ago, and that deal is really penciled out better than we could have expected. So we will continue to invest where needed. We think there's a lot of organic opportunity for us. Based on the experience that Steve and his team have on hot tubs, we really know how to manufacture these types of products.

We have a global network of manufacturing facilities. We've got a strong operations team. And as Steve mentioned, there's not a lot of at-scale players in this space. So we think that we can take our expertise, our capabilities and really grow organically as we move forward. I don't know, Steve, if you could add anything to that.

Yes. So I would say, as our portfolio sits today, we think there's a lot of runway within each of our 4 verticals just due to the overall kind of immaturity of all of those product categories. So as consumers, particularly our core demographic, continue to place more emphasis on health and well-being solutions. And there's a lot of upward runway from a penetration perspective. We feel like we're going to be able to make good gains and capitalize on the wellness trend.

This will be our last question of the day.

All right.

Mike Rehaut, JPMorgan. I wanted to ask a question about the Plumbing segment. In particular, the $1.5 billion growth pipeline that you highlighted, just to give a little more color on how that breaks down and what that's comprised of in terms of thought, I don't know if you look at it by product category in terms of faucets or even wellness. And also how to think about that $1.5 billion, is it kind of incremental revenue? Is it kind of replacement of new products that are kind of freshening up. Any more color around that?

Yes, I'm happy to take that.

Go ahead, yes.

Yes. Thank you for the question. It's really the pipeline. So I want to be clear, it's focused on plumbing. So it does not take wellness into consideration. And it's really -- it spans across all of our product categories with the majority of the focus being in faucets and showering because that is our core. But we're really excited about the pipeline. It is a mix of products that we're obsoleting from the assortment of bringing out new collections. But in addition to that, it's really our focus is bringing meaningful solutions to our consumers.

And the pipeline includes things like new digitally enabled solutions, Hans-Juergen spoke about our reverse osmosis system. That's an example, as well as just functional innovations. We just launched a new showering technology called PivotPro. I think that's a good example. It's getting placement in all retail stores, the #1 selling shower head on homedepot.com. So these are solutions that are truly incremental, and the pipeline is really a combination of both.

All right. So in closing, thank you for being here, whether it's online or in person. And hopefully, you walk away with a better understanding of our strategy moving forward. We feel really, really good about the leadership that we have in place. We feel great about our teams out in the field. We have great brands, and we are building the capability that will allow us to differentiate as we move forward. So I want to take a second and just thank everyone that helped put this together, and thank you for being here and your continued interest in Masco. Again, we're motivated about what's ahead, and we'll continue to communicate, obviously, as we do on a quarterly basis and certainly filling in as well.

So with that, I want to thank, again, everyone that helped put this event together. So our events team, our IR team, and it was a great effort. So thank you for that. For those of you here in person, we do have lunch. We'd love for you to join us. We'll be sticking around, so we can answer any questions you might have. And for those of you joining online, thank you for your interest in Masco and thank you for being here today. So with that, we'll wrap up, and we'll go from there. Thank you.

Good morning, ladies and gentlemen. Welcome to the Masco Corporation's First Quarter 2026 Conference Call. My name is Jenny, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. [Operator Instructions]

I will now turn the call over to Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2026 First Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer. .

Our first 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 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 will now turn the call over to Jon.

Thank you, Robin. Good morning, everyone, and thank you for joining us. Before I discuss our quarterly results, I want to spend a few minutes talking about the continued evolution of our Masco Executive Committee, which we established at the end of last year. Jay Shah, Group President Pulling and Wellness; and Rick Marshall, Vice President of Masco Operating System, recently announced their intent to retire from Masco later this summer. I'd like to thank both Jay and Rick for their leadership and their important contributions to both our business and our culture.

With Jay's retirement, we've taken steps to further streamline our organization, the leaders of our 4 largest businesses: Delta, Hunts grow, Bar and Watkins Wellness will now all report directly to me. These 4 leaders have over 80 years of combined service at Masco, have extensive experience in our industry and are key contributors to Masco's performance and our culture. Furthermore, we are adding 2 new leaders to our executive committee with expertise in supply chain and procurement. The addition of these leaders and capabilities will enable us to drive additional efficiencies, leverage our scale and enhance our speed of execution across the enterprise.

The structure and leadership composition of our executive committee will help enable greater agility and tighter alignment between corporate and business unit priorities all in the pursuit of delivering above-market top and bottom line growth. In addition, we have continued the implementation of other initiatives that were announced earlier this year. Our integration of Liberty Hardware into Delta Faucet Company is on track as we further leverage the brands, capabilities and scale of our Delta Faucet business. Restructuring actions to streamline our business, reduce head count and optimize operations are ongoing. We incurred approximately $8 million in restructuring charges in the first quarter, and we continue to expect approximately $50 million in total charges in 2026.

The -- the savings generated from these actions will fund additional growth initiatives and contribute to our future margin expansion. We're already experiencing the positive impact of these actions in our results. With that, let's dive into our first quarter results.

Please turn to Slide 5. Overall, we are pleased with our performance in an extremely dynamic environment. Net sales increased 6% or 4% in local currency, primarily driven by favorable pricing. Additionally, while still down slightly, this was our strongest year-over-year first quarter volume performance since the end of the pandemic.

Operating profit was $324 million, an increase of 13%. Operating profit margin was 16.9%, an improvement of 90 basis points. Earnings per share grew 20% during the quarter to $1.04 per share.

Now turning to our segments. Columbia product sales increased 7% in local currency, exceeding our expectations, largely due to more resilient than expected volume. North American sales increased 9% in local currency, driven by favorable pricing as well as slightly higher volumes. Delta Faucet delivered a strong quarter with sales growth across all 3 channels: trade, retail and e-commerce.

Additionally, Delta Faucet was recognized by USA -- today as a most trusted brand and by Newsweek as 1 of America's most trustworthy companies, demonstrating the significant strength of Delta's brand and service capabilities, which are resonating with customers and consumers. Turning to International plumbing sales increased 1% in local currency, driven by growth across many European markets, particularly Germany, partially offset by the ongoing weak market in China.

Operating profit for the Plumbing Products segment grew 10% to $250 million and operating margin expanded 10 basis points to 18.3%. Turning to our Decorative Architectural segment. Sales were in line with the prior year. DIY paint sales decreased low single digits, while Pro paint sales grew mid-single digits. Operating profit for the segment increased 19% to $105 million, and operating margin was 19%.

Showcasing our commitment to innovative new products, BEHR PREMIUM PLUS Ecomix was recently named a 2026 Green Building Sustainable Product of the Year. BEHR continues its industry leadership in delivering both innovative and sustainable products.

Turning to capital allocation. Our strong cash flow allowed us to return $267 million to shareholders this quarter through dividends and share repurchases. We are pleased with our first quarter performance and the team's strong execution and operational focus. Additionally, I'm proud of how our teams are working quickly to implement various restructuring actions to ensure we have the appropriate cost structure for our business in this rapidly changing environment.

Turning to our expectations for the full year. We continue to face a highly dynamic macroeconomic and geopolitical environment. Therefore, we believe it is prudent to maintain our 2026 earnings per share guidance in the range of $4.10 to $4.30 per share. Our guidance includes our expectation that our sales will now be up low single digits for 2026, but that we will also incur higher than previously anticipated commodity costs. Rick will share additional details of our guidance in a few moments.

While uncertainty remains in the near term, we are focused on positioning ourselves for ongoing sales and profit growth over the mid- to long term. The structural factors for repair and remodel activity are strong including record high home equity levels, the age of the housing stock and increasing pent-up demand for renovation projects. As consumer sentiment improves, interest rates decrease, and existing home turnover increases, we expect these favorable fundamentals to become a tailwind for our business.

In addition, we are taking the right actions to optimize our business, leaving us well positioned to deliver above-market top and bottom line growth. We are committed to our consumer-driven strategy, which leverages our industry-leading brands, expanded commercial capabilities and enhanced operational excellence. We look forward to further sharing the strategy and our long-term goals with you, either in person or online at our upcoming Investor Day on Wednesday, May 13 in New York City.

With that, I'll now turn the call over to Rick to go over our first quarter results and 2026 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Robin mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other onetime items. Turning to Slide 7. We delivered strong first quarter results, with total sales increasing 6% or 4%, excluding the favorable impact of currency. In local currency, North American sales increased 5%, and international sales increased 1%. Gross margin expanded 10 basis points to 36% in the quarter.

SG&A as a percent of sales was 19.1%, 80 basis points lower than the prior year. Operating profit grew 13% to $324 million in the quarter, and our margin expanded 90 basis points to 16.9%. Operating profit was driven by pricing actions and cost savings initiatives partially offset by higher tariff and commodity costs. Our EPS grew 20% to $1.04 per share in the quarter.

Turning to Slide 8. Plumbing sales increased 9% in the first quarter or 7%, excluding the favorable impact of currency. While this growth was primarily driven by pricing actions, which increased sales by 6%, our performance was better than expected, driven by volume, which was up slightly in the quarter. In local currency, North American plumbing sales increased 9% in the quarter. This performance was primarily driven by strong growth in our Delta Faucet and Watkins Wellness businesses. In local currency, international plumbing sales increased 1% in the quarter. Hansgrohe grew in many of its European markets, including its key market of Germany. This growth was partially offset by softness in China and other smaller markets. Segment operating profit in the first quarter increased 10% to $250 million and operating margin expanded 10 basis points to 18.3%.

Operating profit was driven by pricing actions and cost savings initiatives, partially offset by higher tariff and commodity costs. Turning to Slide 9. Decorative Architectural sales were in line with the prior year. This performance was driven by mid-single-digit growth in our pro paint sales, offset by a low single-digit decrease in our DIY paint sales. These results were largely in line with our expectations, and we continue to anticipate full year pro paint sales to increase mid-single digits and for DIY paint sales to decrease mid-single digits. Operating profit in the first quarter was $105 million. Growth versus the prior year was primarily driven by cost savings initiatives, which are inclusive of benefits from our recent restructuring actions as well as increased pricing. This was partially offset by higher commodity costs.

Operating margin was 19% in the quarter and reflects the benefit of our Liberty Hardware business now being reported in our Plumbing segment. This was coupled with a more normalized first quarter for our paint business as we lap the inventory timing dynamic that unfavorably impacted the first quarter of last year.

Turning to Slide 10. Our balance sheet remains strong with gross debt-to-EBITDA at 2.1x at quarter end. We finished the quarter with $1.3 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 19.5% of sales at quarter end.

As expected, working capital balances in the first half of the year remained elevated versus the prior year due to the timing of when tariffs were implemented.

However, we continue to anticipate working capital as a percent of sales will be approximately 16.5% at the end of the year. Our strong cash performance enabled us to return $267 million to shareholders through dividends and share repurchases, including the repurchase of $202 million of stock in the first quarter. Additionally, based on the strength of our balance sheet and confidence in our future performance, we recently entered into a 2-year delayed draw term loan of up to $500 million.

We plan to utilize the available funds under this facility to opportunistically repurchase our shares. As a result, we now expect to deploy at least $800 million towards share repurchases or acquisitions in 2026, up from our previous expectation of approximately $600 million. Now let's turn to Slide 11 and review our outlook for 2026. While we are pleased with our strong results in the first quarter, there remains a high degree of uncertainty in the macroeconomic and geopolitical environment.

As a result, we are largely maintaining our full year outlook. For Masco overall, we expect 2026 sales to be up low single digits versus our previous guide of flat to up low single digits, and we continue to expect our margins to expand to approximately 17% -- regarding cadence for the year, given the timing of tariff impacts, which largely impacted our results in the second half of last year, we anticipate total Masco margin to be relatively flat in the first half of the year versus our previous guide of margin contraction and to expand in the second half of the year as we lap the tariff impact and as our mitigation actions continue to take hold.

As it relates to tariffs, on our prior earnings call, we estimated the total cost impact from incremental tariffs to be approximately $200 million before mitigation this year. Given the recent ruling on NEPA tariffs, the implementation of temporary Section 122 tariffs and changes to how Section 232 tariffs on steel, aluminum and copper are applied, we do anticipate the impact of these tariff changes before mitigation to be favorable. However, given the great deal of uncertainty as to where tariffs will ultimately land, it is challenging to quantify. In addition, we anticipate any tailwind from these tariff changes will be more than offset by anticipated increases in commodity and related input costs.

Copper prices remain elevated and oil, which impacts a wide range of material as well as logistics costs also remains elevated and volatile.

We continue to monitor these dynamics and we'll work diligently to mitigate the impact as we have demonstrated in the past. Turning to our segments. In our Plumbing segment, we continue to expect 2026 full year sales to be up low single digits and our operating margin to expand to approximately 18%, driven by pricing discipline, operational efficiencies and continued cost savings initiatives.

In our Decorative Architectural segment, we continue to expect 2026 sales to be roughly flat with the prior year and our operating margin to be approximately 19% and with a continued focus on cost savings initiatives.

Finally, as John mentioned earlier, we are maintaining our 2026 EPS estimate of $4.10 to $4.30 per share. This now assumes a $200 million average diluted share count for the year versus our previous guide of 202 million shares and a 24.5% effective tax rate.

Additional financial assumptions for 2026 can be found on Slide 14 of our earnings deck. With that, I would like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of John Lovallo with UBS.

The first one is just on the Section 232. -- you said that this could be actually favorable, which seems right to us. But is this really driven by the fact that the product that you're importing whether it's faucets or shower heads, are not entirely copper and that some of the subassembly is done in the U.S. And how do you kind of wrap your arms around what this potential benefit could be? .

John, it's Rick. So with regards to our comments on the potential favorability on the tariff impact, it's really an impact -- it's really a composite impact. So it's not just the 232 tariffs, but it's the really on the EBA tariffs at the end of February, the imposition of Section [indiscernible] tariffs. And then, of course, the 232 tariffs, which -- so we look at it from a composite perspective. The 232 tariffs themselves are relatively nominal in terms of their net impact. But on composite, we expect a favorable impact. But in addition to the ones that we talked about in our opening comments, as you probably are aware, the administration is looking into a couple of investigations and Section 301 tariffs as well. The environment remains uncertain. We think net-net, it will be favorable for us for the year, but it's difficult to quantify just given the moving parts -- and as we also mentioned, we think any favorability will likely be offset by elevated commodity costs, as we talked about.

Okay. That's helpful. And then I think you guys said your prior estimate was for consolidated pricing to be up low single digits with mid-single-digit pricing and plumbing and sort of flattish and deck arc. I mean how are you guys kind of thinking about this now, particularly with the move in resins since the conflicts in the Middle East began? .

Yes. So with regards to our pricing expectations for the year, our plumbing expectation is mid-single digit. In terms of deck arc, it's really going to be dependent on where we end up commodity perspective, we are seeing significant headwinds given the elevated and volatile oil prices and the impact that it has really across the input spectrum and including freight costs as well, but certainly on the deck arc side with regards to resins, et cetera. And so we're seeing upward pressure in the neighborhood of mid- to high single digits. Obviously, it's still in discussion. And so that's something that we're tracking very closely. -- we -- I think from an overall company perspective, we would expect mid-single-digit inflation, and that's really commodities as well as 1 of the way inflation as well. So it's something that we're monitoring and managing very closely. We do have a track record of offsetting and managing through these challenges, and we believe we'll do so here as well. through a combination of levers. But that's really the landscape. And caveat, as we all recognize it's still uncertain, but there is upward pressure.

Your next question comes from the line of Stephen Kim with Evercore ISI.

I think you effectively have said that you -- well, you just reiterated that you think that the changes in the tariffs will largely be offset by the commodity. I was wondering if you could give us just an overall estimate of how much that piece, which will be transferred effectively will be for the year. And if there's a quarterly cadence to that, that we should be mindful of? .

Steve, just to clarify your question. In terms of the transfer of costs. Could you just elaborate.

Offset. Yes, the offset you are basically saying that the tariff changes could be beneficial to you, but the commodity costs will be higher and that those pieces would effectively be offsetting, if I heard you correctly. And so I'm just wondering how big is that piece effectively? .

Yes. We're not going to quantify the actual magnitude of it. I think on a net basis, you can think of them as relatively flat to potentially a headwind for us for the year, just given the extent of commodity inflation that we've seen really across many input costs, particularly copper and zinc as well as oil-based inputs, particularly resins, et cetera. So we're basically tracking that. But I think at the end of the day, those commodity costs are going to offset the favorability or potentially more than that.

In terms of your second question, quarterly cadence, this is largely a back half of 2026 phenomenon. As I think we've described in the past, particularly on the plumbing side of the business. commodity costs when they show up in the market really have to flow through our inventory and in our P&L, usually a couple of quarters later. And we saw elevated copper and zinc cost really as we entered into 2026. So that will be more of a back half 26 phenomenon. As it pertains to oil in resin costs. That's a little bit more near term because we've been seeing that as of late, and that's more of a quarter to 2 quarters out. So it's really kind of as we approach midyear and the second half of the year, that we would see that impact -- and that lines up pretty cleanly with regards to our tariff favorability because the tariff favorability is largely driven by the EPA tariff ruling. -- and that occurred as we all know, on February 20. And so that takes some time to flow through our P&L as well. So they tend to map pretty cleanly. But at the end of the day, there's still a lot of volatility out there, Stephen, as you recognize.

Okay. Great. That's actually a good cleanup. I appreciate that. In the deck Ark segment, your margins were stronger than we expected. And I was curious if you could give us some sense for the relative importance of the cost savings initiatives from restructuring versus pricing? And give us a sense for what your expectation is about the quarterly cadence because we typically see the margins rise in 2Q and 3Q from 1Q. Is there anything that we should be mindful of that would be different this year than normal?

Stephen, this is Jon. I'll jump in first, and then Rick can follow up with anything I missed here. We -- I guess, overall, feel good about this trajectory that our paint business is on. As you know, we exited with the challenging year behind us, and we feel better about our performance. Again, we saw our business overall flat with propane growing mid-single digits, DIY down low single digits. We feel great about the plans we have in place with our retail partner, and we'll continue to, again, grow share with the Pro painter HUTENSa, which is a big opportunity for us, and we've got a significant amount of headroom there and then make sure that we continue to grow with DIY as well where we have a significant share.

In terms of margins, I would say, yes, they were up significantly versus last year. they are much more normalized versus a typical Q1 though, we had an easy comp this year versus Q1 of last year. and we feel good about our ability to continue to manage our margins as we move forward. I would say our restructuring actions are paying off and particularly in our bar business as we've taken significant steps to really streamline our cost structure and allow us to compete in the market that hasn't been drawn the way that we'd like overall. And I'll let Rick answer the question just on quarterly cadence, but hopefully, that gives you a perspective.

Yes, Stephen. So with regards to Jon's comments were spot on in terms of the implications on Q1. I would just reinforce that the performance in Q1 was driven really based off of of cost reduction actions that were in our control, including the restructuring actions that Jon alluded to. We did see some low single-digit inflation in the commodity input costs. So that's something that we are mindful of, and as I mentioned earlier, are expected to increase over time. So that's something that we're tracking. But I think in terms of our margin performance in Q1, it was largely in line with what we would have seen from a historical standpoint on a clean Q1.

Your next question comes from the line of Sam Reid with Wells Fargo.

Coming back on the quarter here. In Plumbing, really nice beat versus expectations I just wanted to perhaps unpack the plumbing volumes that you put up during the quarter. I know they were modest, but I believe there was some volume benefit there. I just wanted to double confirm that there wasn't any being onetime or any pull forward in there around pricing that we should be mindful of?

Sam, this is Jon. I would say the short answer is no. It was a pretty normalized quarter in terms of inventories. -- we feel really good about deploying business and the performance that, that team put up really around the world where we saw our business grow nicely. Our North American business, in particular, with Delta Faucet had a terrific first quarter. growing high single digits. I think 1 of the -- if you look at our beat versus our internal expectations for Q1, it was really a plumbing and then primarily North American Plumbing and the vast majority of that was really just volume versus expectations. As you're aware, we took a fairly significant amount of pricing as we exited last year. And the team has done a terrific job really putting that pricing in place and navigating with our customers to have really good plans. And we saw our volume perform better than we would have expected from an elasticity standpoint.

So we feel like the fundamentals are incredibly strong. We grew share across our channels. In fact, we grew in every channel across plumbing, whether it be wholesale trade or e-commerce. We've got a great new product lineup. Our marketing plans are strong. We feel really good about our plumbing business, and we'll continue to focus on as we move through the rest of the year.

That's super helpful. And then maybe double-clicking on the plumbing price in a little bit more detail. I mean it sounds like the strength was widespread across all of your channels. But could you perhaps give us a little bit more color on whether there were any nuances between plumbing price, say, retail versus wholesale, wholesale versus e-com? We just lost maybe a view on how that plumbing price might have looked by channel.

Yes, this is Jon again. We typically don't get into that level of detail from a pricing standpoint. I think it's suffice to say, though, if you look at our results, we executed our plans well from a pricing standpoint across all channels, given that we saw the price realization in the market that we had hoped for. and our elasticities were as severe as they could be. So again, we feel really good about how we navigated -- and the performance was pretty consistent through all channels. And again, in North America, it was high single digits, which is terrific.

Your next question comes from the line of Matthew Bouley with Barclays.

Wanted to start on the growth guidance in plumbing. So you obviously started the year at this 9% growth and still guiding the full year up low single digits. And -- so presumably, those pricing comps will get a lot tougher in the second half. So I guess that part is understood, but you would still need a lot more deceleration in either as soon as Q2 or perhaps even a negative comp at some point just to kind of hit that guide. So I guess the question is, should we be expecting that, that deceleration in growth is sort of already happening here in Q2? Or are you just really building in a lot of conservatism on the volume side that you kind of think is prudent here to sort of get that type of deceleration? .

You're welcome. This is Jon. So as I mentioned, really pleased with the performance in Q1. As we look to the remainder of the year, really, it's the uncertainty that we see in the road around is that, that cause us to keep our guidance where it is. Certainly, you had all of the uncertainty prior to the war and ramp with tariffs. And consumer sentiment and things like that. And then obviously, the war adds a whole another level of uncertainty.

So we're looking at 2 things very closely. One, the demand environment and how our consumers purchasing across our markets. And today, we have not seen a meaningful change, but it's something that we're looking at very, very closely. And I think as the oil shock rubles for the economy, we have questions in terms of how the economy is going to perform. Again, nothing to date that gives us pause, but we're going to continue to watch that closely. As Rick mentioned earlier, what we have seen certainly is the impact of inflation from the oil shock, particularly in petrochemicals and particularly in our decorative architectural business. As Rick also mentioned and our team has really, I think, distinguished itself as being able to navigate through tough times in a dynamic environment, and we'll do everything that we can to offset that inflation by negotiating with their suppliers, looking at footprint -- but ultimately, if we have to take price, we'll work to do that in a very efficient and effective way.

Got it. Okay. That's very helpful. Secondly, shifting over to the Hansgrohe business. question is on basically both demand and energy costs, specifically in Europe. So as the conflict began, the question is, have you sort of seen any changes either from a consumer perspective? I mean, it sounded like Europe was still positive in the quarter. But anything changing on the margin around demand in Europe or just the energy costs related to natural gas in your business there. So any kind of color on how you expect that to play out?

[indiscernible] I'd say similar to what we're seeing in North America. We haven't seen a dramatic change to date, something we're obviously watching closely. We see commodity pressure in Europe just like we do in North America, and that team is taking -- Hansgrohes taken the initiatives to offset it. And then from a demand standpoint, again, remember that [indiscernible] is really a global business. We like how Europe is holding up at this point. China is no secret. It remains challenging market from a new home construction standpoint and a building standpoint.

So if anything, that's the market we continue to look at in terms of trends and looking to improve our trends in that market. But Europe is hanging in there pretty well to date. So we feel good about [indiscernible] as well.

Your next question comes from the line of Ketan Mamtora with BMO Capital Markets.

Congrats on a strong quarter. Maybe just coming back to the full year guidance Jon or Rick, what is the right way to think about sort of what you're betting as the base case? If volumes, the demand environment stay kind of where it is today, do you expect to be more sort of at the midpoint of that range? How should we think about that?

It's Rick. So with regards to our guidance, it's informed by all the information that we have to date with regards to what we're seeing in the marketplace. Obviously, the uncertainty in the macroeconomic and geopolitical environment as well as from an earnings perspective, the tariff implications and the commodity implications that we've spoken to already. I mean at the end of the day, we feel confident in terms of delivering our results within the range. And without further input on that, I think you can comfortably assume that we'll end in the mid part of the range. From a top line perspective, our guidance, we did increase our expectations for the year from flat to low single digits to up low single digits. So we do expect growth in our top line this year from a total company perspective, driven primarily in our plumbing space. And from a bottom line perspective, we do expect earnings growth and EPS expansion in lending in the $410 million to $430 million range for the year.

Got it. That's helpful, Rick. And just as a follow-up on the capital allocation side, you moved the target higher to $800 million. Is it fair to say that you see bigger opportunity on sort of the share repurchase side? Or are you seeing kind of more M&A opportunity as well?

Yes. Fair question. As it pertains to the increase in our share repurchase expectations or availability for share purchases or acquisitions. Basically, we saw an opportunity with regards to the strength of our balance sheet. We've got a very healthy gross debt-to-EBITDA ratio or leverage ratio and our confidence in our performance, obviously demonstrated in Q1 and our confidence in our future performance and opportunity to look at increasing the cash available for share repurchases from $600 million to at least $800 million. To enable to do that we entered into, as I mentioned in my opening comments, delay draw term loan facility to enable that. So it's really going to be opportunistic. We like the flexibility that, that offers. And we like the opportunity in terms of the valuation that we're at today to be able to be opportunistic and leverage that. And so we'll keep providing updates as we progress on each quarter. But right now, we do expect an increase in share repurchases from $600 million to $800 million plus absent any M&A at this point.

And just reiterating our capital allocation strategy hasn't changed. So we continue to look at M&A. And as we've said before, bolt-on M&A is our focus. We find the right deal, we'll do it. As Rick mentioned, we just felt like this was a great opportunity. we have the ability to go out and borrow a bit more. And we frankly believe that our shares are valued right now we believe that we're performing well, and we continue to as we move into the future as well. .

Your next question comes from the line of Mike Dahl with RBC Capital Markets.

I wanted to circle back to some of the cost and margin dynamics. I think the question is if you look at this being kind of net neutral to less favorable in terms of costs and tariffs and a lot of uncertainty around the second half. I understand that historically, had the ability to do things to offset this. When you have like broad increases in inputs and global tariffs, it's a little harder to get those savings from shifting footprint.

I don't know if I'm wrong about that. So in your guide, if that is potentially a net negative versus your initial assumption is what is the primary lever that you're relying on to offset that and giving you the confidence to still guide margins up in the back half?

Yes, Mike, it's Rick. So your understanding of the playing field is accurate in terms of our read of the fact that commodity and input costs are likely to be a headwind that exceeds the favorability on tariffs. And as I mentioned earlier, it is more of a back half of the 2026 dynamic. In terms of the levers that we're looking at, it's really the same levers that we've been executing against already. So footprint in terms of sourcing footprint, is still a lever that we're pulling. And that is really on track in terms of helping to mitigate the tariff impact that we still are encountering but it's also a cost reduction. We've really executed well in terms of our cost savings initiative.

And of course, the restructuring that we announced in our February call and John alluded to earlier in his opening comments, that is really taking hold. And so that is amplifying our cost savings initiatives, and we're streamlining the business, reducing head count and optimizing operations. And so that's a huge lever for us, and we're going to continue to do that. And then pricing, obviously, we've been really effective at our execution on pricing and although much of the pricing actions that we've been pursuing are implemented, there's still a lever that we're looking at selectively as we proceed during the course of the year. So I would say overall, Mike, the levers remain the same, and we're going to continue to execute like we've done in the past, and we believe that the mitigation actions that we are executing and we intend to execute through the course of the year. will be sufficient to allow us to mitigate the headwinds and allow us to deliver results complement within the guidance range that we provided.

Okay. Great. That's helpful. Then shifting gears and back to the -- I guess, part of this might tie back to the capital allocation. I did note that in your [indiscernible], you have a little bit of commentary about the potential to seek relief or refunds from previously paid tariffs, but that nothing has currently been done or contemplated? What can you articulate about your strategy in terms of speaking refunds? And does that tie in at all to kind of the expanded buyback guide where if you do get some refunds, your inclination would be to to return that back to shareholders? Or how would you frame that? .

Mike, this is Jon. I would say we think the refund process still has a lot of uncertainty in it until if and when we get refunds, we'll obviously report what they might be and how it might handle them. But we are not banking on refunds, and it didn't really play any kind of role in our decision to take on the incremental data that we talked about. So again, we're doing particular steps necessary to protect our shareholders. And at the same time, it's still highly uncertain. So we another report, we'll start to review that.

Your next question comes from the line of Trevor Allinson with Wolfe Research.

I wanted to follow up on the restructuring actions. I think last quarter, you guys had talked about those being bigger impacts to '27 and '28, but it sounds like you're seeing those come through this year as well and providing nice tailwinds. So can you size for us what sort of benefit you're getting from the restructuring actions here in 2016? And then how much larger does that become as you move into '27 and '28.

Trevor. It's Rick. So with regards to the restructuring actions, we're really pleased with the execution, both the true execution and the timing of our restructuring actions as we disclosed we incurred about $8 million in Q1. We had incurred several million dollars in Q4 of last year, and we expect $50 million of restructuring costs for the calendar year and those are on track. And so we're starting to see those savings. We haven't quantified nor do we intend to quantify the savings per se because part of the savings are going to be redeployed in terms of growth initiatives as well as helping us to expand our margins. And that's a contributing factor to our margin expansion this year.

You're absolutely right. The restructuring actions are going to be executed over the course of 2026. And -- and so we'll see more of a full year benefit as we move into '27 into '28. But we're going to be managing those cost savings and leveraging those, as I mentioned, to drive growth. as well as managing our margin expansion.

Okay. And then second question maybe is related to that then. I mean you guys have made some changes in your incentive comp structure recently. It looks like you've been more focused on growth than you have been in the past. Can you talk about that change? Why you made the adjustment? And does that imply some shifting priorities for you guys in terms of growth moving forward.

Trevor, this is Jon. Maybe I'll jump in. So as I joined Masco last summer, it's clear to me Masco is a high-performing company. As I wanted to do the listening tour and talked to a lot of key constituents. The 1 thing I heard is that there is likely an opportunity for us to drive our top line a bit faster. Don't take the focus off margins. We don't take the focus off of cash flow. The company has done a great job on that. But if you can continue to deliver the bottom line and grow a little bit faster is probably a benefit to everyone. So we've been focused on doing just that. We're taking actions across the board, including the structuring of our executive committee to bring some external expertise in, in areas that we believe that we can benefit, see some additional savings.

We're setting up centers of excellence around things like digital marketing and e-commerce, commercial excellence, all in the pursuit of helping to not only grow the bottom line, but also grow our top line a bit more quickly. And then certainly, incentive is important. So we did make a change to change the weight in terms of how we incent our teams. And I would say profit is still the largest percentage of the pie we have balanced it out a little bit to make sure that we have the appropriate focus on top line as well. So I'm really pleased with the progress we're making. I'm pleased that we were able to grow the way we did in Q1. And again, our goal over time is to be able to do that consistently.

Your next question comes from the line of Adam Baumgarten with Vertical Research Partners.

I guess just on the margin piece, you talked about first half margins now being flattish year-over-year, which would still imply some margin pressure in 2Q. Do you expect both segments to see margin pressure next quarter?

Adam, it's Rick. So in terms of our margin expectations, you're right in terms of our updated guide for the first half of the year is flat margins. And given the fact that we had expanded margins in Q1, it does imply a margin contraction in Q2. I would just remind you that Q2 of 2025 to last year's quarter, we really weren't impacted by tariffs quite quite significantly at that point in time. And we had a very strong quarter with regards to 20% margin. So it's a challenging quarter from a year-over-year perspective. We do expect a very solid quarter in Q2 from a margin traction perspective. I'm not going to comment on the segments per se, but overall, we do expect some margin contraction, but we do expect to deliver a very strong quarter in Q2.

Okay. Got it. And then I think you guys alluded to maybe some incremental price actions. A couple of questions. Would that be in both segments? And would that happen if kind of commodity costs stay where they are today? Or would you need to see more commodity inflation to then think about raising prices further?

Adam, it's Jon. I guess I would say we're not going to talk about prospective price advances. I just would probably tell you to look at history here, the recent history in terms of how we approach things. And pricing is the last resort for us. We start with negotiating with our suppliers, changing our footprint where possible, taking cost out of our own system. But if the need is there. I think our team has proven that they can take pricing very effectively and efficiently and do in a way that benefits not only the bottom line but doesn't harm the top line as well.

So we'll continue to monitor things. Again, as we talked before, I'd say the one surprise for us so far this year has been the impacts on petrochemicals and particularly on our architectural business. So that's an area that we have a lot of focus. We're spending a lot of time with our suppliers to negotiate the best deals we can. And then ultimately, we'll work with our retail partner in terms of how we [indiscernible] forward. But -- just know that we've had good practice over the last few years given all the dynamic environment and feel really confident the team can navigate as we move forward.

Your next question comes from the line of Phil Ng with Jefferies.

Congrats on a really impressive quarter. I guess to kind of kick things off, John. I mean, I think volumes for plumbing came in, as you've pointed out better than you expected. Is that a more resilient consumer, maybe better price elasticity? Can you tease out if there is any share gains of note that drove some of that? Help us kind of think through where, I guess, plumbing would have surprised and it sounds like it's been pretty resilient thus far.

Yes, Phil. Yes, I mean, we're really pleased with plumbing, as I mentioned. It's globally we grew, which is great. I would say, again, versus expectations, it was really North America that we saw the beat. And as I mentioned, the vast majority of that will be versus our expectation was volume. And I would say our Delta team was firing on all cylinders right now. They've got great marketing plan for the year. They've got terrific new products that they've lost. Our vitality rate continues to increase year-over-year.

Our commercial plans with our key customers are incredibly strong as well. So team continues to perform. And then when you break it down across channels, we grew high single digits in North America across each of the channels. So wholesale and e-commerce and retail. And that's tricky to do, and the team is hyper-focused on building strong plans at each each of our customers. So we do feel like you're taking some share. And at the same time, I think executed pricing in a really effective way that we didn't see the elasticity maybe that we would have modeled out beforehand. And I think it's to get a testament to strong execution. So -- the last thing I would add is we continue to see strength in our upper premium and luxury segment of the market where we have brands such as Brizo and Axor and Newport Brass. And the high-end consumer definitely seems to be hanging in there strong and we see really strong margins in that segment as well. So we feel great about the performance and feel good about the plans we have in place for the rest of the year as well.

Got you. And just kind of teasing off that, I guess, for Plumbing for perhaps Rick, you guys kept your guidance for up low single-digit top line growth. It sounds like there is nothing of note for 1Q and volumes were up -- it sounds like things are pretty resilient. Could that be a source of upside? Or are you kind of expecting volumes to kind of decline in the back half, perhaps just given some of the macro dynamics that is out there? Just want to kind of think through some of the puts and takes there on the demand side.

Yes. Sure, Phil. As it pertains to -- as Jon mentioned and we talked before, Q1 was a really strong quarter. We're very pleased with our results and the consumer in terms of our businesses is holding in there. The uncertainty is something that we're continuing to track both on the macro and geopolitical consumer confidence is a bit challenged. But as it pertains to the fundamentals of our business are strong. The only thing I would point to from a first half versus second half perspective is -- we started to take pricing from a tariff mitigation standpoint in the second half of 2025. And so we'll lap that as we get to the middle of the year. As evidenced by our Q1 pricing of 6% in Q1. We won't see that type of year-over-year comp in the second half of the year. So that's part of the dynamic, just mechanically, but we still feel pretty confident. And obviously, we're hopeful that there is upside relative to our expectations. But at this point, we're we're guiding at low single digit in terms of growth for the year.

Your next question comes from the line of Michael Rehaut with JPMorgan.

Wanted to shift the focus to decorative and the sales were flat, still better than what we were looking for down low single digits. Was hoping to get a sense of DIY versus Pro and the different drivers there and where things might be if it's indeed the case maybe coming a little stronger if you're seeing any momentum similar to what you've seen in plumbing and how you might contrast the sales momentum that you've seen in plumbing versus what you're seeing in decorative across, again, DIY versus Pro on the paint side?

Mike, good question. It's Jon. So our sales for the quarter were flat. Clearly, that was a better performance than what we saw in Q4 of 2025 and really most of 2025. When you break it down, we saw Pro continue to grow mid-single digits. DIY was down low single digits, and we feel good about the plans we have in place. I mean I do believe that DIY is going to remain pressured when you look at that business. It's highly correlated with existing home sales. And obviously, existing home sales remain pressured. So as a result, we're putting strong plans in place. We're going to focus on the great quality that we provide the best value in the industry, really make sure that, that's playing through and feel good about our plans with our retail partner. .

The pro side is where we continue to see a tremendous amount of opportunity. I mean that's where the growth has been over the last longer time. We have a relatively small share in that space as well. We've grown our share by 200 basis points over the last few years. We're continuing to invest to take friction out of the experience for Pro. So whether that be order online, pick up the store or online, having delivered to the job site. We continue to hire both inside and outside sales reps to develop those pro relationships. And I can tell you that the home people have that same exact was our focus on the Pro as well.

So I think we hope to see incremental progress as we move throughout the year. And we remain a tough DIY market, we believe, for the short term, I feel really good about the plans we have in place and the trajectory that we're heading on.

Great. No, that's helpful. And I know at the risk of of beating this one to [indiscernible] a little bit, but I think it's going to be a big topic over the next month or two around the strength in plumbing, particularly the volume side. And you just highlighted the fact that you've seen that strength across different channels in North America, a lot of success in your execution. Notwithstanding maybe being a little more conservative in the back half of various reasons. And I presume you also hit on this at our Analyst Day next month. But are we to think about let's say, the share gains that you've been able to achieve in the first quarter as sustainable? And are there parts of the market that maybe you see an opportunity where this share gain dynamic can persist throughout this year into 2028.

Just trying to get a sense of the sustainability in the performance. And if there's anything that's shifted within the market, either on the customer side or some of your competitors out there, that lead you to believe that the share gain dynamic can persist on a, let's say, on a medium-term basis?

Mike, good question. I mean, as I mentioned, we feel terrific about what our team has delivered in Q1, particularly in North America. We don't think anything for granted. Our competitors are strong. There's good brands out there and it's a dynamic environment. So we're going to keep playing our game, keep focused on building our brands, innovating and then executing at a high level. And if we do that, we believe it will continue to be as strong as we move forward.

As I mentioned earlier, I mean the big question mark for us is just what happens with the end consumer. And a couple of months ago, we clearly talked about it being uncertain times and a lot of dynamic environment. And obviously, since the conflict in the Middle East, it's take it to a whole new level. So we believe that we're just being prudent in terms of, hey, let's wait and see what happens and how it plays out with consumers. And as we mentioned before, we are starting to see some inflation through.

So if there's any caution, it's just that. And certainly, these are very uncertain times that we'll continue to monitor and to what we can control. I feel great about what our teams are doing. I feel we have a very clear line of sight into our plans for the rest of the year. and I expect our performance to be strong certainly versus the category. And ultimately, it's the category, how that performs with all these uncertainties and the things that we're watching.

Your next question comes from the line of Anthony Pettinari with Citi.

Just following up on plumbing. Can you give any additional color on the growth you saw in Watkins and the opportunity or the TAM there? I think you flagged Delta and Watkins as your strongest growers is Watkins growing maybe similar to Delta? Or is it growing faster off a lower base? Is there any product set or brand within Watkins that's really driving the strength? .

Anthony, it's Jon. We feel, as we've talked about, great about Watkins and the opportunity. Watkins did grow in Q1. And we're going to get into a lot more detail at our Investor Day next month in New York City. So we'll walk you through the TAM. We'll walk you through the opportunities that we see -- what I would tell you is that hot tubs is our biggest business, and we like the momentum. We're the share leader in that space across North America, where we're seeing outsized growth is really in [indiscernible], which is only 1% health penetration in the U.S. today. It's very much front and center of the wellness movement, and we're seeing just a lot of demand for that product. So we grew nicely from a walk-in standpoint in Q1. We'll give you a lot more details next month when we get together.

Great. Great. And then, I guess, given the rise in diesel and gas prices, I'm wondering if you've historically seen real sensitivity between gasoline prices and consumer spending for your products? I guess I'm thinking specifically about DIY paint and maybe some of the smaller ticket items. It seems like you haven't seen that so far, but I'm just wondering if that's something historically that's moved the business.

Anthony, it's Rick. So -- it's tough to single out a particular driver. I think what we watch, generally speaking, is consumer sentiment as well as overall the health of the economy. And so higher oil prices, as we all recognize, is generally a headwind to consumer confidence is generally a headwind to disposable income. So -- and it's a headwind in terms of input costs. So those are things that we're monitoring closely, and that's one of the reasons that gives us caution and why we're prudent with regards to our expectations as we move out through the course of the year. Again, the fundamentals of the business, as Jon articulated, are really strong. We're pleased with the execution of what we've been doing here at Masco and across our business units. Oil prices is something that is a headwind, but it's more how it manifests itself in terms of consumer confidence, et cetera. For us, in terms of our products, they tend to be a lower ticket R&R items, so they tend to be more resilient in these types of environments. But nonetheless, we're not immune to it, but it's something that we'll continue to monitor and track progress through the course of the year.

Your next question comes from the line of Susan Maklari with Goldman Sachs.

I want to talk about the longer-term growth path. With the changes in leadership that you announced this week, do you now have the heads of those 4 key businesses reporting directly to you, Jon. Can you talk about what that means in terms of your ability to drive growth over time? And how the executive committee is focused on some of these items? And what that will mean for Masco?

Yes. So great question. As I mentioned before, as I came into Masco, I heard that. top line growth as something that probably was an opportunity, something for us to focus on. And then as I took a deeper the of the feedback, the other thing I heard is just our ability to move with pace and be agile is probably the other area to focus on. So with the executive community returned to 2 things. One, make sure that we have the right experts in terms of our centers of excellence and deep functional knowledge where it matters. .

We announced just earlier this week that we're bringing in a procurement -- Chief Procurement Officer who has 30 years of experience in the space and will be able to help us bring the most modern capabilities as which we feel great about. And also with the executive committee, really trying to streamline the organization to have more frequent communication, allow us to make decisions more quickly and move with pace. So with the new organization, essentially have removed a layer -- and with that, we think that our speed and agility will increase even more we talk as an executive committee, we meet once a week. I can tell you I talk to my direct reports many more times than that. And I think with the roll around us and the pace that we're seeing, it's really important that we have the organization that's set up to read and respond and deliver to consumers and customers what they expect from us.

Okay. That's great color. And then despite the moving parts around inventories and costs, still targeting to get that working capital down to about 16.5% of sales this year. Can you just talk through some of the pieces in there and how we should think about that coming together? .

Sure, Sue. It's Rick. So part of the reason our working capital is higher than it typically is this time of the year or has been for the last several months is because of the implications of tariffs. So the payer tariff costs and commodity costs, quite frankly, that lead into our inventory and receivables have elevated our working capital in the shorter payment terms on the tariff bills or invoices also reduces are payable. So there's an overarching tariff dynamic that has been at play. We'll see that normalize as we get into the second half of the year. And we continue to be. The team is very focused on managing not only cost, but also working capital. And so that's something that we'll continue to execute on. And once we get through the normalization of the tariff implications in the second half of the year, we should be able to execute towards the working capital that's more in line with our historical average, and we've guided towards 16.5%.

And your last question comes from Rafe Jadrosich with Bank of America.

The outperformance in plumbing volume in the first quarter in North America, how much would you attribute to just broader consumer resilience and the category holding up relative to your market share outperforming what you were expecting going into the quarter?

So I'm not sure we'll quantify it to the level of detail you're looking for. I mean, I think the category performed fairly well. I am very confident we also took market share that mentioned I believe that we're firing on all cylinders right now and really strong plans in place across each of our channels, each of our customers. So just leave it out is probably a bit of both. But if I had to say which one was the bigger driver, I would think probably our market share gains.

Great. That's helpful. And then in terms of the input cost inflation, what you're expecting, can you talk about what the copper price is embedded in guidance for the second half of the year or should we be assuming that copper prices and like stay where they are today. So just what are you assuming to get to the full year guidance? .

Sure, Rafe. It's Rick. We're not going to disclose a specific assumption in our outlook. But suffice it to say, I would assume that where we have been recently relays we closed out 2025 is a pretty reasonable place to be. Obviously, it's volatile in that nature. I mean I think as we sit at $6 or above $6 per pound, that is something that represents a bit of a headwind to us, but it's a volatile environment. And at the end of the day, as I've mentioned before, we're not only monitoring the situation, but we're proactively taking actions from a cost reduction standpoint, from an efficiency standpoint and as necessary, a pricing standpoint to mitigate those impacts, whether they're copper, oil inputs, tariffs, et cetera, to be able to deliver the results that we've guided to for the year.

This concludes the question-and-answer session. I will now turn the call back to Robin Zondervan for closing remarks.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a wonderful day. .

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Presentation for today. With us today from Masco is Jon Nudi, President and Chief Executive Officer; as well as Robin Zondervan, Vice President, Investor Relations and FP&A. Jon, I believe your remarks 15, 20 minutes or so, which should allow us for a few minutes of Q&A, but then following this will be a breakout session in Amarante 2, which I would thoroughly welcome. And speaking of thoroughly, welcome, Jon, welcome to Orlando. Welcome to our conference.

Hi, Sam. Appreciate it. Good morning, everyone. Thanks for being here. Welcome to all those on the webcast as well. I know for some of you, Masco is a little bit of feedback here. I'll move over here. Masco is a new name. So I'm going to keep this presentation fairly high level. I know we have a breakout session after this, I'm happy to jump into more detail and individual breakout sessions later today as well. Just a little background. I've been with Masco for 8 months as the CEO. It's been a pleasure to jump into the company. It's not been completely new to me. I was actually on the Board for a couple of years prior to taking this role. And certainly, the plan was not to move into this role.

But as I got to know the company and got to know the strengths as well as the opportunities, became really excited about the opportunity and the kind of the stars aligned, and I'm here and couldn't be more happy to be at Masco, which is an amazing company with a 100-year history, strong brands and really a strong team in place as well. So -- in terms of an overview, Masco is a global leader really in the design, manufacture and distribution of branded products. And brand is important, and I'll come to that in just a second.

We're very focused on the Repair and Remodel segment of the housing industry. I think there's 3 things that Masco has really been focused on has done a good job historically. One is focus on building our brands. Brands matter. It allows us to have the business model that we have, the margins that we have. And we need to continue to make sure that they show up in a relevant way that we keep showing up for consumers and being the trusted brand. And I'll talk a little bit more about how we're going to do that moving forward.

The second thing we focused on historically is innovation. It's been really important to Masco over the years. We've had a design focus, and we've been first-in-class to deliver innovation like the touch faucet, at Delta Faucet. I'll talk more about innovation in a second. And then finally, operational excellence. At the end of the day, the way that we service our customers really matters, and we've done a really nice job over time. In terms of the company itself, we're about $7.6 billion in sales. We finished 2025 at $3.96 from an EPS standpoint, about $1.3 billion of Operating Profit.

Our margins were down slightly really due to the tariff environment. Clearly, that was a change versus what we expected at the beginning of the year. I'm really proud of the way that the team navigated through that, but it did take a bit of a hit on margins. We'll get back to growing margins in 2026 as we guided on our most recent call. We throw off lots of cash flow, and as a result, have a very disciplined capital allocation strategy, which I'll get to in just a bit.

We have 44 manufacturing facilities, 20 of those are actually in the United States. In addition to that, we have 20 distribution centers in the United States as well. So the U.S. is a big important market for us. We have 18,000 employees around the world and sustainability has been a focus as well. So a little bit of background on Masco. Now you might ask, how do these brands and how do these businesses come together? What we would tell you is we think they're very complementary.

At the end of the day, we have similar characteristics, industry structures and channel relationships that increase value, whether it's Plumbing, Paint or even our Watkins Wellness business, which is hot tubs and saunas, and I'll talk about that in just a bit. We're very focused on the Repair and Remodel market with low-ticket items, which are less cyclical. So again, we don't play in a big way with new home construction, and that's a strategic choice and something that allows us, again to weather some of the downturns a bit better than others. I mentioned brands and innovation. I'll dive more into that.

And then customer and channel relationships are really important as well. We have a long history of deep partnerships with the retailers, the wholesalers as well as the e-commerce players in the space as well. I'll touch more on that, too. Let me jump into our 2 businesses. We have 2 reported segments. The first is Plumbing. This is made up of our Delta Faucet business, which is really our North American business. That's brands like Delta, which is our biggest brand. It's the #1 faucet in the United States.

In addition to that, we have upper premium brands like Brizo, which is over $200 million in sales. And then we have a luxury portfolio as well, things like Newport Brass, which is a very high-end faucet that Masco's owned. We integrated into Delta in the last year and have seen good growth. In addition to that, we have Hansgrohe, which is really our International Play based in the Black Forest in Germany. The 2 biggest markets are Germany as well as China.

And then we compete in over 150 markets throughout the rest of the world. We think there's a lot more room to run on Hansgrohe. And then finally, Watkins Wellness. So Watkins is our wellness business. It's interesting, even as a Board member, we didn't spend a lot of time digging into it. It's really an interesting business with a lot of growth potential. So we're actually the largest manufacturers of hot tubs and saunas in North America and have leading premium brands in the space. And then saunas, we acquired a company a few years ago in 2023, Sauna360, which has been a terrific acquisition for us.

Saunas are very much on trend. We only have 1% household penetration in the U.S., and it's growing very quickly. And all about you, you probably have some friends or family members that might be talking about saunas that seems to be the hot thing right now. So from a funding standpoint, we have strong brand recognition, which I talked about, industry-leading positions in North America as well as internationally. The product range matters, and I'll get into this a bit more between good, better, best. We play across the spectrum.

Innovation is part of the company's heritage and DNA and will continue to be as we move forward. Really strong track record of execution, navigating tough times like the tariff environment in the past year. And then we do think that there's numerous growth opportunities as we move ahead. When you break this business down, about $5.2 billion in sales, 17.6% margins. And again, the bulk of this really in Repair and Remodel with a little bit in new home construction. And then channel mix, wholesale and trade is the historical channel for Plumbing. It's still an important channel for us.

But we've seen retail as well as e-commerce grow quickly. And particularly in the e-commerce space, our Delta Faucet group has done a really nice job being a leader in our industry and continues to grow share at a significant pace in e-commerce. And then specialty dealers is really our Watkins Wellness business. So again, these are independent dealers that sell our products. And it's an important channel for us and one that we have strong relationships and a strong channel lineup.

The second segment at Masco is Decorative Architectural Products, and this is essentially Behr Paint and KILZ primer. The vast majority of this is sold through -- the Home Depot. And it's really an interesting story. Behr Paints 43 years old. The Home Depot is about the same age. And really, these 2 businesses grew up together, and Behr has been exclusive to the Home Depot for that entire period. So Home Depot is obviously the world's largest home improvement retailer, over 2,300 locations. We have a really strong relationship. And again, we obviously have intense discussions around the things that you would expect, but at the same time, have deep respect for each of our companies. And this partnership has really stood the test of time.

I've been very impressed. I've worked with lots of retailers in my time in an earlier career in a different industry. And this relationship, I think, is special and different and something that I've been very impressed by. When you look at Behr Paint, it's a really high-quality product at a great value. I think there's an opportunity for us to tell that story even better and more, and I'll talk a bit more about that in a second. But Repair and Remodel is about $2.4 billion in sales, 18.9% profit margin, really a mix of almost all of it at retail, almost all of it at the Home Depot. So that is Decorative Architectural. We're excited about it.

What I can tell you is that we're a leader when it comes to DIY Paint. We have close to 1/3 of the share of that in the United States. The opportunity and what we've been able to do to partner with the Home Depot to grow very aggressively is the Pro business. So over the last few years, we've grown that business by northwards of 70%. And at the same time, we're still a small player. We have less than 10% share in Pro Paint. And as you know, the Home Depot is very focused on the Pro. So one of the things we've been working to do with them is take friction really out of the buying process, whether that's buy online and deliver to the job site or buy online and deliver to the store.

A few years ago, you couldn't do that. You can do it today. The Home Depot is also very focused on trade credit. We know that's important to Pros as well, and they're working to introduce that. So we believe there's a lot more room to run in Pro, and this will very much be a focus for us as we move forward. All right. So I talked about innovation. This is critically important for us. And our goal is to deliver 25% of our total business with new products that have been introduced over the last 3 years.

And one of the challenges, if you think about COVID, a lot of people stopped innovating. Masco did not. Masco kept the pipeline alive. And as a result, we've got a great pipeline that is delivering against our target of 25%, whether that's Delta Shower Filter, which are really solving a consumer need about water quality, under-the-sink point-of-use tankless reverse osmosis systems that we introduced. We think it's a big opportunity. Water quality is important today. It will become even more important forward. And then Hansgrohe, bringing innovation, whether in the form of the way that the shower droplet comes out of the shower and the way that the feel and engulfs your body, or a new innovative sink that actually allows you to wash your face in a very soft, gentle way.

FreshwaterIQ, where we're the first in the industry to have an app where a consumer can check the chemistry on their hot tub via their app and easily dose to make sure that you're in the right place. And we just introduced a new innovation as well that will actually automatically dose the chemical for you. So again, it's really a hands-free, hands-off care for your hot tub. Sauna360, I mentioned was an acquisition that we did several years ago in 2023. This is a business out of Northern Europe doing really, really well. And again, hot tub and saunas are very much on trend.

This added about 1 point of incremental growth to Masco and Enterprise from this acquisition. We're really pleased with it. Cold plunges are a thing as well. We launched those in the last few years. And then even on things like primer, which you wouldn't think would be ripe for innovation, we introduced a water-based primer. This is important for several reasons. One, the odor is an issue for consumers, and this has noticeably less odor. The other reality is there's quite a few municipalities in the U.S. where you actually can't sell oil-based primer anymore. This provides the functionality of oil-based and allows us to sell really around the country. So innovation important.

And then finally, you hear a lot about digital and digital is for real. Digital is impacting all of our lives. When it comes to our products, we want to focus on digital that solves a problem for consumers. And one of the areas that we are seeing some momentum is really around digital showers, letting consumers be very specific about the temperature. We're also launching steam showers, which we're seeing some really nice response from as well. We're not going to do digital for the sake of digital, but where it solves a consumer problem, we will focus on it.

All right. So I talked a little bit about this before, but we play across the spectrum, whether it's Plumbing or Paint. From a Plumbing standpoint, we have Peerless, which is our entry-level brand. Really, the mainstream brand is Delta, which plays across the bulk of the category. We're known for innovation. Hansgrohe is our German brand, again, really strong reputation for innovation, really plays across the middle tier of the category. And then the best, we've got Brizo, which I mentioned before, which we built to over $200 million and AXOR, it's a really high-quality German faucet, 100% made of metal, really, really a great product around the world. We think there's an opportunity to do even more in the U.S. with that one.

Then Behr Paint, same thing. We have BEHR PREMIUM PLUS, which is our entry-level Paint. We've got BEHR ULTRA and BEHR DYNASTY, which we know each leg up offers additional benefits, all of them at a great value, a significant value to what our major competitor offers. We think there's an opportunity for us to tell our quality story and really our value story even more directly in the coming year, and that's something we're focused on. From a channel split, mostly 80% North America, 21% international. Almost all of that international business is Hansgrohe.

From a channel standpoint, Wholesale and Trade 34%; e-commerce 13%, growing quickly; Retail 45%, Specialty Dealers, Others, again, is Watkins Wellness, which is really the hot tub and sauna business for us. And then consumers were split pretty evenly between DIY and Pro. And what I would tell you is whether you're a Pro or you're DIY, you are a consumer. And our job is to make sure we deeply understand what you're looking for, what your problems are and to make sure that we solve those problems via our brands, and that's something that we're very focused on.

All right. So moving forward, there's so much to like about Masco. We have a long track record of success, delivering strong margins, delivering through cycles. And at the same time, we want to make sure that we keep evolving and keep growing. So we've done several things. One, we created a new Executive Committee. Masco historically has been very, very decentralized, which comes with a lot of advantages. We're focused on our business. We know our business, but one of the things we did was elevate our 4 big business unit presidents to the senior team. So the leaders of Delta Faucet Company, Hansgrohe, Watkins Wellness and Behr Paint, now sit on the senior team.

We meet at least once a week. We talk about what's happening in the markets. We talk about opportunities and how we can distort resources to get after them. We talk about challenges and the same thing, how can we get resources to solve them more quickly. I think this allows us to be more agile. It allows us to be more connected to the business, which is great. It also allows us to leverage our scale a bit more. We're beginning to create some capabilities that cut across. And by having these leaders on the senior team, they have a voice in how we develop these strategies and certainly how we execute them.

From a Centers of Excellence standpoint, we are building some centers -- or some groups in the center that are there to build capabilities and provide expertise that's hard for 8 different business units today to try to create on their own. So think digital marketing and e-commerce. We are putting some experts in the center that are building capabilities and are really focused on making sure that we win in this space. Brand building and consumer insights. I talked about how important our brands are. Brand building today is different than it was a few years back.

At the end of the day, brand building is very much focused on digital today. We need to make sure we have the digital capabilities to have our brands show up in a modern way. Instead of doing that 8 different times, we're going to create these capabilities. We're not going to do the marketing in the center. We're going to make sure that our businesses are deploy these capabilities and run their businesses they do today. They're just going to have better capabilities to do it.

And the final one is commercial excellence, which is really revenue management. I talked about our channel breakdown, and we play across multiple channels, there's likely an opportunity for us to be a bit more strategic about how we play our product lineup, how we plan 2 to 3 years out in terms of products, innovation as well as pricing, and that's something we're getting after. And obviously, our goal is to deliver above-market Top and Bottom Line growth. We've delivered strongly from a margin standpoint and a profit standpoint over time. I can tell you, we believe there's an opportunity to grow a bit faster.

And that's one of the things we want to do by not sacrificing margins or profit, but really leaning in to leverage our scale to create some dollars that we can invest back in the business. People ask me all the time, how are you going to fund this? And I can tell you, there's no desire to ask our investors to fund our growth. That's on us. So we announced some restructuring actions at our last earnings call. We haven't historically done a lot of restructuring across Masco. But between 2025 and what we guided to in 2026, we'll do close to $70 million in restructuring, all of them with a really strong ROI, which will free up some additional dollars for us to invest back in the business.

We want to keep growing our margins, keep delivering on a profit standpoint, but grow faster on the top line. All right. So everyone, I think, has a question, when will this market come back? And for someone that's only been in the market for 8 months, I'm probably not the expert to talk to. What I can tell you, though, is I talk to everyone I can in this space. And I think everyone agrees that the long-term macro factors remain incredibly positive for this industry. We've seen a lot of home price appreciation. Obviously, that's tailed off a little bit. But the reality is there's home equity levels that we have never seen before, up something like 80% over the last few years.

The trick will be getting consumers to tap into those HELOCs to make sure that they -- we use them for Repair and Remodel moving forward. The U.S. housing stock, again, should be a tailwind over time. We know that over 55% of all homes are over 40 years old, which requires a step-up in Repair and Remodel. We also know that a slug of homes that were built in the early 2000s are moving into the 20- to 40-year age of homes, where we see a 15% to 20% uptick in remodeling. All of those things, again, are continuing to happen, we're starting to see pent-up demand for remodeling that at some point will unlock.

Household formation and millennial homeownership are very much tailwinds as well, as millennials have families and start moving into the housing market. Housing turnover has been at existing lows over the last few years. That correlates highly with DIY Paint. It's been a challenge for us. This will flip. And I think the thing for us that we believe is probably the biggest thing holding people back today is consumer confidence. I mentioned there is home equity lines at record levels. Interest rates have come down to probably a level that they're going to be for a while. What's holding people back? We think it's consumer confidence. That's whether it's the uncertain world around us. You hear a lot about AI and the impact on potential job market. We think all of those things are weighing on consumer confidence. That being said, this will unlock. And when it does, there's a significant amount of pent-up demand.

And in the meantime, we believe that we can weather this current period in a fashion that's strong, both on the Top and Bottom Line. It's about our brands, our innovation, and our customer focus. I talked about low ticket Repair and Remodel, less cyclical. We have strong free cash flow and value-creating capital allocation. So our model for the long term is to grow above GDP by 1 to 2 points. We think that our categories and our industry can do that. So that's organic growth of 3% to 5% with acquisition, which is obviously more episodic. I mentioned Sauna360 in 2023, that's added a point to our enterprise growth. We want to expand margins, which will drive Operating Profit a bit faster than sales.

And then we have capital deployment in the term of share buybacks at 2% to 4% EPS and then dividends of 1% to 2% return on top of EPS growth. Our goal is to average at least 10% annual EPS. And we have a very disciplined capital allocation strategy. One of the questions I got a lot as I came into this role, are you going to change this? And I can tell you that the short answer is no. This is very much aligned back up through the Board, which I was on prior to taking this role.

The first goal is to reinvest back in the business. We averaged between 2% and 2.5% of sales, Target Working Capital at 16.5%. We are a capital-light business, which allows us, again, to generate lots of Free Cash Flow, which is a positive. We want to maintain an investment-grade credit rating with gross debt-to-EBITDA below 2.5. We're just below 2 today. We're just upgraded by one of the major rating agencies recently. And then maintain a relevant dividend, current expected dividend of $1.28. We target around 30% payout. And we just announced -- the Board just announced an approval for a 13th consecutive year of increase in our dividend as well.

And then finally, we deploy excess free cash flow to either do bolt-on acquisitions where they make sense or buy back shares. We've been very aggressive over the last few years buying shares back, and we've guided that we'll spend at least $600 million this year, either buying shares or doing bolt-on acquisitions. Again, we know this is a powerful lever for us to return cash to shareholders, which we hear from investors is something that they value. So to sum things up, I talked about, again, brands, innovation and really strong customer service. We talked about our categories and how we like them. We like our business model and how it to operate over the short and long term, and we have a very disciplined capital allocation strategy. So hopefully, that was helpful. I look forward to talking and answering your questions as we move forward.

With that, I'll turn it back over to Sam.

Thank you, Jon. Questions? I'll start. So you have a $200 million gross tariff exposure with the striking down of IEEPA replacing it with Section 122. What's the net impact on Masco as it stands?

Obviously, a great question. Obviously, a dynamic environment when it comes to tariffs. We guided with our Q4 earnings just a few weeks ago about the $200 million for 2026. Obviously, things have changed. What I can tell you is we don't believe there's enough certainty today to really give a more refined guidance. So as we come back at our first quarter earnings and at the end of April, we'll provide a bit more direction. It's a very fluid environment. And at this point, we're continuing to move ahead, assuming that other tariffs will fill the void versus IEEPA.

On a net basis, is it a net benefit?

Yes. Again, we're not going to get into that today. We'll talk about that at the first quarter earnings.

How is the -- it's a public forum. How is the early read on the -- on business trends thus far in the quarter?

Yes. So we don't talk about monthly trends. What I can tell you overall, we're encouraged that 2026 should be, from an end market standpoint, a bit better than 2025. That's what we guided to, right, flat to up low-single digits. And I would say early days, we're seeing some green shoots across our business. And again, I won't get into a whole lot of detail. We also have, honestly, some comps that will work for us. If you remember with Behr Paint in 2024, we had a big inventory move at the end of the year.

We had to comp that in 2025. So Paint should have a better first quarter just from a comp standpoint. We really like the way that we're competing in Plumbing, particularly in North America. And we know via our internal tracking that share is something we continue to grow. And we're also excited about the lineup that we have with some of our major retailers in 2026. So again, nothing to report that's new today, but I can tell you, we're cautiously optimistic that 2026 will be a better year.

One thing that I found notable, you and the Board have changed some of the variable comp metrics that are used to determine executive pay at C-level pay more towards organic growth and perhaps a little bit less towards just absolute margin performance. And in concert with that, it looks like you're increasing your R&D, your marketing spend as well. Can you go into some of the thinking behind that decision and perhaps what outgrowth expectations there should be from that effort?

Yes. So I mentioned earlier, I think historically, Masco has really distinguished itself from a margin standpoint and a profit standpoint. And to be clear, we do not want to lose that focus. And at the same time, we think there's an opportunity for us to grow a bit more quickly on the top line. So I'm a big believer, the Board is a big believer and you get what you incent. And so we made some shifts. And one of the things we did was we took from an incentive standpoint, the balance was 75% profit, 25% growth. We think profit is still incredibly important. So it's still the majority of the incentive. It's now going to be 60% in 2026 and then sales will be 40%.

Just sending the message to our teams that growth on the top line is important as well, maybe more today than ever. In addition to that, even on the profit side, it was not only op profit growth, it was actually a percentage margin target, which we took out because at the end of the day, we want our people to be investing both for the long term, certainly, and it's hard to make investments when you get penalized short term from a percentage standpoint. So it's a balancing act. And again, the bulk of our incentive still sits in profit. It's critically important to our investors. We know that.

We just wanted to make a shift to get the top line growing a bit more quickly. And what I would tell you is that we're not changing. We have an Investor Day coming up in May. If we're going to make any long-term changes, that will be the time we talk about it. But the facts are, you can do the math. I mean we haven't historically delivered the 3% to 5% top line growth that we talk about, right? So our goal is to make sure that we have the plans in place, the capabilities in place to deliver on our algorithm on a more consistent basis.

Questions from the room? Yes, in the back here. [indiscernible]

Yes. So clearly, we haven't seen the big inflection point yet. It does feel like over the last 3 or 4 months, there's been some green shoots. And again, it's more anecdotal than any kind of hard data we can point to. But it feels like consumers have been sitting on the sideline for a long time. We talked about this pent-up demand. The reality is the existing home market isn't picking up dramatically. So I think people are in their homes. And I think they feel like if you're in your home, you might as well remodel or at the very least, make sure you repair everything that's broken. So nothing to report directly today. It does feel like there's been a few green shoots more recently.

Yes. In the back? [indiscernible]

Yes. So we've talked a little bit directionally about clearly with the cost environment, the tariff environment. We took pricing in 2025. We took what we typically do at the beginning of 2026 as well. I can tell you, we haven't seen anything out of the ordinary in terms of inventories. So again, I think it's a pretty consistent year-over-year in terms of how that looks.

And with that, we're out of time. This will continue in the breakout session, Amarante 2. Thank you all.

Thank you.

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Fourth Quarter and Full Year 2025 Conference Call. My name is Danny and I will be your operator for today's call. As a reminder today's conference call is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2025 Fourth Quarter and Full Year Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer.

Our fourth 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. [Operator Instructions] 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 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 will now turn the call over to Jon.

Thank you, Robin. Good morning, everyone, and thank you for joining us. Please turn to Slide 5. I want to start today by highlighting some of our key accomplishments from 2025, which we achieved while navigating a dynamic and challenging environment. Following that, I'll turn to our financial results for 2025 and share our expectations for 2026.

Starting with our Plumbing Products segment, we continue to demonstrate our market leadership, even as we work to mitigate the impact of higher tariff costs. Delta Faucet was awarded the Home Depot Kitchen and Bath Partner of the Year. This award recognizes the strength of our brand, customer service and innovation. Alta also continue to achieve notable market share gains in the e-commerce channel driven by our industry-leading capabilities that deliver solutions for consumers.

At Hansgrohe, we continue to be a global leader, gaining additional market share through premium products with industry-leading designs. Hansgrohe also continues to demonstrate leadership and commitment to sustainability. Having recently received multiple awards for corporate strategy and production initiatives of the German Sustainability Projects 2025 order volume.

At Watkins Wellness, our integration of SONA 360 into our existing dealer network has generated double-digit sales growth in a market with ongoing opportunities for increased household penetration. We also introduced our cold plunge products, further expanding our presence in the consumer wellness market.

In our Decorative Architectural segment, the strength of our brands continue to resonate with our customers. Bear was once again rated #1 in interior paint. Number one, an exterior paint and #1 in exterior stain and a third-party study, demonstrating the exceptional quality and strength of our leading beer brand. Our continued strategic alignment and partnership at the Home Depot led to our recognition of supplier of the year for the paint department in the United States and Canada, and interconnected partner of the year in Mexico. Our annual Pro sales are approximately $950 million, and our share of the propane market has grown over 200 basis points since 2019, we've continued building capabilities to enhance the buying experience for our Pro customers, including expanded delivery options, loyalty programs and a growing sales force, which allow us to further capitalize on the sizable growth opportunity in the propane market.

I want to thank all of our employees for their resilience, commitment and leadership, which made these accomplishments possible. [indiscernible] on to our results. Please turn to Slide 6.

I Beginning with our fourth quarter results overall were largely in line with our expectations as we continue to navigate a dynamic geopolitical and macroeconomic environment. Net sales decreased 2% or 3% in local currency, primarily due to lower volumes. Operating profit was $259 million, and operating profit margin was 14.4%. And Earnings per share for the quarter was $0.82 per share.

Turning to our segments. Pumping product sales increased 3% in local currency. North American sales increased 4%, driven by favorable pricing Delta Faucet again delivered strong performance, particularly in the trade and e-commerce channels. International plumbing sales increased 1% in local currency, driven by Germany, partially offset by the weaker market in China. Operating profit for the segment was $204 million. Operating margin was 16.3% and included the impact of higher tariff and commodity costs.

Now turning to our Decorative Architectural segment. Sales decreased 15% in the quarter. Overall paint sales decreased double digits due to lower volume, including the impact of the favorable inventory timing in Q4 of 2024 and the impact related to the customer transition of our primer and Applicator business in Q4 2025. Excluding these impacts, overall pay sales decreased mid-single digits. DIY paint sales decreased high single digits and propane sales grew low single digits. Operating profit for the segment was $76 million operating margin was 13.9%.

Please turn to Slide 7 as we review our full year performance. Despite a dynamic geopolitical and macroeconomic environment for most of the year, we delivered solid profitability and remain disciplined on capital allocation. Net sales decreased 3% or 2% excluding the impact of currency and the divestiture of Kichler. Operating profit was $1.3 billion, and operating profit margin was 16.8%. Earnings per share for the year was $3.96 per share. We delivered a return on invested capital of 41%. Our strong cash flow allowed us to return $832 million to shareholders through dividends and share repurchases. Near the end of 2025, we began taking decisive actions to further position our business for long-term value creation. We established an executive committee with Dole corporate and business unit representation to fully leverage our enterprise strengths, which will enable us to continue to deliver strong execution and accelerated growth moving forward. We also began implementing various restructuring actions to a greater extent than in the past to further streamline our business, reduce head count and optimize operations. We incurred approximately $18 million in charges related to these actions in the fourth quarter of 2025, and we expect to incur approximately $50 million in additional charges in 2026. We anticipate the savings generated from these actions will fund additional growth initiatives to contribute to future margin expansion. As we move into 2026, we're announcing the integration of Liberty Hardware and the Delta Faucet Company, with over half the Liberty sales branded Delta and a complementary product portfolio, this realignment enhances our consumer-driven strategy to leverage our brands, capabilities and scale across our organization. As a result of this integration, Liberty Hardware, which was previously reported in the Decorative Architectural Products segment will be reported within our Plumbing Products segment moving forward.

Turning to our expectations for 2026. We believe sales across the global repair and remodel markets will be roughly flat. This includes an expectation that both our North American and international markets in aggregate will also be roughly flat. Our expectation for our own sales in 2026 is to be flat to up low single digits. This estimate includes our expectation that we will continue to outperform the market in 2026. We expect margin expansion in 2026 driven by continued mitigation of higher tariff and commodity costs, cost savings resulting from restructuring actions and ongoing operational efficiencies across our business. We expect falling margins inclusive of the Liberty Hardware business integration to be approximately 18% and decorative margins to be approximately 19%, resulting in a Masco operating margin of approximately 17%.

Turning to capital allocation. Our strategy remains consistent. First, we invest in our business to accelerate growth and market share gains. Second, maintain a strong investment-grade balance sheet. Third, target a 30% dividend payout ratio; and fourth, deploy our remaining available free cash flow, which we expect to be approximately $600 million in 2026 toward share repurchases or value-accretive acquisitions. I am pleased to share that our Board approved a 3% increase to our dividend for 2026, raising our annual dividend to $1.28 per share and marketing our 13th consecutive annual dividend increase. Additionally, our Board authorized a new $2 billion share repurchase program, underscoring Masco's resilient business model, a strong financial position and the Board's confidence in our future performance. Our M&A strategy remains consistent. We continue to selectively pursue opportunities with a strong strategic fit and attractive returns, focusing on bolt-on acquisitions with our plumbing, wellness and coatings businesses. Based on our expected operating performance and capital deployment strategy, we anticipate earnings per share for 2026 to be in the range of $4.10 to $4.30 per share. While the housing market remains pressured in the near term, we are confident that the fundamental supporting mid- to long-term home improvement demand are quite strong. U.S. homeowner equity levels are at a record high, up more than 80% since 2019. And providing greater capacity for home renovation projects. Homes continue to age with more than 55% of U.S. homes now over 40 years old, and the agent typically requires an elevated repair and remodel spending. Additionally, a large cohort of homes bill in the early 2000s is now entering the primary modeling age of 20 to 40 years. Significant pent-up demand for larger renovation projects continues to build as consumer sentiment improves, interest rates decline and existing home turnover increases, we expect this pent-up demand to become a tailwind for our business. With these strong fundamentals and the actions we are taking to optimize the business, we believe we are well positioned to deliver above-market top and bottom line growth. We plan to achieve this through our consumer-driven strategy that leverage our industry-leading brands, expanded commercial capabilities and enhanced operational excellence. We look forward to discussing the strategy and our long-term goals in greater detail at our upcoming Investor Day on Wednesday, May 13 in New York City. Please save the date, and we look forward to seeing you there.

Now I'll turn the call over to Rick to go over our fourth quarter and full year results and 2026 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Robin mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other onetime items.

Turning to Slide 9. Sales in the fourth quarter decreased 2% or 3%, excluding the favorable impact of currency. In local currency, North American sales decreased 5%, and international sales increased 1%. Gross margin was 33.7% in the quarter. SG&A in the quarter was 19.3% and in dollars was in line with the prior year. Operating profit was $259 million in the quarter, and our margin was 14.4%. Operating profit was impacted by lower volume and higher tariff and commodity costs, partially offset by pricing actions and cost savings initiatives. Our EPS was $0.82 per share in the quarter.

Turning to the full year 2025. sales decreased 3% over the prior year or 2% excluding the impact of our divestiture and favorable currency. Our divestiture of Kichler in the third quarter of 2024, and resulted in a decrease in sales of 2% year-over-year for the full year 2025, while currency represented a 1% increase in sales. In local currency, North American sales decreased 5%. And or 2%, excluding our divestiture and international sales increased 1%. Gross margin was 35.5% and was impacted by higher tariff and commodity costs. SG&A as a percent of sales was in line with the prior year at 18.7%. Operating profit was approximately $1.3 billion, and operating margin was 16.8%. Lastly, our EPS for the full year was $3.96 per share.

Turning to Slide 10. Plumbing sales increased 5% in the fourth quarter or 3% excluding the favorable impact of currency. This growth was largely driven by pricing, which increased sales by 5%, partially offset by lower volume. In local currency, North American plumbing sales increased 4% in the quarter. This performance was primarily driven by solid growth in our Delta Faucet and Watkins Wellness businesses. In local currency, international plumbing sales increased 1% in the quarter. Hansgrohe grew in many of its European markets, including its key market of Germany. This growth was partially offset by the ongoing challenging market dynamics in China. Segment operating profit in the fourth quarter increased 2% to $204 million and operating margin was 16.3%. Operating profit was driven by cost savings initiatives and pricing actions, partially offset by higher tariff and commodity costs and lower volume.

Turning to the full year 2025, Plumbing sales increased 3% or 2%, excluding the favorable impact of currency. Favorable pricing contributed 3%, partially offset by lower volume, which decreased sales by 1%. In local currency, North American plumbing sales increased 3% and International plumbing sales increased 1%. Full year operating profit was $904 million, and operating margin was 18.1%.

Turning to Slide 11. Decorative Architectural sales decreased 15% in the fourth quarter. In the quarter, total paint sales decreased double digits due to lower volume. Volume was impacted by the favorable inventory timing in Q4 of 2024 as well as the impact related to the customer transition of our primer and Applicator business in Q4 2025. Excluding these impacts, overall paint sales decreased mid-single digits with pro paint sales growing low single digits, and DIY paint sales decreasing high single digits, in line with our full year performance. Operating profit in the fourth quarter was $76 million, primarily impacted by lower volume and significantly higher tariff and glass antidumping duty costs at our Liberty Hardware business, partially offset by cost savings initiatives. We continue to take proactive actions to mitigate the impact of tariffs and duties and have announced the integration of the Liberty business into Delta Faucet Company. We believe this integration will provide a significant opportunity to further optimize the operations and improve the profitability of Liberty as we leverage the capabilities and scale of the combined business. Operating profit margin was 13.9% in the segment.

Turning to the full year 2025. Sales decreased 14% and driven by our Kichler divestiture and lower volume, which decreased sales by 6% and 8%, respectively. Excluding the impact of the prior year inventory timing benefit, propane sales were up low single digits and DIY paint sales were down high single digits for the year. Full year operating profit was $457 million, and operating margin was 17.8%.

Turning to Slide 12. We our balance sheet remains strong with gross debt-to-EBITDA at 2.1x at year-end. We ended the year with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 16.7% of sales at quarter end. Working capital was impacted by tariff-related dynamics, including higher material costs and pricing, which resulted in increased working capital balances in 2025. We anticipate working capital as a percent of sales will be approximately 16.5% in 2026. Our free cash flow for the year was over $850 million, a bit stronger than anticipated driven by disciplined cost and working capital management, achieving free cash flow conversion of nearly 100%. Given our strong cash performance, we were able to return $832 million to shareholders through dividends and share repurchases, including the repurchase of $217 million in stock in the fourth quarter and a repurchase of $571 million for the full year.

Now let's turn to Slide 13 and review our outlook for 2026. The guidance that is being provided today reflects the integration of Liberty Hardware into Delta Faucet Company. Therefore, Liberty's results will now be included in the Plumbing Products segment versus previously being included in the Decorative Architectural segment. For comparison purposes, we have recast our segments in 2025 by quarter to reflect this change. This information can be found in the appendix of our earnings deck on our website. Our guidance also includes the impact of currently enacted tariffs in effect in February, inclusive of the 10% reduction in China tariffs that went into effect after our third quarter earnings call. As a result of this tariff reduction as well as proactive and ongoing changes to our sourcing footprint, we now estimate that the total annualized cost impact from tariffs to be approximately $200 million before mitigation, down from an annualized $270 million as of our third quarter earnings call. Of the $200 million annualized cost impact, approximately $80 million is related to the current 20% China tariffs and the remaining approximately $120 million is driven by a combination of the various tariffs on countries other than China, the 50% tariffs on steel, aluminum and copper and the glass antidumping duties. We anticipate the full $200 million will impact 2026. This is up from the in-year impact in 2025 of approximately $150 million, largely due to the timing of tariffs as they were implemented throughout 2025. Our teams continue to actively work to further mitigate these costs and recover the cost and margin impact through a combination of levers. These include cost reductions, continued efforts to change our sourcing footprint, and pricing where necessary. We anticipate that these mitigation actions will offset the direct cost impact of the currently enacted tariffs in 2026. To provide an update on our China exposure, in 2026, we expect to import approximately $400 million from China that is subject to the reciprocal tariffs down from our 2025 exposure of $450 million. Based on our continued efforts we anticipate that our China exposure will be less than $300 million as we exit 2026. This represents a greater than 60% reduction from our peak exposure in 2018. From a segment perspective, with the shift of Liberty hardware to the Plumbing Products segment, nearly all of our tariff exposure and impact reside in this segment.

Now turning to our expected financial performance for 2026. For Masco overall, we expect 2026 sales to be flat to up low single digits and operating margin to expand to approximately 17%, up from 16.8% in 2025. Our 2026 sales guide reflects an assumption that the global repair and remodel markets in aggregate will be roughly flat. As we think about the cadence for the year, excluding the impact of currency, we expect sales to be roughly flat to slightly up in both the first and second half of the year. We expect SG&A as a percent of sales to be in line with 2025 as we continue to invest in our business for future growth while also maintaining cost discipline. Also, as it relates to operating margins, given the timing of tariff impact, which largely impacted our results in the second half of last year, we anticipate total Masco margin contraction in the first half of the year, with expansion expected in the second half as we lap the tariff impact and as our mitigation actions continue to take hold. In our Plumbing segment, we expect 2026 full year sales to be up low single digits. We anticipate the full year plumbing margin will be approximately 18% and up from a comparable 2025 margin of 17.6%. Margin expansion will primarily be driven by pricing discipline, operational efficiencies and continued cost savings initiatives. In our Decorative Architectural segment, we expect 2026 sales to be roughly flat with the prior year. We expect our pro paint business will increase mid-single digits, and our DIY paint business will decrease mid-single digits. We anticipate the full year decorative architectural margin to be approximately 19%, relatively in line with the comparable 2025 margin of 18.9% and with a continued focus on cost savings initiatives.

With regards to capital allocation, we expect to reinvest approximately $190 million through capital expenditures to pay a dividend of $1.28 per share, up 3% from our 2025 dividend and to deploy approximately $600 million towards share repurchases or acquisitions in 2026.

Finally, as Jon mentioned earlier, our 2026 EPS estimate is $4.10 to $4.30 per share. This assumes a $202 million average diluted share count for the year and a 24.5% effective tax rate, which is consistent with our 2025 effective tax rate. Additional financial assumptions for 2026 can be found on Slide 16 of our earnings deck.

With that, I'd like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from Matthew Bouley of Barclays.

Maybe just 1 common question we're getting from investors now is around commodity inflation and specifically copper. So maybe just a quick question there around how you're embedding into your guidance for plumbing margin expansion in 2026 and maybe the sort of timing of that commodity impact.

Sure, Matt. It's Rick. So with regards to commodity inflation, is I'm sure you've been seeing, particularly with copper, we saw that really pick up later part of last year and really the first part of this year. We're monitoring very closely. It's obviously a volatile dynamic. With regards to inflation, we saw in our Plumbing segment, mid-single-digit inflation in Q4. So we're seeing some of that pull through and we're expecting mid-single-digit inflation in our guide for plumbing in the calendar 2026. So it's something that we've contemplated. Admittedly, it is volatile, and there is risk and upside depending on how things play out. As a reminder, with regards to how you think about commodities flowing through to our P&L, it's usually about a 6-month lag in terms of when you see the commodity costs in the market. before it hits our P&L. So that's why you're seeing it kind of later in Q4 in 2025 and in 2026. So that delays. And so to the extent that there is movement 1 way or the other, you can envision that leg would stay true.

Okay. Perfect. Second one, pricing in plumbing I think I heard you say 5% in the fourth quarter. And correct me if I'm wrong, but I think that would suggest price was probably above that in North America, assuming it was below that level in the international business. And so given that level of price, can you speak a little bit about what you're expecting to kind of flow through in the first half of 2026. Any kind of early reads on your initial January pricing actions in that segment and if you're expecting that to contribute additional price on top of what you've already got and kind of how that would flow through the first half and second half?

Matt, it's Jon. Maybe I'll start and then turn it over to Rick to get into the flow for 2026. I would say, really pleased with the way that our plumbing team has handled a lot of challenges in 2025, obviously, between tariffs and commodities, they were faced with a lot and really took action and really used some sophisticated tools to take precise pricing and really across all of our channels. And the good news is we continue to grow share through that time period as we've taken smart pricing. We believe we're well positioned in the market. And again, I'll let Rick talk a little bit about the flow and how that will happen. But again, really pleased with the way that we're navigating this environment.

Yes, Matt, with regards to your specific question, you heard correctly that pricing in plumbing was a 5% benefit in Q4. It's fair to assume that international wasn't as significant. I'll leave it at that. As it begins to 2026, we've indicated that we would expect mid-single-digit pricing for plumbing in the calendar year. From a case perspective, we won't get into the details, but suffice it to say that we started to implement mitigation actions, as John alluded to, really as tariffs started to take hold across cost sourcing and pricing really mid-year last year. So you can imagine, as we lap that activity in 2026, you'll see some moderation with regards to year-over-year comparison. But for the full year, you can expect a mid-single-digit pricing benefit.

Your next question comes from Anthony Pettinari of Citi.

Just pivoting from plumbing to DA. I'm wondering if you could talk about assumptions for price cost in 2026. Any commodity cost trends that you call out and any pricing actions that you can talk about?

Yes, absolutely. This is Jon. As we look at DAP, we are seeing some upward pressure on cost. As you likely know, we have a unique relationship with our large exclusive big-box retailer and have a price cost mechanism in place. So I'm not going to comment on prospective pricing or even our conversations with a retail partner. But given the costs that we're seeing, those conversations are beginning will come back in future quarters and let you know where we shake out in that space.

Okay. Okay. And then in terms of DIY, I think you guided down mid-single digits. Are there any kind of big picture thoughts you can share in terms of the volume pressure in that business and how much of it might just be sort of a secular shift from DIY to Pro. So maybe demand is not being destroyed. It's just being kind of shifted between the channels. Just kind of as you look back at the last 3, 4 years, can you give us some context and how that informs your expectations for '26?

Yes, absolutely. So this is Jon. It's certainly been dynamic for sure. We do know that existing home sales correlate highly with DIY paint and it makes sense when you go to sell a home, you tend to paint it. And when you buy it, you tend to paint it again, that puts your own Mark and style into the home. So as existing home sales, we're at 3 or 4 decade-year lows and then in 2025, it was challenging, and we saw that obviously in the previous years as well. As we look forward, we know that we have a strong DIY brand, 1 of the share leaders. We have amazing quality at great value. And we think we can actually tell our story better just to make sure that we get our continued growth share in the DIY market. The space that we're very excited about is the pro market when you look at that segment, it's the biggest single segment mascots in it's over $10 billion, and it's grown nicely really over the short, medium and long term. we have a relatively small share. We have less than attention, really proud that we gained 200 basis points of share since 2019. But we are squarely focused on growing that at the differential rate. And the good news is the Home Depot our retail partner is very squarely focused on the Pro as well. So we're working to take friction out of the experience for the Pro, things like order online and pick up in store which is available now order online and have it delivered to the job site, which we can do now. Home Depot is trialing some trade credit, which we think will make a real difference. And then we continue to increase the number of both outside and inside sales reps, we have focused on the Pro. So regardless of where the market goes, we like our ability to play both in DIY, where we're very strong today. And then we think there's a tremendous amount of upside in Pro and we'll continue to invest in that space and again, very aligned with our retail partner and that initiative.

Next question comes from Stephen Kim of Evercore ISI.

I appreciate all the color so far. I guess in your guide for fiscal '26. Can you give us a sense for what your expectations are for existing home sales and just anything else relevant coming out of the housing market, specifically in your outlook?

So we've got pretty modest expectations with regards to some of the macro drivers. From an overall R&R perspective, we're assuming both in terms of our -- the U.S. market in which we play as well as international, roughly flat, and that's contemplating volume down and pricing up kind of offsetting 1 another from an industry perspective. We -- Masco expect to outperform that and be flat to slightly up or up low single digits. In terms of some of the other macro factors, existing home sales, new home builds, et cetera, pretty modest expectations, nothing significant differently from what we've seen in the last couple of years.

And if you did see an inflection upwards in existing home sales beyond your expectations, would you be expecting that you would see that more in the -- on the pricing side? Or do you anticipate that there would be certain other sort of subcategories that would particularly benefit or see it first?

Yes, Stephen, that's a tricky 1 to answer. I think from a standpoint, I think pricing, as we've taken price with regards to mitigating both tariff and commodity costs, that's largely in place. Obviously, we continue to monitor the market. I think from an overall variability standpoint, I would presume volume would be the biggest dynamic both in terms of upside opportunity in terms of risk. I mean we look at -- I gave you the assumptions with regards to the overall R&R industry. Within that, we look at plumbing as an opportunity for us, particularly in terms of how we're competing in the market. in Q4, for example, we gained sales in both -- across the e-commerce trade and retail channel. So we're seeing really good momentum in that regard, and we're going to continue to drive our performance kind of relative to the market overall.

Stephen, I might just add that, obviously, existing home sales are important. I mentioned how important that is to our paint business. Beyond that though, we are 90% repair and remodel. And I think big picture, I believe that there's a lot of opportunity once the market frees up. And you look at -- I mentioned in the prepared remarks that home equity levels are at record highs, up 80% since 2019. Interest rates are heading in the right direction. I think the combination of some additional cuts to interest rates and then importantly, improved consumer confidence, we think that's going to be really the driver to turn the market. So whether that happens in '20 or 26 or not, we'll see. But again, we think that those are the key things that will be needed for us to get back to historical growth rates across our categories.

Your next question comes from Michael Rehaut of JPMorgan.

I wanted to hit on the restructuring actions contemplated for 2026. I assume part of that is with regards to moving Liberty over and integrating that I just wanted to get a sense for what the dollar benefit you anticipate from those restructuring actions in 2026? And how much of that might be reinvested in the company because I heard you say fund growth initiatives versus just a fall to the bottom line, so to speak?

Yes. So maybe I'll start and Rick can add on as well. Obviously, with markets that aren't growing at historical rates, we want to take action to make sure that we have the cost structure that's needed for data into the future. So the actions are broad. So again, Liberty would obviously be a part of it, something that we pointed out. but really looking across our organization just to make sure we have the right footprint in terms of manufacturing base, make sure that we're leveraging our scale where it makes sense. And the idea is to take those dollars, drop similar to the bottom line as we've guided, again, we want to grow margins in 2026 and into the future. And importantly, we want to free up differential amount of dollars that we can reinvest back into creating capabilities. And we won't go into a lot of detail today, but at our May Investor Day, we'll really detail the capabilities that we're building can only help us drive the bottom line. So things like leveraging our scale with shared services and global purchasing. But importantly, creating capabilities that will drive our top line even faster. So things like e-commerce and digital marketing, brand building and consumer insights. And then finally, really accelerate innovation. So again, I'll let Rick touch a little bit on the dimensions of this year and into the future. but just know that this is an area that we'll continue to focus on. We're going to continue to drive hard from a cost standpoint just because we do want to keep growing our margins and keep investing in our capabilities as well.

Yes, Mike, with regards to restructuring and timing. So as we indicated in our prepared remarks, we took a charge of about $18 million in Q4 2025 we expect about $50 million of charges here in 2026. So we've embarked on restructuring actions, and we were highlighting this for a couple of reasons. One is because it's more significant that Masco has done in the recent past in terms of the extent of restructuring, all for the reasons that John mentioned in terms of the overall market dynamics, volume, et cetera. In terms of the -- and it's broad-based in nature, I would say in terms of benefits, those restructuring actions are going to take hold as we move through 2026. They're contemplated within our guidance and we do have some margin expansion contemplated in our guidance for 2026. The full benefit will be realized as we get into '27 and '28. And as John indicated, we'll provide more visibility in terms of our margin expectations as we get into our discussion at Investor Day in May.

Okay. I appreciate that. I guess secondly, just to follow up on the earlier question around raw materials and where copper prices are today. You said obviously that your 26 guys consented or reflect that you're aware of what's going on in the markets. Just a little -- just for a little clarity sake. Does that imply that if copper prices today, copper prices of today were to hold, that would be, in effect, a neutral impact on say the second half of the year because there is a lag? Or would there need to be some additional adjustments taken to make sure that you can achieve the guidance that you've laid out?

Mike, without giving you a specific figure in terms of what we've tagged our plan at, what I can say is we do -- we have contemplated elevated copper prices. We haven't contemplated copper prices at the levels that they reached in the recent past, like about $6 per pound from a COMEX perspective. But that's something that we continue to monitor. We do have, as I mentioned earlier, to Matt's question, a bit of a delay with regards to when it impacts our P&L. So it does give us the opportunity to respond whether it's through further cost actions or pricing to mitigate those impacts. And so that's something that we continue to monitor. And we've demonstrated the ability to offset these types of headwinds in the past. And so it may not be 1 for 1 from a timing perspective. And there might be both risk and upside relative to our -- the copper assumption. But there -- but we do monitor very closely, and we do take action accordingly.

Yes. I would just say, Mike, look, it's 1 of many risks and opportunities that we continue to look at. So I would say we feel good about where they call it today, if it moves materially, we'll take actions to make sure we mitigate it.

Your next call comes from Susan Maklari of Goldman Sachs.

Building on your recent comments to Mike's question, can you talk a bit about the executive committee that you formed there? Some of the initiatives that you're going to be really focused on as you think about driving that growth? And anything specific that we should be focused on for 2026 as it relates to that?

Sue, this is John. I'm happy to take that question. I'm excited about the new executive committee. And really, it was designed to do 2 things. One, allow us to get closer to the business. As we all know, the world is moving faster than ever before, including our consumers and customers. And we wanted to bring our 4 big BU leaders on to the senior team of the company. That's the first time we've done that at Masco their businesses make up more than 80% of our total business. And we meet at least weekly. We talk about what's working, what's not, where there's challenges, and we're flowing resources to those challenges more quickly than we have in the past. And again, just being really in touch with the business is what we're shooting for. In addition to that, Bear is now reporting directly to me as they deal with our largest customer. I think that helps with decision-making. It helps me be really in tune with what's happening on that important business as well as with our most important and largest customer as well. In addition to that, the goal is to leverage our scale better. Masco has a long history of driving a lot of success. We've done that in a very decentralized way. And what I would say is I don't plan to centralize this company that's not the goal at all. but the goal is to really leverage our scale where it makes sense. And to do that, we need to make sure that we do it in a smart way. So as we build these strategies to leverage our scale, having the business unit leaders be a part of the strategy of development. And then, obviously, the execution as we go to market and deploy these capabilities, things that I talked about digital marketing and e-commerce and brand building and consumer insights and innovation, having them to be a part of the development, I think, is really important. So our goal is to keep doing -- we've done historically from a margin standpoint, keep driving margins. but probably grow a bit more quickly on the top line and bringing this growth mindset to bear is what we're trying to do as an executive committee.

Yes. Okay. That's great color. And then turning to the cash flow side of the business, you guided for working capital come down a bit, 16.5% of sales this year. Can you talk about the path of getting there further potential upside to that as conditions perhaps normalize? And then how we should be thinking about what that means for overall cash generation and the uses of that cash?

Sure, Sue. It's Rick. So with regards to working capital, as you may recall, and I believe I mentioned this in my prepared remarks as well, 2025 working capital was adversely impacted by the tariff dynamic. And what I mean by that is a couple of fold One is cost flood into our inventory and its pricing but into our receivables that inflated our working capital ratios. Also from a payment timing perspective, tariffs are due on shorter payment terms than our regular vendor payables. And so that shortened our payable days as well. And so those impacts took hold in 2025 and were adverse impact in terms of our working capital dynamics. In 2026, we expect more of a return to normalization. There will be some residual implications, of course, for the tariffs, but 16.5% is more of where we've launched historically. And so that's more of a normalization, I would call it, with regards to our working capital. From an overall cash allocation perspective, our capital allocation framework, as you know, has not changed. And we are consistently deploying capital as we've done in the past. And that's number one, first and foremost, investing in the business and we guided to an expectation of approximately $190 million of capital expenditures in 2026. Second is an investment-grade credit rating, which we have securely in place Third is a relevant dividend. And as Jon and I both mentioned, we got support from the board to increase our dividend 3% to $1.28 per share for 2026. And then all available cash that we don't deploy to capital investments or to the dividend are available for share buybacks or M&A activity. And we indicated our expectation is that number would be about $600 million for 2026.

Your next question comes from John Lovallo of UBS.

The first one, just on Liberty Hardware. It looks like the operating margin was kind of mid- to high single digits in 2025, and I'm sure that was impacted by tariffs. But that compares to sort of 16% to 17% in 2024. So I guess the question is, what are your expectations for Liberty Hardware margin embedded in the plumbing outlook? And can you remind us why this business is still considered core?

Sure, John. It's Rick. So we typically do not comment on individual business unit performance, but obviously, with the shift of Liberty hardware from our Decorative Architectural segment to our Plumbing segment, it creates a bit more visibility. And as you noted, our margins were adversely impacted in 2025. And that's really, I would say, primarily driven by a couple of things. The volumes were a bit challenged. But really, even more than that, from a profit margin perspective, we were hit significantly by tariff in the glass antidumping duties. And just as a reminder, the glass antidumping duties impact our shower door sourcing and that was at a rate of 323%. So needless to say, the team has been proactively working to mitigate and change our sourcing footprint to address that duty impact. and we're making good progress on that, and that will be something that we mitigate over the course of 2026. As it pertains to Liberty overall, Liberty is a core part of our business. as John noted in his comments, over half of the sales of Liberty, our branded Delta, there's a great product complement portfolio complement that Liberty processes in terms of kitchen and bath hardware and shower doors that we're really excited will be even more successful with a -- when we integrated into Delta in 2026.

Got it. And then on the paint sales side, I think you guys talked about paint being down at 15%. But you called out a couple of sort of onetime items, if you will, the inventory timing and the customer transition of primer and applicator businesses. Can you just help sort of break out the impact of each of those 2 factors in that number?

Sure, John. So you're right, we identified a couple of items that provided a bit of impact in Q4. What I would say is not new news is the inventory channel build in Q4 2024 that we experienced and we had flagged as a favorable impact in Q4 2024 and an unfavorable comparison as we look at Q4 2025, that had about a mid-single-digit impact in terms of our volume and sales for the business. on a year-over-year basis. And then with regards to the transition of the primary and applicator business from 1 of our customers, that had about a single-digit impact in terms of sales in the quarter. So we thought it was appropriate to adjust those as it pertains to providing a more representative picture of our performance during the quarter. And our performance during the quarter, quite frankly, when you strip out some of those impacts, is in line with what we saw through the course of the calendar year 2025, which was down high single digits in terms of DIY and up low single digits in terms of Pro. And we expect, as John have articulated an improvement in that trend rate as we move into 2026 in terms of overall paint sales being roughly flat year-over-year with DIY down mid-single digits and Pro up mid-single digits.

Your next question comes from Sam Reid of Wells Fargo.

I just wanted to circle back on the mid-single-digit plumbing pricing for 2026. If you could just disaggregate in your outlook between wholesale and Resale channel pricing would just love some perspective on how potentially those retail conversations are going? And also just how you might be managing price gaps that might be evolving between wholesale and retail and plumbing?

Sam, this is Jon. I'll take a crack at this. So I would say, in terms of pricing and plumbing, we feel good about where we are today and the conversations we have with customers are being constructive as you can imagine, customers don't love price in no matter the environment. So we always have to give good justification for it, and we're working through that as we speak right now. get into channel by channel. It's just not something that we really guide to. But I can tell you that we're putting some good discipline in place in terms of our strategic revenue management approach, and that means just having strategies by channel, making sure that we have a good idea of price elasticity and where we stand versus our competitors. And I think at the end of the day, what you really want to do is keep growing your business while you take price and clearly, we're doing that. We're growing nicely. We're growing share in the category. Part of that is just being competitive, which we believe we are, and it's also about building your brands and about innovating. So we feel good about where we are from a pricing standpoint for sure, but more importantly, just a business standpoint, particularly on our plumbing business in North America. Our Delta team, I think, did a fantastic job in 2025, navigating an incredible number of headwinds, and we really like where we stand today.

That helps. And maybe switching gears to paint. I believe in the prepared remarks, 1 of you mentioned job site delivery as being a lever for the paint business. Would just love to understand how widespread job site delivery is today, perhaps the runway? And then any color on who's paying for some of the outside trade representatives. Is that being split with Home Depot? Or are you bearing those costs on the paint business?

Yes, absolutely. So in terms of order online and deliver the job site, it's something that's expanding. We started our big markets where there's density of stores because we, in many cases, set up micro distribution sites that help with that distribution. So we think that there is plenty of runway left there. I won't give you a percentage. But again, I think it's early to mid-innings on that ability to take friction out of the system for PROs. So more to come there. And the second part of the question was?

Just on the economics of your outside [indiscernible].

Yes. I would say, again, without getting into a whole lot of detail, I would say it's a true partnership, 1 that goes back 43 years with the Home Depot. And in terms of how we get after this and some of it's joint, some of it's we invest. I would say, it really depends on the initiative, but we like this business a lot. We're not talking about certainly we're talking about 2026 and what we have to do to be the curve. Importantly, we're talking much longer in terms of the horizon and what kind of investments we need to make ourselves, what kind of investments we're going to make jointly to really grow this business into the future. And I've been incredibly impressed with the relationship that's developed over obviously a long period and importantly, just the candor back and forth in terms of what's working, what's not. And I have a lot of confidence that we're going to get to a better place on pain starting in 20 really accelerate from there. And the last thing I would mention is we made some leadership changes at Bear over the course of the last few months as well. I'm really pleased with the focus and the attention on what's happening at that BU at this point. So I'll leave it at that.

Your next question comes from Trevor Allinson of Wolfe Research.

Another question on dec arc here. Margins came in a little weaker than what you were expecting in the quarter. Was that primarily volume related or drove the weaker margins? And then just given the lower starting point as we exit 2025, how should we think about the cadence of dec arc margins throughout the year in 2026?

Yes. Trevor, it's Rick. So in terms of the operating profit margin implications in Q4, it was impacted by really a couple of factors. One is volume. And as we articulated, there were a couple of impacts that we highlighted in Q4. Obviously, the Q4 2024, higher inventory in our channel, and then the customer transition in and then just the overall market dynamics. So volume for a number of reasons, was impacted. And then in 2025, just as a reminder, Liberty Hardware is still part of that segment. And that was adversely impacted, as we talked about, by significant tariffs in the 323% glass antidumping duties. And so that weighed heavily with regards to operating profit margins. Now we've been taking price and we've been doing mitigating actions, but those take time to take hold. And so there's an implication there in the near term as it pertains to the operating profit margin. As we roll into 2026, obviously, you have to take into account the fact that we are shifting Liberty from our Decorative Architectural segment to our Plumbing segment. we provided a breakdown from a quarterly cadence for 2025 on a recast basis in the appendix of our earnings deck, so I'd refer you to that, and we can certainly address questions as a follow-up. But I would say that would help, I think, provide visibility in terms of our cadence for our recast segment for decorative architectural, at least in 2025. And outside of the impact that we just highlighted for Q4, in particular, I would say there's nothing that I would note at this point for 2026.

Okay. Okay. Makes sense. And then you talked about your expectations overall for the market in 2026. Can you talk about how you think Watkins performs relative to your overall plumbing portfolio this year? And then can you remind us roughly the size of that business as you exit 2025?

Yes, I'll take a crack of that. So we typically don't break out use within a segment. So -- but what I would say is we really like the space that walk is place. Wellness is very much on trend, obviously, from a consumer standpoint. You look at the categories that we play, spas and hot tubs only have 5% or 6% penetration in North America. We're the share leader. We have 2 of the major premium brands in the space and Caldera and Hunt Springs. And then sans are kind of a phenomenon right now. It's only 1% household penetration. If you look at pop culture at all, it's amazing how much people are talking about sales and the benefits that come with them. So look, it's been a bit of a mixed market over the last few years. They are bigger ticket purchases. We're exiting the year with momentum from 2025, and we feel good about our opportunities to grow and at least in line with the plumbing segment. in 2026 and probably grow even faster as we look forward, just given how much upside there is and how much on trend our products are.

Next question is from Mike Dahl of RBC Capital Markets.

First one, just to drill down into the plumbing guide 1 more time. I think if you're up low single digits, with mid-single-digit price, so you're implying volumes down low singles. I think you ended up the year with volumes kind of closer to flat in plumbing. So can you just kind of dive into that a little bit more in terms of changes in your volume expectations versus what you've seen in recent trends in employment?

Sure, Mike. It's Rick. In your dissection of our 2026 guide is accurate. So we are guiding in terms of our plumbing volumes to be down low single digits. That are partially offsetting the mid-single-digit pricing. We expect overall plumbing sales to be up low single digits in 2026. As we looked at back on 2025 in terms of our performance, we saw some of that pricing take hold in the latter part of the year. But from a volume perspective, we were down depending on the period 1% to 2% from an overall plumbing volume standpoint. So effectively, we're seeing more of a continuation from a volume perspective in that same ZIP code. Obviously, we're investing in many areas to as Jon articulated, to grow the business. And so we are cautiously optimistic that we can improve upon that, particularly as we move going forward and really set ourselves up to capitalize on our growth initiatives and to capitalize when the industry does return to growth, both from a volume and a price perspective.

Okay. Got it. That's helpful, Rick. And then I guess somewhat similar of a shifting to dec arc. Volumes were really down all year. They've been down for a couple of years, even adjusting for the one-timers. So in terms of just the level of confidence or conviction getting to flat for this year when it doesn't sound like you're assuming anything heroic from existing home sales. Just give us a little more insight into what you've seen in recent trends or the conversations you've had that give you that confidence that will improve back to flat.

Yes. This is Jon, Mike. I mean I think 2025 had a lot of challenging comps with the inventory build at the end of 2024, the exclusivity on primer and applicators. So the comps certainly become more favorable. So that's 1 thing that's real. I would say, in addition to that, I think focusing on what we can control. And from our side, we can focus on building our brand and really communicating the message that we've got the best quality and the best value in the category. I think particularly in this environment, the value messaging is something that could be compelling. So we're going to step that up I can also tell you that we are very aligned with Home Depot in terms of our strategies and really making sure that we get every bit of growth that we can out of 2026. So as we talked, we don't think the market is going to necessarily spring back to historical growth levels in 2026, but we feel good that we're going to execute at a high level and certainly see some better trends just because the comps are a bit easier for us in 2026 as well.

Your last question today comes from Phil Ng of Jefferies.

Jon, I think you mentioned on your propane business with your partnership with Home Depot. Perhaps you're doing a trial on trade credit. Any more color on that? Is that going to be pretty broad based and we could see an uplift this year? Or is that more of a 2027 opportunity? And with that partner growing in that pro side of things more broadly. Do you see that as an opportunity this year?

Yes. I guess what I would say is we do believe that trade credit is an important unlock with the Pro customer. And at the same time, I would say this initiative is really being driven by the Home Depot, and I don't want to speak. So I know there -- we'll be talking more about this. They have talked about trade credit in the past, and I think they believe it's a big unlock as well. So I'll let them comment on not just how widespread this is, but I know that for a fact that they believe it's meaningful and it's something that they're very committed to growing over time.

Okay. Got you. And then you commented about some of the momentum you saw in plumbing in '25 with share gains. I think it was on the e-comm side and retail. Anything to flag when we look at the 2026 any new placement in higher those channels or the wholesale channel as well on the plumbing side?

Yes. So I would say we obviously have good visibility into particularly our retail sets and our plans for the year, and we feel like we're going to have a really nice year in North America at retail. We had a really incredible momentum in e-commerce over longer architime, particularly led by our Delta business. growing nicely, even above certainly our overall average, and we feel good about we have in place there as well. And look, at the end of the day, our wholesale channel remains very, very important for us. We've got deep relationships that go back many years. So as we've talked about this new executive committee getting closer to the business, I can tell you we view all of these key indicators on a weekly basis and feel really good about the plans we have in place from a plumbing standpoint. So I feel very good that we're going to have another nice year from a share standpoint in North America. And Hansgrohe, I mean we had nice strength as well in some challenged markets, particularly in China, and I believe we have plans in place to turn that. The last thing I would hit in North America, the area that's really growing the fastest the upper premium and luxury segment of the category. And we have great brands with Brizo and Newport Brass and or -- and those are our fastest-growing brands, whether it's in the United States or outside the U.S. They tend to be our highest margin brands, and we really like that space. In the U.S. alone, it's over $100 million -- or over $1 billion in terms of a segment. So we like the momentum on our performing business, both in North America and around the world.

This time, I will now turn the call back over to Robin Zondervan. Please continue.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a wonderful day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, everybody. Thanks for being here. I'm Tim Wojs. I cover building products here at Baird. And we're happy to have Masco join us again at our Global Industrial Conference.

Masco is one of the world's largest manufacturers of plumbing and architectural coating products. From the company, we have CFO, Rick Westenberg, on stage with me. And then we have Robin Zondervan, who's VP of IR and FP&A in the front row over here.

So we're just going to kind of have a fireside chat. So maybe I'll kind of throw it over to Rick and kind of maybe give us a little bit of the state of the union, and then we'll get into more specific questions.

Yes. Good morning, Tim. Good morning, everybody. It's great to be back at the Baird Industrial Conference. As Tim mentioned, I'm the CFO here at Masco. I've been with the company for a couple of years. What I would say is from an overall environment perspective, as I think we've all realized it's been a bit of a challenging environment from an industry, macro, geopolitical environment standpoint.

But I would say from -- despite that backdrop, Masco in particular, has performed well with regards to delivering solid performance particularly from a share standpoint, maintaining or building share across many of our key segment areas, whether it's here in North America or international. We've got about 20% of our business outside of North America, and we performed particularly well in Europe.

What I would say from a margin perspective, we've been able to demonstrate margin expansion despite a challenging environment. 2025 has been a bit more of a challenging year just from an overall industry perspective, given the tariff environment. I'm sure we'll talk more about that. But I guess what I would say is I'm really proud of what the team has done in terms of their execution to mitigate the tariff situation that we've been -- we've all been faced with. We're continuing to make progress on that front as well.

Great. I guess one of the things that we kind of get questions on with Masco is kind of what's next. There's been a lot of change over the past decade just in terms of portfolio and kind of switching from like an M&A oriented business or organization to something that's doing a lot more buybacks and tuck-in acquisitions. You joined about 2 years ago. Jon just became CEO in July. Just kind of what are your kind of 1 or 2 key priorities over the next couple of years just to kind of create a more valuable company?

Sure. So as you alluded to, Tim, over the last decade or so, Masco has done an exceptional job in terms of honing the portfolio, exiting items of the portfolio that were more susceptible to the cyclicality of the housing industry. So exiting cabinets, windows, et cetera, and really honing the portfolio to areas that are more focused on the repair and remodel segment of the industry. So that's primarily Plumbing and within Plumbing wellness, which we can talk more about as well as Decorative Architectural Products, which is coatings and building hardware.

And so that has really been really a success story as it pertains to kind of being very disciplined. And what we've done over the last couple of years is really continue to focus on our capital allocation framework which hasn't changed in quite a while. And what that is, just as a reminder to the audience is, first and foremost, we focus on reinvesting in the business. And what that means typically is about 2% to 2.5% of our net sales are invested in terms of capital. Second is an investment-grade credit rating. We've got a solid BBB credit rating. We think that's very important to be able to make sure that we've got access to the markets and be able to continue to invest in the business. Third is to have a relevant dividend. We generally have -- we target a 30% payout ratio. And then fourth is return all available cash to shareholders or execute on M&A. And we've been able to really execute against that.

This year, in our Q3 earnings, we've increased the amount of available -- cash available for share buybacks or M&A from $450 million to $500 million, and we continue to push on that lever.

As you mentioned, Tim, in terms of our focus on an M&A perspective, it's really focused on areas of -- and opportunities that would be within our core areas. So Plumbing within that wellness and coatings business. And so that's really our focus, and it's really more directed towards bolt-on M&A. We're not averse to a bigger transaction, but we see that there's more opportunity on the bolt-on side, and that's what we've been executing as of late. Does that kind of address the question?

Yes. Yes. I mean, I guess --I mean, the other thing just kind of your kind of long-term kind of growth algorithms, kind of 3% to 5% organically. Is there any kind of tweaks to that? Anything you can -- are you kind of zaligned with that target? Is Jon kind of aligned with that target? I know he was on the Board beforehand?

Yes. And maybe for the benefit of the broader audience. So our former CEO, Keith Allman, really led a lot of the transformation of the portfolio that I alluded to. And after 11 successful years at the helm, he retired in July. And so we have a new CEO, Jon Nudi, who came off the Masco Board. He had been on the board for a couple of years. So very much in tune and aligned with our overall strategic intent, our focus area and our capital allocation. And so in terms of -- as we look forward, kind of areas that we're focused on is continuing to drive operating performance.

And to your question in terms of growth, we've really kind of reconfirmed our growth algorithm of 3% to 5% organic plus additional growth from inorganic opportunities. Now that 3% to 5% is premised off of an industry growth over the long run of about 2% to 4%. So at the end of the day, our expectation is that we will leverage the fundamental strength and growth of the R&R industry and outperform the market in terms of delivering upon that growth.

Okay. I mean are there any ways that you or Jon see to kind of accelerate that outperformance? Or is there only so much kind of new product, new channel types of things that can kind of -- the market can bear on kind of an annualized basis?

Yes. Well, I think the -- as I mentioned, the fundamentals of the industry are strong over the long run. So I think in terms of leveraging when the industry does return to growth will be pivotal in terms of that growth algorithm. But in addition to that, and what Jon brings is kind of a more consumer products, sales-oriented perspective. He spent most all of his career at General Mills before joining Masco as the CEO. And so he brings that orientation and that focus really on digital capabilities, marketing, really leveraging the strengths in the assets that Masco has in its portfolio with regards to brands, products, service. And so really driving growth in our core businesses, but also taking advantage of our brands in terms of opportunities for areas of the industry that are growing more significantly than others.

So for example, the North America luxury and premium Plumbing business. And so that is -- we're taking advantage of that through our Brizo and Newport Brass brands in addition to Hansgrohe and Axor. And really, and I was talking with somebody in the audience earlier with regards to Newport Brass, which is in the luxury space, which had traditionally been operated by one of our other business units. Earlier this year, we took the decision to roll that into the Delta business and leverage the Delta capabilities in terms of product development, relationships with the consumers and really relaunched the Newport Brass brand. It's a strong -- it's got strong DNA, but had not been -- had the advantage of the resources and the capabilities of, for example, a Delta business to really bring that forward.

And so we've relaunched that brand and we're putting a lot of investment towards that because we see that a big payoff.

And as I think most everyone appreciates, the luxury and premium side of the business has held up more strongly and has a stronger growth profile. So that's certainly an area. In addition, we are also announced that we are looking into the water quality or water filtration. So we launched a point of use under Sync Water Filtration, Reverse Osmosis Water Filtration, which we think is, from a product capability, best-in-class as well as the point of use in terms of slower filtration.

So still early days, but both of those represent over $1 billion TAM. And so there are great opportunities for us to continue to explore outsized growth relative to what we would expect to deliver in the core business.

Okay. It's been about 10 minutes before I ask tariff question. So maybe just could you elaborate kind of where we stand right now on tariffs? Your mitigation plans between kind of pricing, supplier renegotiations, any sort of kind of capacity movement? Just kind of spend a minute kind of more broadly talking about the tariff mitigation strategy.

Sure. And the operative word there is right now because as we all appreciate, it's been a very dynamic environment. As I alluded to earlier, I'm really proud of what the team has delivered in terms of mitigation. But maybe to set the stage, effectively Masco, like many of our competitors in our industry are faced with the implications of tariffs. And so what we've disclosed is as of October, and things have changed since October. But as of October, our in-year tariff impact is estimated at $150 million, and our annualized impact is about $270 million, and that includes exposures to China tariffs, reciprocal tariffs on other countries, copper, steel and aluminum tariffs and glass antidumping duties. And so pretty broad in terms of the implications.

Now subsequent to October, i.e., November 10, the IEEPA tariffs in China were reduced by 10%. Our annual exposure from China imports is about $450 million. So we've enabled people to do the math in terms of the impact of what that benefit would be. And of course, there's -- it's a moving target, as I know we all appreciate. So right now, we're sitting at about $150 million in year and about $270 million less potentially a 10% reduction from a China tariff in an annualized basis.

In terms of mitigation, the team has pulled a number of levers. We basically have turned over every stone with regards to mitigation, but we generally categorize the mitigation into 3 categories. One is sourcing footprint changes, principally moving sourcing out of China, which is exposed to the highest tariff impact. Second is cost reductions, including cost -- supplier concessions. And third is price.

And from a sourcing footprint perspective, we're on track. One thing to note is this has been a journey. Obviously, since 2018, 2019, when tariffs were first introduced in the first administration, we've been on a journey to reduce our exposure to China. We reduced our exposure about 45% to where it is today at the $450 million. And we've accelerated those efforts and when we report our earnings and our guidance in February, we'll provide an update in terms of our exposure to China at that point, but it's on a downward trajectory. And -- but we're on track.

Second, from a cost perspective, that's something that we've been implementing, and it's really part and parcel of our fundamentals of how we run the business at Masco, which is continuous improvement, driving operational efficiencies, cost reductions.

And then third is pricing. And pricing is a lever that we use judiciously with regards to our customers and our channel partners, but it's something that continues to be a focus. Through those efforts, we've been able to mitigate largely most all of the tariff impacts in 2025. So most but not all of the $150 million that I mentioned. And as we go into 2026, our expectations across all those levers, again, given where we are right now, we would expect to be able to offset the tariffs and start working towards offsetting the margin impact that the tariffs have represented for our business.

Okay. Okay. And then I guess you've had to raise price was one of the levers to do that. I guess has there been any volume elasticity because of that? And how has that maybe track relative to your expectations?

Yes, it's a good question. So in terms of our price execution, it's on track with what our expectations have been. From an elasticity point, elasticity is something we take a look at. It's very difficult to measure even in normal stable times, not to mention in an environment that we're currently facing where there's a lot of variables at play.

What I would say is our team feels pretty confident that it has not adversely impacted our performance, meaning our share performance in our key segments have been in line with the market or in some cases, better than. So relatively speaking, we've held our own. I think from an overall macro perspective, obviously, inflation and affordability are considerations. And so from an overall macro and industry perspective, I would surmise that there could be some impact. But as it pertains to our situation specifically, we've done it in a very -- like I said, very judicious matter, and we've been doing it in steps to be able to measure the progress. And right now, we're on track, and we're not seeing any significant adverse impacts.

Okay. And then I guess from a kind of an overall kind of pricing philosophy, has anything changed in kind of how you approach pricing, how the industry approaches pricing? Because I mean, it's a relatively consolidated industry. Maybe there's some manufacturing kind of footprint differences or any things like that. But I mean, has anything kind of structurally changed in kind of the pricing environment within the fixture market?

What I would say is, over the last number of years -- so historically, let me take a step back. Historically, pricing, particularly in the plumbing side of the business has been low single digits. And that has been kind of an annual process that the overall industry, Masco, inclusive of that has pursued. The last 2 or 3 years has been a bit abnormal with regards to the sourcing challenges that face the industry, the higher inflation and, of course, the tariffs. And so what we like about the -- one of the things that we like about the industry in which we play in is it's a bit more consolidated. There's rational players in the industry. And so I'm not going to speak to competitors or competitor actions per se.

But I would say from our standpoint, the actions that we're taking are not too dissimilar to what we're seeing and expect others to be taking. It's just been that the headwinds with regards to commodity cost, inflation and of course, tariffs have been higher than they've historically been. And so that has required more mitigation, including pricing to be in effect.

Okay. I guess you're 90% or so exposed to kind of repair remodel. I guess, how would you describe demand there trending into next year? And I mean, are we -- you have replacement businesses, but you also need turnover. I mean what is the stimulant or the catalyst to kind of get the R&R market back to growth? Is it -- did we pull forward demand, and we just need to kind of get to a point in time where we kind of resync that kind of replacement cycle? Is it turnover? Is it -- what -- as you guys kind of think about this internally, like what is the catalyst to kind of get the R&R market back?

Yes. It's a good question. We don't have a crystal ball per se. What I would say though is, as I mentioned before, we're really bullish on the fundamentals of the business and the long-term structural growth in the R&R segment of the industry, really in that 2% to 4% range. That's what it's been historically, and we expect that it will return to.

We've had obviously a dynamic over the last number of years where there was a dramatic pull forward of R&R demand with regards to the post-COVID era really in 2021, early 2022, and a bit of a hangover effect as a consequence of that. And now we've entered what we believe is a period of deferred spending. So meaning that we've largely -- it depends by category, but largely burned through that pull-forward effect and now are in the deferral section. So again, I think I would focus really on the long-term fundamentals and the growth that we would expect to see there.

In terms of your specific question, Tim, as it pertains to a catalyst, I think stability, consumer confidence will be very helpful. I think stability in terms of the tariff environment. I think lower interest rates certainly will be helpful, and we've seen some progress on the interest rate environment. It's still elevated versus where it had been. And I think that will be a positive catalyst as it pertains to existing home sales and some things -- some metrics that are really at multiyear, if not multi-decade lows.

And so I think before pivoting to growth, we need to see some stability as we go into 2026. And then again, I think it's -- I often say it's not a matter of if, but when as it pertains to the return to growth. But we are continuing to invest in the business, continue to focus on our brands, our products and our service and continue to pursue some of the growth opportunities and adjacencies that we talked about, and that will really position us well when the market does return to growth.

Okay. Any questions from the audience? Maybe just a question we've been asking a lot of companies, just when you think about AI and kind of the implementation of that in organizations, I mean, is there any -- do you have an example or 2 of kind of AI implementation at Masco and kind of what specific outcomes that's driven?

Yes. So at Masco, as I've mentioned, we are hyper focused on continuous improvement, driving cost efficiencies, et cetera, and leveraging tools and capabilities that are available. And so AI really fits into that. I mean AI can be used as a broad term. We've been using things like machine learning, et cetera, for many, many years.

What I would say in terms of some specific examples is from an AI standpoint, we use Copilot internally at Masco and within our business units. And so we've been leveraging that capability. There are examples of where we've been using AI in terms of product development and enhancing and accelerating product development.

And then a consumer-facing one is we launched earlier this year, the Behr team launched ChatHUE, which is an AI-enabled consumer-facing, color selection tool that helps walk a consumer through the color selection process, which is one of the more exciting, but also one of the more daunting elements of selecting your paint is the color. And so we've enabled that earlier this year. So I think really across from an operational efficiency to other capabilities as well as consumer-facing. I would say it's still early days, but we're certainly looking at opportunities where we can leverage that wherever possible.

Okay. Okay. And then I guess on the margin side, I mean, you've got some intermediate targets I'll put out there, 20% in Plumbing, 19% to 20% in Decorative. I guess with tariffs, is that still doable? Is it just kind of on a longer time frame? And I guess it does mean you have a couple of hundred basis points in both of those segments of margin room. I guess the question is how much of that is kind of delayed just numerically with tariffs?

And then I guess, second, how much of that improvement is really going to be driven by volume versus anything else?

Yes. So Tim you're alluding to is in February 2023, we went out with intermediate margin targets of 20% Plumbing, 19% to 20% on our other segment DAP. And we're making great progress towards that. We had taken our margins from a total Masco perspective, from '22 -- 15.6% in 2022, to 16.8% in '23, to 17.5% in 2024 and the attendant growth in margins within our segments. And so we were on that trajectory.

Obviously, this year has been -- has unfolded differently than I think most everybody anticipated, particularly on the tariff front. We are still, what I would say, committed to delivering strong margins. And so I think from a standpoint of performance, yes, this year has been more of a challenge given the industry, given tariffs, et cetera. As I mentioned before, our tariff mitigation is really taking hold. I'm very pleased with what we've been able to accomplish and we're going to continue to deliver that, again, based off of the tariff environment as we know it today. We will work to offset the full dollar-for-dollar impact and start working to offset some of the margin impact on that as well.

And so we will look to -- as we move into 2026, all else being equal, look to work towards expanding margins once again. And so it's something that we're focused on. Jon and I are -- and the whole team is focused on delivering growth and margins. And to your question about the source of the margin expansion, I mean, one of the big levers of that is growth because our incremental margins are really kind of 25%, 30% in some cases. And so when you think about our current margins this year of 16.5% and you've got incremental margins of 25%, it's really accretive to margins. And so it's not the only lever, continue to drive efficiencies, cost, productivity is going to be the other lever, but growth is going to be a big part of that equation.

Okay. Maybe just on the Dec Arch business. Home Depot is a really big partner for you there. I think sometimes investors are just kind of uncomfortable with just kind of the client relationship. But it almost seems kind of very symbiotic, maybe more than it appears kind of on the surface. So I guess maybe just talk about how that relationship is an asset over time and how it's kind of developed within the Masco Corporation?

Yes. So the Masco and Behr specifically, relationship with Home Depot dates back well over 40 years. And I like the word symbiotic. I often use the word partnership. I've been here, as we've mentioned a couple of times, a couple of years. And that's something I think from the outside is a natural question that people ask. But once you see the dynamics of the partnership in action and the relationship that we have it's really a true partnership.

We have aligned goals with regards to the Home Depot and Behr in terms of selling as much paint as we can and making the most amount of money on selling that paint as possible. We represent about 80% of the paint sales in the Home Depot. And so you can tell from that equation that there's mutual benefit with regards to delivering and driving the business and growth.

The other thing I would mention is we, at Behr paint as well as our other businesses as well as the Home Depot, as articulated by them is very focused on growing the Pro side of the business. And so that's something that we co-invest with each other in terms of growing, whether it's sales reps, delivery options with regards to, for example, order online, pick up in store or loyalty programs, et cetera, we co-invest in that. And when there are issues or opportunities, we work very collaboratively together to work through that. So it truly is a partnership in all sense of the word.

Okay. And I guess in that business, historically, you guys kind of have a little bit of a -- I guess, there's a pass-through on kind of pricing and cost. And you have one price and obviously, Home Depot controls retail. But you've got several players in the market that have put through pretty healthy price increases in paint without a lot of raw material inflation. So it just seems like it could be a pretty good opportunity to kind of -- for maybe that channel that -- Home Depot channel to gain share. But I'm just kind of curious kind of what the talks with your partner has been on that and if that is an opportunity to maybe go after share?

Yes. I mean you framed it well, Tim. In terms of -- for those that aren't aware, our relationship with the Home Depot is kind of an input cost price neutrality. And so input costs in terms of resins, TiO2, tariffs, to the extent that there's cost inflation, that gets priced into our price to the Home Depot and the inverse is true as well. And again, it's really another proof point in terms of the partnership. The parties aren't taking advantage of the situation. It is really just a pass-through type of dynamic.

And as you mentioned, the Home Depot makes the call as it pertains to the end price of the consumer, and it's focused on everyday low prices. I know the price increase that you're referring to by one of our competitors, we do see that as an opportunity as it pertains to continue to position ourselves. We think the strength of the Behr brand, the quality of the Behr brand are really exceptional assets that Behr has and Masco has as its parent company.

But also in terms of the value proposition that we offer. And we think that, that will continue to be an area that we and the Home Depot by the nature of how they position themselves will be -- continue to focus on the value. The value is really price and quality combined. And so we see that as an opportunity, particularly across our DIY and our Pro Paint and we've continued to grow Pro Paint over a multiyear period, higher than the market, and we would aspire to continue to do that.

Are there any specific investments on the Pro side? You've invested in sales reps and some delivery capabilities and those types of things. Is that kind of the same kind of investment cycle, just more of the same type of investment? Or are there other things that you could do to kind of continue to grow the Pro business? Because you never really gave the share back that you won during COVID, right? So -- and that business continues to grow, and I don't think the overall Pro business is really growing much. So are there kind of new investments you can make? Or is it really kind of a lot of the same, just kind of more of that.

We always explore opportunities, but it's really the biggest lift is going to come from those investments that we're going to continue to leverage and invest further in and those are the sales reps both in the store as well as outside of the store. The delivery methods in terms of creating convenience for the customer and the loyalty programs.

And there's other opportunities out there in terms of that we're looking at with the Home Depot. I don't want to get out in front of that. But as it pertains to the opportunities and what's going to drive our growth. We've had a pretty successful recipe and formula today, and we're going to continue to leverage that. We'll continue to explore additional opportunities to enhance that.

Okay. And then I guess on the DIY side, I think gallons on DIY are actually probably below kind of pre-COVID levels, if I'm not mistaken. How much of that is just existing home sales sitting at multi-decade lows versus some sort of structural consideration around do-it-for-me versus kind of DIY?

I think it's a combination, to be quite honest, it's tough to delineate and isolate the drivers of that. But I think it is -- well, it's a combination of the fact that there was a bit of a pull forward with regards to the COVID, a big spike in DIY paint in 2020, 2021. And so we still have a bit of a hangover effect with regards to that. We see a key driver of DIY being existing home sales. That's at multiyear, if not multi-decade lows. And so those are tangible items that are suppressing the DIY market that will ultimately run their course. And so we're optimistic that we will see that pivot at some point here in the not so distant future.

But there is a bit of a pivot we see in terms of the transition from DIY to do-it-for-me, whether it's consumer preferences or demographics, et cetera. And that's why it's very important for us to continue to invest in the Pro business, not at the expense of DIY, but really to complement the Pro so that we can deliver to the consumer, whether they're a DIY consumer or Pro consumer.

And then most -- just last question. Most of your most of your products in that aisle have been paints and coatings. There's a lot of other things that could kind of fall in those buckets. I mean, are those opportunities for Behr to kind of organically expand or maybe even inorganically expand?

They are. And so some of those adjacent businesses, so to speak, are Cox, sealants, applicators, we're already in many of those categories. And so it's a matter of growth and scale, working with the Home Depot. And the Behr brand carries a lot of credibility with the consumer. And so being able to leverage that brand across relevant adjacencies is an opportunity for us that we've been capitalizing on, and we will continue to do so going forward.

Great. We're out of time. So please join me in thanking Masco for being here.

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2025 Conference Call. My name is Sylvie, and I will be your conference operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. [Operator Instructions]

I will now turn the call over to Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2025 Third Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Richard Westenberg, Masco's Vice President and Chief Financial Officer.

Our third 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 and 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 will now turn the call over to Jon.

Thank you, Robin. Good morning, everyone, and thank you for joining us. I want to start today with a few reflections on my first 100 days as President and CEO of Masco. Over the last 3 months, I've had the privilege of meeting with our teams, customers and shareholders, our manufacturing sites, participated in strategy reviews and listened to feedback related to both our strengths and opportunities to confirm what I believe to be true when I took this role.

We have a strong foundation, industry brands, innovative products and incredibly talented and dedicated people. Our product portfolio is focused on the right categories and we have industry-leading capabilities. We've shown resilience in navigating dynamic environments while continuing to deliver value for our customers, consumers and shareholders. I've been especially impressed by the market leadership across our business units. Delta Faucet company has demonstrated incredible agility in the face of a dynamic geopolitical and macroeconomic environment, very strong partnership with our largest retail customer drives significant value for them and for us.

Hansgrohe continues to be a global leader with customers in over 100 countries, and Watkins Wellness is winning with strong innovation, even amid broader category headwinds. There's real momentum here and also a real opportunity. In the coming months, we will focus on unlocking those opportunities with continued strong execution, greater speed and strategic investments in the capabilities that set us apart.

I'm proud to be part of a team that delivers at a high level. I'm incredibly excited for the opportunities ahead. Now let's turn to our third quarter performance and updated outlook for 2025.

Please turn to Slide 6. We continue to navigate a dynamic geopolitical and macroeconomic environment during this quarter. While the near-term market conditions remain a headwind to our business, our teams continue to focus on execution to grow market share and drive long-term shareholder value. For the quarter, our net sales decreased 3% in local currency, and excluding the Kichler divestiture, sales decreased 2%. Operating profit was $312 million, and operating profit margin was 16.3%. Earnings per share for the quarter was $0.97.

Now turning to our segments. Plumbing sales increased 1% in local currency. North American plumbing sales increased 1%, driven by favorable pricing. Delta Faucet delivered strong performance again this quarter, particularly at e-commerce and trade. We recently relaunched our iconic Newport Brass brand, showcasing the brand's timeless design and enduring quality. This relaunch helps shape and expand our luxury portfolio represents an important growth initiative for our business with an addressable market of $1.8 billion.

Another important growth initiative for Delta is in the water filtration category with a market of $1.2 billion for under-counter water filtration products. Delta's new product introductions in this category continue to outperform our initial expectations and our tankless reverse oscillate water filtration system was recently named the winner of the Good Housekeeping 2026 Kitchen Award. International plumbing sales were in line with the prior year in local currency. We saw growth across many of our European markets, while the China market was increasingly challenged. Operating profit from was $204 million. Operating margin was 16.4% and included higher costs such as tariffs, commodities and inventory-related reserves.

Turning to our Decorative Architectural segment. Sales decreased 12% in the quarter or 6% excluding our divestiture of Kichler. Operating profit for the segment was $128 million, and operating margin increased 100 basis points to 19.1%. Within our Paint category, overall paint sales decreased low single digits. DIY paid sales decreased mid-single digits as demand for DIY remains soft across the industry impacted by low existing home turnover. In propane, sales increased low single digits. This continues to trend in multiyear growth for propane business, remain tightly in line with The Home Depot as we both prioritize and invest in strategic initiatives that allow us to capitalize on the sizable growth opportunity in the propane market.

We also continue to develop new products that serve the needs of our customers. Most recently, we won original water-based primer and Behr premium plus eco mix, a plant-based interior paints. These launches demonstrate our commitment to introducing innovative and sustainable products with quality that our customers can trust.

Turning to capital allocation. We generated strong free cash flow during the quarter and maintained a solid balance sheet. We remain committed to our capital deployment strategy. We returned $188 million to shareholders this quarter through dividends and share repurchases. I'm proud of how our teams continue to work diligently to implement various mitigation actions in response to the near term macroeconomic uncertainty, the geopolitical environment and rising costs. We are focused on remaining agile as we continue to execute effectively in this rapidly changing environment.

Turning to our expectations for the full year. We now anticipate adjusted earnings per share for 2025 to be in the range of $3.90 and $3.95 per share compared to our previous expectation of $3.90 to $4.10. Our updated range includes the impacts from our third quarter results, as well as higher tariffs and our expectations for softer industry demand resulting from the ongoing macroeconomic and geopolitical uncertainty. While uncertainty remains for the near term, we are focused on positioning ourselves for growth over the mid- to long term. Structural factors for repair and remodel activity are strong, including the age of the housing stock, consumers staying in their homes longer, and a record high home equity levels.

We have the right portfolio mix, and our innovative new product introductions are outperforming our expectations. We continue to gain market share in key growth areas, including e-commerce, luxury faucets and shower and propane, and we are building strategies to further accelerate growth opportunities. Our high-performing teams have a history of leadership in navigating dynamic environments. When that leadership is combined, the strength of our brands, innovative products and unmatched customer service, we believe we are well positioned continue to deliver long-term value for our shareholders.

With that, I'll turn the call over to Rick to go over third quarter results and our 2025 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Jon mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other onetime items.

Turning to Slide 8. Sales in the third quarter decreased 3% or 2%, excluding the impact of our divestiture of Kichler and favorable currency. Our divestiture of Kichler in the third quarter of 224 resulted in a decrease in sales by 3% year-over-year in the third quarter of 2025, while currency represented a 1% increase in sales. In local currency, North American sales decreased 6% or 2%, excluding the divestiture impact. International sales were in line with the prior year in local currency.

Gross margin of 34.6% in the quarter was impacted by higher tariffs and commodity costs. SG&A decreased $16 million, primarily due to our divestiture. SG&A as a percent of sales improved 20 basis points to 18.4% in the quarter. Operating profit was $312 million in the quarter, and our margin was 16.3%.

Operating profit was impacted by lower volume and higher costs primarily related to tariffs, commodities and inventory-related reserves. Note that the temporarily elevated tariffs of 145% on China imports added approximately $15 million to the overall tariff impact in the third quarter, primarily in the Plumbing segment. These impacts were partially offset by pricing actions and cost savings initiatives. Our EPS was $0.97 per share in the quarter.

Turning to Slide 9. Plumbing sales increased 2% in the third quarter or 1% excluding the favorable impact of currency. This growth was largely driven by pricing, which increased sales by 3%, partially offset by lower volume. In local currency, North American plumbing sales increased 1% in the quarter. This performance was primarily driven by Delta Faucet, which delivered growth in both the e-commerce and trade channels.

In local currency, International plumbing sales were in line with the prior year. continued to see growth in many of its European markets, including its key market of Germany. This growth was offset primarily due to an increasingly challenging market in China. Segment operating profit in the third quarter was $204 million, and operating margin was 16.4%. Operating product was impacted by lower volume and higher costs such as tariffs, commodities, and inventory-related reserves, partially offset by pricing actions and cost savings initiatives.

Turning to Slide 10. Decorative Architectural sales decreased 12% in the third quarter or 6%, excluding the divestiture of Kichler. Performance in the quarter was driven by lower volume in our paint business as well as our builders' hardware business, which also was unfavorably impacted by timing of shipments. In the quarter, total paint sales decreased low single digits due to lower volume. Propane sales were up low single digits and DIY paint sales decreased mid-single digits.

Given the persistent softness in the overall DIY paint market and the favorable inventory timing we experienced in the fourth quarter of last year, we continue to anticipate our total paint sales for the full year to decrease mid-single digits. Excluding the impact of the prior year inventory timing benefit, we would anticipate full year DIY paint sales to decrease high single digits.

In our propane business, we continue to expect sales to increase mid-single digits for the full year. Operating profit in the third quarter was $128 million, primarily impacted by lower volume, partially offset by cost savings initiatives. Operating profit margin increased 100 basis points to 19.1%.

Turning to Slide 11. Our balance sheet remains strong with gross debt-to-EBITDA at 2x at quarter end. We ended the quarter with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 18.5% of sales at quarter end. Working capital continues to be impacted by tariff-related dynamics, including higher material costs and pricing, increasing our working capital balances.

Given our strong cash generation, we returned $188 million to shareholders in the third quarter through dividends and share repurchases, including the repurchase of $124 million in stock. As it relates to capital allocation, we now expect to deploy approximately $500 million towards share repurchases or acquisitions in 2025, slightly higher than our previous expectation of at least $450 million. This increase is driven by a cash tax benefit from the recently enacted tax legislation.

Now let's turn to Slide 12 and review our full year outlook. The market environment remains volatile and tariff uncertainty persists. The guidance that is being provided today includes the impact of currently enacted tariffs, in effect in October, which now includes new tariffs on copper, antidumping duties on glass and increases to global receivable tariffs, particularly on Vietnam, Thailand and the European Union.

As a result of these additional tariffs, we now estimate that the total annualized cost impact of all incremental tariffs enacted this year to be approximately $270 million before mitigation, up from $210 million as of our second quarter earnings call. Of the $270 million annualized cost impact, approximately $140 million continues to be related to the incremental 30% China tariffs and the remaining $130 million is driven by the global reciprocal tariffs with 50% tariff on steel, aluminum and copper and the glass antidumping duties.

Of this approximately $270 million total annual cost, we expect a 2025 in-year impact of approximately $150 million before mitigation, up from $140 million as of our second quarter call. Our teams continue to actively work to mitigate these additional costs through a combination of levers. These include cost reductions, continued efforts to change our sourcing footprint and pricing where necessary. We anticipate that these mitigation actions will mostly offset the direct cost impact of the currently enacted tariffs in 2025. It is important to note that our guidance does not attempt to estimate the impact of potential future tariffs or any changes in existing tariffs.

Turning to the overall market. Our expectation continues to be that the U.S. and international repair and remodel markets will decrease low single digits in 2025. For Masco, we expect our sales in 2025 to decrease low single digits, impacted by the 2024 divestiture of Kichler, which will reduce sales by approximately 2% year-over-year. We anticipate currency will have a favorable impact of approximately 1%. Excluding the impact of our divestiture and currency, we now anticipate Masco's overall sales to be down low single digits versus our prior guidance of roughly flat year-over-year.

Given continued industry softness, with lower volumes partially offset with pricing. As a reminder, fourth quarter sales will face a challenging year-over-year comparison due to the favorable inventory timing impact we experienced in our paint business in the fourth quarter of last year. We now anticipate total company operating margin to be approximately 16.5% in 2025 versus our previous guide of 17%, driven by slightly lower volume, impacts of additional tariffs and higher costs.

In our Plumbing segment, we continue to expect 2025 full year sales to be up low single digits. We anticipate the full year Plumbing margin will be approximately 18% versus our previous guide of 18.5%. In our Decorative Architectural segment, we continue to expect 2025 sales to decrease low double digits or mid-single digits, excluding the impact of our divestiture. We also continue to anticipate the full year Decorative Architectural margin to be approximately 18%.

Finally, as Jon mentioned earlier, our 2025 EPS estimate is $3.90 to $3.95 per share. This continues to assume a 211 million average diluted share count for the year and a 24.5% effective tax rate.

With that, I would like to open up the call for questions. Operator?

[Operator Instructions] And your first question will be coming from Stephen Kim at Evercore ISI.

It's Steve. We will have -- we do have a tariff question, but I wanted to start off actually on the paint side. There was a competitor who talked about a price increase going in Jan 1. I was wondering if you could sort of talk about how that might influence your outlook for pricing as we get into the new year on Dec Arc. And maybe you can talk just generally about how given the relationship you have with depot, how you think about pricing relative to competitor actions?

Steve, it's Jon. Thanks for the question. We certainly have a unique relationship with Home Depot. It spans 40-plus years, incredibly strong. As you mentioned, we do have a relationship, it's essentially price cost neutrality over time. As we look at our DAC and particularly our paint input costs, we see some upward pressure, but not significant. So at this point, again, we'll continue to have private conversations with our retail partner, but I wouldn't expect to see significant pricing on paint as we go through the coming year.

Okay. That's very helpful. Appreciate that. Rick, do you want to jump in on the tariff?

Yes. I just want to clarify on the tariffs when all is said and done kind of longer term, impact to plumbing margins from tariffs, like, how do you see that given that price action will mostly engage tariffs dollar for dollar? It's kind of more of a longer-term question on Plumbing.

Yes, sure. Well, from a tariff perspective, as we've all realized here, it's a relatively volatile and dynamic environment. And so based off of the current enacted as of October, we articulated is about a $270 million annualized impact we're tackling that on a number of fronts from a mitigation standpoint, first and foremost, from a sourcing footprint standpoint, particularly sourcing out of China, where our largest exposure exists to other markets. also reducing cost, ensuring that tariff impact with our suppliers.

And third is pricing, as you alluded to. Those are levers that we continue to pull. And our objective is to not only offset the dollar cost of the tariffs, but ultimately, the margin implications over time. So obviously, we've got to track and monitor the situation closely. But based off of where we sit today, our expectation is that we'll continue to work on mitigating as we mentioned in our comments, we've mitigated a large part of the tariffs, not all, but a large part of the tariffs here in this calendar year.

And certainly, our objective, as we move into 2026, is to mitigate further as well as start working to build margin. So we're continuing to focus on the mitigation and working to restore our margins over time.

Next question will be from Matthew Bouley at Barclays.

I wanted to ask one, I guess, kind of zooming into the plumbing margins, and I guess, the 3Q results, specifically, I think you guys have previously signaled that there would be some of that impact from the 145% tariffs. And so I mean, I guess that played out. But the question is, was there anything else that was effectively a surprise versus your own expectations? Did any of those incremental tariffs that were coming in the summer end up sneaking into the quarter there as an impact? Or just any other cost that ended up surprising you?

Sure, Matt. It's Rick. As it pertains to our Q3 results, I would say it was impacted really by 3 drivers. One is tariffs, as you articulated, there were incremental tariffs since our Q2 call as you articulated. But those -- that took our in-year impact from $140 million to $150 million. But that incremental $10 million of in-year impact is really going to be a Q4 event. So those were new tariffs since our Q2 call. And so that factors into our updated guidance for the year, but that's really a Q4 dynamic.

As you also alluded to, within the tariff realm, we did experience that elevated tariff impact on 145% on China imports. That was about a $15 million impact in Q3 specifically. And that was, as we alluded to in Q2, something that we anticipated, but did manifest itself in Q3. The second driver is with regards to overall softness in the industry. And so we do believe that the industry, both North America and international is going to be down low single digits. We're really coming in from an industry perspective on the lower end of that range.

And so that was a bit of an impact as we flow through Q3 as well as the calendar year outlook. And then fourth, we're incremental -- I'm sorry, third was incremental cost, both with regards to commodity inputs, particularly on copper, that continues to be elevated as well as the inventory-related reserve, which really was an update in our assumptions based off of market conditions that we -- as we generally review our reserves on a quarterly basis. We just had a higher than typical adjustment in the quarter. So that would be really the drivers behind our margin performance in the quarter.

Okay. Got it. I guess secondly, I wanted to touch on the builders' hardware business since, I guess, paint and coatings is only down low single digits, overall. I think I heard you say there were some unfavorable inventory timing. I'm wondering if there was maybe a pre-buy there earlier in the year or just kind of more elasticity related to price increases in that category. So presumably, it would have been a fairly large move in that business to impact the segment as it did. So just any more color on exactly what's going on there.

Sure, Matt. It's Rick. Yes. So as it pertains to the builders' hardware business, it was impacted by softness in sales as we saw really across the industry. But as we mentioned in our opening comments, there was a bit of a shipping timing dynamic. It was really due to a planned shipping process change in the quarter. So we curtailed our shipments during the quarter in order to infectuate the change, so it is something that we noted in our talking points, but we do not believe that it would be a significant impact for the calendar year overall.

Next question will be from Michael Rehaut at JPMorgan.

Great. First question, I just wanted to clarify on the margins -- plumbing margins for the third quarter. The -- given that some of that was already anticipated the 145%, was the delta perhaps versus expectations a little more driven by the inventory-related reserves? Or were there other factors also work? Because I think the overall more recent tariff changes, I think you said was more of a 4Q event?

Yes. Sure, Mike. You're right. As it pertains to our expectations coming into the quarter, we did have contemplated the elevated China tariffs. So that was part of our expectation. I'm not sure it was fully contemplated all in Q3 in terms of external expectations, but certainly, we had contemplated that internally. As it pertains to development since our second quarter call, I would say there were 2. One is the inventory-related adjustments that we alluded to. And second is just softer sales, particularly in certain markets like China that came in from an industry perspective lower than we had anticipated.

Okay. Perfect. And then in terms of the overall full year sales guidance, I believe last quarter, you had consolidated sales still down low single digits similar to what you have in this updated guide. But it seems like perhaps you're now kind of talking towards the lower end of that guide or lower end of that down low to single-digit range. Just wanted to make sure I also have that right.

And again, just to kind of -- and I apologize, if you kind of hit on this earlier, but just to be clear, which segment that's really coming from, if part of that is the builder hardware or maybe a little bit softer trends in plumbing as you just alluded to, international or North America just a little bit more granularity around that.

Sure, Mike. Yes, your observation is directionally correct. Ultimately, we see the industry coming in a bit lower kind of on the lower end of our range. As expressed in EPS, we are coming in at the lower end of our range that we publicized in our due to earnings call, and part of that is driven based off of lower industry expectations. And it's relatively across the board, I would say that it does impact the funding segment, as we mentioned, particularly China, but also impacts our builders' hardware as well as our DIY paint.

So not dramatic changes, but the industry is a bit softer, really at the lower end of our expectations. As it pertains to our underlying performance, I would classify that as pretty solid, meaning that we're continuing to perform in line or in many categories better than the overall industry. It's just the overall industry softness that continues to be relatively weak.

The next question will be from Mike Dahl at RBC Capital Markets.

Some clarifying questions on tariffs. I guess just to be clear on China. It seems like you're still at, call it, $450 million to $500 million of underlying cost of goods sold. So there's been discussions in the last couple of days about the tariffs getting reduced by maybe 10%. Is it right to think about that as a $50 million annualized impact if that came to fruition in terms of that $140 million going to something more like to $90 million to $95 million?

And then the second part of the question would be, if you could just break out what's like within that other $130 million, can you just specify what the global reciprocal bucket is versus the steel, aluminum, copper and the antidumping?

Sure, Mike. Your math on the first question is directionally correct. As we've articulated in the past, our annual import exposure from China is $450 million on a 30% tariff from China that represented about $140 million of impact. So hypothetically speaking, if there were a change in tariffs, whether it's plus or minus, you can extrapolate from there.

As it pertains to your second question, we're not going to provide a detailed breakdown in terms of the composition of our exposures in the "other bucket". It's really a composition of reciprocal tariff, Section 232 tariffs on steel, aluminum and copper as well as the glass antidumping duties. And part of it is it's a dynamic environment. And so as we continue to modify our sourcing footprint, as we move out of China into other markets, and we continue to manage and work aggressively to mitigate our tariff exposure, those underlying exposures will change and update over time.

What we will do and we will continue to do is provide the investment community with an overview in terms of the financial implications, split between China and pretty much everything else as we've done this quarter. And then from an annualized perspective, as we've articulated, we have a $270 million annualized exposure -- or I'm sorry, impact. $140 million is China, $130 million is everything else. And we'll continue to provide updates if and as things change in our quarterly reviews.

Okay. Understood. That's so helpful. My second question is just specifically on paint. I understood that you've got the comp dynamic the fourth quarter, it still implies like a pretty big step down in margins in the fourth quarter versus what's been really solid like 2Q, 3Q performance despite the top line challenges. So I'm just wondering if there's anything else there in the fourth quarter aside from just comping against that road in that would be driving that margin down so much?

Yes, nothing particularly of note. What I would say is the biggest driver on a year-over-year basis in terms of top line and margin. I know you're talking about Q4 specifically in regards to the unfavorable comparison relative to the impact of the channel -- favorable channel inventory build that we experienced in Q4 of 2024. So that is really the biggest driver from a year-over-year basis.

Next question will be from Sam Reid at Wells Fargo.

Wanted to touch on plumbing price in a little bit more detail, the 3% you reported. Could you just characterize kind of where that landed relative to your expectations? I know you had obviously larger price increase in the market. So just curious kind of what you have got on a realization standpoint versus what you were expecting to get? And then as you look to the fourth quarter, does the guidance contemplate any step-up in plumbing price sequentially. I just want to maybe understand that Q4 dynamic as well on price in plumbing.

Sam, this is Jon. Maybe I'll start, and then Rick can jump in as well. I would say that pricing and plumbing primarily played out according to plan and what we expected. If you think big picture, obviously, significant increase in tariffs is what we thought at the beginning of the year. And the team, particularly at Delta, which is the most impacted business have done really a remarkable job of mitigating tariffs. And it really starts with making sure that we optimize our footprint.

We've been doing that over time. We have a 40% or 45% reduction versus 2018. We'll continue there, working with our suppliers on concessions looking at our own cost structure, making sure that we optimize that. And ultimately, as the last resort, we will take pricing. And we did take pricing throughout this year. I would say it's executed according to plan, and we'll continue to look at our -- what we need to do as we move into the coming year as well. In terms of Q4, I'll let Rick cover that.

Yes, Sam, in terms of sequentially -- as you would expect, our mitigation actions take hold over time, really from a pricing cost reduction and sourcing standpoint. But you'd expect that our pricing being one of the levers to continue to get increased traction over time. And I guess I'll leave it at that.

That helps. And then one more plumbing-related question here. You called out strong delta performance in 2 channels, e-commerce and trade. I might have missed, but how did Delta perform in Home Center? And perhaps can you talk through kind of how you trended in home center relative to the broader category?

Yes, absolutely. So Delta in particular had a very strong quarter driven by e-commerce, where we saw nice growth. Our wholesale channel grew kind of low single digits. And we saw relatively flat, maybe slightly down performance in retail and we look to the coming year, we're excited about the plans we have coming, and we believe that we'll be driving even stronger results in retail as we hit 2026, but no major bogeys from a plumbing standpoint and, again, strength in e-commerce, wholesale, and then relatively flat and for the retail.

Next question will be from John Lovallo at UBS.

There's a couple of factors impacting the back half. One of them, you talked about on the inventory side. Just wanted to get a little bit more clarity, if I could, on the lower employee-related costs that are not expected to repeat in the back half. So curious what was the third quarter impact of that and what's the expected fourth quarter impact?

John, you're referring to a comment that we made in the Q2 call, correct?

Correct.

Yes. So from an employee related, yes, you're correct. We did have a favorable benefit in Q2. We continue from a cost perspective to be very disciplined on cost, particularly given the current environment and managing people costs as well as other costs that continue to be a priority for us. So we didn't have a repeat of the onetime item, so to speak, that we benefited from in Q2. But suffice it to say, we're continuing to drive efficiencies, cost reductions, et cetera, throughout the business just to drive operational efficiencies.

Okay. And then maybe just a follow-on to that, maybe outside of some of the tariff mitigation actions, what are some of the cost savings initiatives being taken in both segments to help kind of lower the cost basis? And what do you expect for the impact of that on a go-forward basis?

Yes. So John, we continue -- I know you've heard us talk about before, leverage our Masco operating system to continue to drive productivity and efficiency. And so that is productivity in our plants, supply chain efficiencies, procurement cost savings. I know we talk about tariff mitigation, but we also are working on driving cost efficiencies throughout our sourcing footprint. We talk about automation, VA/VE. And in this year, in particular, we're looking at more austerity measures as it pertains to the headcount and discretionary spend. So really a combination of all those factors. And it's not isolated to a particular segment. It's really across our businesses.

Next question will be from Trevor Allinson at Wolfe Research.

You mentioned seeing some input cost inflation more input cost inflation you expected in plumbing, call that metals. Can you put some numbers around what inflation rates you're seeing in your plumbing business in the third quarter and what you're expecting for the fourth quarter?

Sure, Trevor. It's Rick. So yes, we are seeing some upward pressure, particularly on the copper input. And as you may recall, in Q2, I believe it was at a record high at least on the COMEX. So it continues to be a headwind for us from an overall input perspective. We can going to manage it from a cost standpoint. But ultimately, it's -- to answer your question, it was a low single-digit inflationary impact in Q3 in plumbing, and we expect a similar low single-digit inflation for the calendar year for the Plumbing segment.

Okay. That's helpful. And then a question on DIY paint. Obviously, it's been weak for some time now after being very robust during the pandemic. Now we've had several years of DIY paint declines. Can you talk about where you think we are in terms of pull forward versus deferral? And do you think DIY paint is a category that can get back to growth in fiscal '26?

Yes. Trevor, this is John. We really like our DIY paint business. Obviously, the strength of Behr over time. DIY paint correlates heavily to existing home sales. And as you know, existing home sales are near 3 decade lows right now. And if you think about it, it's pretty simple when you go to sell a house, you typically paint it, when you have buy a house, you typically paint it again. So without existing home sales moving at the pace that they have historically has really put a dent in the market.

We expect the long-term fundamentals to get better for sure as existing home sales free up and start selling it more historical rates. I think consumer confidence in interest rates will help with that. And at the same time, we're excited about our Pro business. When you think about the upside that we have there. We have a relatively low share. We've grown nicely over time. And it's approaching nearly 50% of our business at Behr. So again, we think that we continue to drive DIY. And at the same time, we think there's a significant opportunity on Pro as we work with our real partner to really maximize that.

Next question will be from Susan Maklari, Goldman Sachs.

My first question is going back to Delta, you cited the strength that you're seeing in e-commerce and the wholesale channel there. Can you talk a bit about what is driving that strength, the outlook, the ability to sustain that? And what that could mean for volume and price mix in the plumbing segment next year if the macro does stay tougher?

Yes. So this is Jon. Maybe just a little color on Delta. As I mentioned, really pleased with that team and is also we're driving. I think it starts with -- they do a great job of building the Delta brand as well as the Brizo brand and all the different brands portfolio and really making them stand for something with end consumers. Innovation has been a big part of the Delta story sort of vitality rate, which is new products launched over the last 3 years at 25%, which we think is industry leading, and we'll continue to drive that and drive even more innovation as we move forward.

And then really developing great capabilities from an e-commerce standpoint, we believe that we're growing share in that channel at a pretty significant rate just due to the capabilities, really the customer insight that we have with different retailers and different e-commerce customers in that channel. So the team is really firing on all cylinders. We would expect that momentum to continue as we move into fiscal '26.

Okay. And then turning to capital allocation. You mentioned that you are increasing the outlook for returning cash to shareholders by $50 million for the year. Can you talk a bit about the timing of that? And also, what you're seeing in terms of other uses of cash, such as the M&A environment and the potential there?

Sure, Sue. It's Rick. Yes, as you mentioned, we did increase our expectation for cash available for share buybacks or M&A activity from about $450 million to $500 million. A big component of that was the favorable cash tax benefit from the recently enacted tax bill. So that was a favorable impact, and we are increasing our cash available for share buybacks and M&A accordingly. What I would say is as it pertains to in terms of timing, through the first 3 quarters of the year, we've returned just over $350 million to shareholders. And so you could envision that about $150 million remains for the fourth quarter.

As it pertains to M&A activity, no change in terms of our overall capital allocation framework and our strategy in that regard. We continue to cultivate a pipeline of opportunities, focused really on bolt-on opportunities and nothing to report at this time, but it's certainly something that we look at as part of our overall growth algorithm. To the extent we do not have an opportunity this year, you would expect us to utilize that cash for ongoing share repurchases.

Next question will be from Phil Ng of Jefferies.

This is Maggie on for Phil. I guess, first, just maybe to ask the plumbing pricing question a little differently. It was kind of surprising to see a similar pace, that 3% in 3Q, similar to 2Q, just given the tariff mitigation efforts and the magnitude of pricing you have out there. So are you seeing more pressure from competitive dynamics or just pricing fatigue from customers? Maybe just walk us through some of the puts and takes there?

Sure, Maggie. It's Rick. So I think Sam asked a similar question from a sequential standpoint. So our price, as you articulated, was about 3% favorable from a Plumbing segment perspective, and that is as our pricing continues to gain traction in the market. So I'm not going to get into specifics on Q4 at this point. But suffice it to say, we're gaining traction. As it pertains to the overall dynamics, it's something that we're monitoring very closely, as Jon articulated. There's a number of levers that we pull with regards to our tariff mitigation and to address our margin headwinds, which are sourcing footprint changes, cost reduction and as necessary pricing.

So we will leverage the pricing component of that, but it's something that we do in a very targeted way, and we look for a balanced approach overall. But I guess the bottom line is we continue to see pricing as a favorable impact on a year-over-year basis, but it's largely going to be driven based off of our need to mitigate the tariff impact as well as our assessment of the overall market dynamic.

Got it. And are there any nuances to call out between channels in terms of realization or acceptance by channel? And then, thinking ahead, you have this January price increase announced out there. What have you seen this year that's kind of influencing how we should think about realization on that in 2026?

Yes. So Maggie, we're not going to comment with regards to specific channel pricing performance. That's just something that we manage with our customers. As it pertains to anything that might be out there as it pertains to future pricing, I'm not going to really comment on that either. That's something that would be kind of in development. And so again, I would just take a step back and just look at it from a standpoint of pricing continues to be one of the levers that we've deployed in terms of mitigating our tariffs as well as other impacts such as commodity inflation, et cetera, and that's something that we're going to continue to focus on and execute against.

Next question will be from Adam Baumgarten at Vertical Research Partners.

Just on the timing-related issues and builders hardware, which is obviously a headwind in the third quarter. I think you mentioned that maybe it wouldn't be much of an impact for the full year. So would that imply that 4Q those shipments kind of go through and therefore, the full year won't be as impacted.

Yes. And directionally, that is correct. So it was a Q3 adverse impact. But for the overall year, we don't expect it to be a significant impact. So I guess that would be a fair conclusion.

Okay. Got it. And then just in plumbing, just on China. You talked about that being a headwind. It seemed like maybe a bigger headwind than it's been in prior quarters. If you can maybe kind of walk through what you're seeing on the ground over there?

Yes, Adam, for sure. So the market itself has been challenged. And I think, obviously, you read about the housing market and what's happening in China. But at the same time, I think local players have become much stronger as well. So between those 2 things, the market itself is challenging, and I think the competitive situation is challenging as well. I'll tell you that we feel like we are holding up at least as well and probably better than our other major global competitors that are in that market.

We still like that market. It's a significant market for us. And we think over time, we'll be able to take back growth, but it has been a bit more of a headwind, certainly in Q3 than what we had seen through the first half of the year.

Next question will be from Keith Hughes at Truist.

Just a question of the inventory reserves you discussed in plumbing. Is that -- are you writing obsolete inventory? Or what specifically is going on? And how much of the dollar hold has done?

Yes, Keith, it's Rick. So as part of our normal process, we review our balance sheet reserves on a quarterly basis as you anticipate. When we make adjustments quarter-to-quarter based off of the assumptions in place at the time. And it's really driven based off this quarter based off of the overall market environment and really the slow pace of the industry sales, et cetera. And so we do have adjustments, as you would expect, kind of quarter-to-quarter.

This quarter was bigger than typical. So we've called it out, particularly given it hit our plumbing segment and one of the drivers in terms of our margins. although we wouldn't expect this to occur kind of on a regular basis, it was something that was -- we felt appropriate to call out for Q3. As it pertains to overall magnitude, I'm not going to give you a specific dollar amount, Keith, but I could mention it a little bit for you. And I would say, on a year-over-year basis, if we look at whether it's operating profit or operating profit margin, it represented about a quarter of the performance impact on a year-over-year basis. That helps?

Okay. And is there a cash offset to this that comes or is this a noncash element.

This will be noncash.

Next question will be from Eric Bosshard at Cleveland Research.

Two follow-ups. On the DIY paint, I understand the softer sales, the down 79% and the market overall R&R market, that's not that bad, but you're that to housing turnover. I'm curious if strategically there's anything different to do in this business to drive better growth. Obviously, you're having success with the Pro initiative in Depot. But on the DIY side, is there anything strategically different to do to stimulate better performance?

So this is Jon. Good question. I think at the end of the day, I think the biggest thing we can do to drive our business continue to drive a better brand. And Behr paint has amazing quality, and we offer great value as well. And I think we can get even tighter in terms of our communication of why we have such a great proposition for our consumers. I think the other thing we can do is continue to innovate.

As I mentioned in the prepared remarks, we're launching some innovation we're excited about some plant-based paid that's obviously very much in trend with younger consumers and millennials, and we think that will be a positive for us as well. We are with the right partner that obviously continue to do well in market. We continue to work with them to make sure we maximize our sales, I think, for us, though, again, I think getting tighter on our messaging from a brand standpoint, really around value and quality because we think by far, we've got the best proposition in the industry.

Okay. And then for Delta, your comments were optimistic about retail '26 growth. I'm curious if there's anything in the business or from a market share perspective that informs that or if this is more function of lower rates and at some point, consumers will spend money. Just trying to figure that out.

Yes, great question. As you would likely imagine, we have a good sight line into 2026 in terms of our plans with our major retailers. And I'm not going into the details, we feel really great about where we're going to be from a distribution standpoint. We feel really good about our innovation that we're launching as well. And we would fully expect to have a very strong year at retail in '26 as a result of those plans that are in place?

Next question will be from Rafe Jadrosich at Bank of America.

I wanted to just get a little bit of a better understanding about the timing of when tariffs like hit your P&L and the cadence of the mitigation. So obviously, you have to work through some of the inventory that maybe came in pre-tariffs. Like how much of that of the impact is being like in your P&L today? And how do we think about that going forward? And then sort of same question on like the mitigation that you're planning, how do we think about the cadence of that?

Yes. Rafe, it's Rick. So as it pertains to the cadence of the tariff impact, as we've articulated in prior calls, that we fully expect most of that impact -- we know that most of the impact is going to occur in the second half of the year. And so that's why, as you saw in Q3, the tariff impact really get kind of traction in our P&L. We did see some in Q2, but the vast majority is in Q3 and Q4. As articulated, we did have incremental or additional tariff impact in Q3 given the temporarily elevated China tariffs at 145%. So that translated into a $15 million additional tariff impact in Q3.

Now that is hopefully onetime in nature as it pertains to the tariff dynamics. As you think about on a prospective basis, that's why we give the annualized tariff impact and our annualized tariff impact is $270 million. So you can think of that as a run rate basis on a calendar year basis. We saw, again, most all of that in the second half, that is the $150 million in the second half of the year, inclusive of the $15 million that I talked about.

The $270 million is how we think about it going forward. I would caution, of course, that, obviously, we continue to be in a dynamic environment from a geopolitical standpoint. And so that estimate of $270 million is based off of really a static picture of not only the tariff environment, but our footprint. And we'll continue to provide updates in terms of our exposures as well as our tariff impact as we move quarter-to-quarter.

Got it. Okay. And then would you -- are you -- is the plan to fully mitigate in 2026? And then of those, you listed a few things that you're shifting supply chain pricing, like how do we think about the timing of that and when you would be planning to fully mitigate?

Yes. So with regards to mitigation actions, those are all underway, and we're pursuing them very aggressively and expeditiously. And so each exposure has a different time line. But ultimately, we would expect to, as we said before, offset a large part of the tariff impact this year, not all, but a large part. And really, our goal is to ultimately offset the tariff impact, not only from a dollar perspective but also from a margin standpoint, based off of the tariff environment as we see it today, and we would expect and we'll provide more color on that in our February call in terms of our expectations for 2026 specifically.

But one of the largest levers of our tariff mitigation strategy is our sourcing footprint, and that takes some time. It continues to be an exercise that the team has done an excellent job in terms of reducing our exposure specifically to China. As mentioned earlier in the Q&A section, our exposure to China is $450 million, but that's down 45% from levels of 2018, and we continue to be on that glide path and accelerate that. So we'll provide an update in terms of what that looks like in 2026 in our February call. But suffice it to say, we're continuing to really execute towards tariff mitigations and offset the dollar amount as well as margins over time, and we'll provide further updates in February.

Next question will be from Collin Verron at Deutsche Bank.

Just one for me. I guess on the plumbing side of the business, can you just talk about how long you think this soft demand environment will really last here? And I guess like if you're looking out over the next 6 to 12 months, like what specific factors would you be looking for that would get you a little bit more excited about the demand environment?

It's Jon. I'm relatively new to this industry, as you know, but it's been consistently go out and talk to our customers, channel partners, suppliers I think everyone feels like the rebound will come, the crystal ball. We don't have a crystal ball. We can't tell you when that is. But all the macro factors remain incredibly positive. If you think about what drives R&R activity. And it's really about home equity levels. We know that they're at record highs right now. We know the age of the housing stock in the U.S. is ripe for renovations, remodels.

In fact, over the next few years, something like 20 million more homes will be come into that prime point to be remodeled. That's 20 to 40 years of age. And then I think it's about consumer confidence and interest rates. So I think, we see interest rates continue to tick down, consumer confidence in their economy increase, and we'll see consumers tap into their home equity funds and start those remodels that they've been deferring. So we're very confident about the long term. Obviously, we don't have a crystal ball. I can't predict exactly when that will happen.

As we sit here, we're not going to talk too much about 2026 or certainly give guidance, but I think we would expect to see a gradual improvement in our markets as we move forward into the coming year.

Our last question comes from Anthony Pettinari at Citi.

I just had 2 quick ones on plumbing. I guess first, how would you characterize the performance of kind of your best brands. You talked about the strength in Delta, I'm just wondering how Brizo and Hansgrohe are? Are they still kind of outperforming the good better? Or is there like any change in that dynamic?

And then, I guess, just second question, Sauna, Wellness, smaller part of the business, but I'm just curious how that category is performing in what's obviously been kind of a tough market? And do you see the growth opportunity there organically or inorganically maybe different than you did 6 months ago, 12 months ago?

Yes. Absolutely. In terms of plumbing, we really like the way our brands are performing. When you look at upper premium and luxury, we've got brands like Brizo as well as Newport Brass, Axor, which is our global luxury brand. And really, we see a bifurcation in terms of the market. We're seeing the upper income consumers hold up relatively well. And actually, we're growing the fastest in upper premium and luxury, so really like the performance there.

From Hansgrohe growth standpoint, really like the way that they're performing around the world. Germany in particular, the home market, they're growing nicely, taking a tremendous amount of share. And really, we believe, growing share in most markets around the world. I mentioned China is definitely the soft spot for Hansgrohe and it's something we'll continue to work out for sure. So I really like the way they're performing around the world from a plumbing stand point.

In terms of walk-ins, that's been a business that, again, we're really excited about the long-term opportunity for. When you look at Wellness very much being on trend from a consumer standpoint, the low household penetration of our categories. If you think about hot tubs, only has 5 or 6 household penetration in North America, not only 1% household penetration. And if you listen to what's happening in culture and society, you see and hear a lot of buzz around both of these and particularly Sauna are on fire, right?.

So we think there's a tremendous opportunity for us where the market leader in hot tubs in North America, we continue to push our advantage there. We're a leader in sauna. I think that's an area that we'll continue to drive as we move through the future. We think there's a lot of tremendous upside for that business for the short to long -- and long term as well.

At this time, we have no other questions registered. I would like to turn the call back over to Robin Zondervan.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a wonderful day.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.