Masco Corporation (MAS) Earnings Call Transcript & Summary

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 with a bigger picture question, 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% on the 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 and make sure that you guys are gaining traction on your strategy here?

Good morning, everybody. Thanks for joining. It's good to be here at the Deutsche Bank Industrial 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.

And I guess as you think about -- after you laid out those targets at the 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 able 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, and 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? And 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 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 recruitment of expenditures that we incurred over the last 12 to 18 months, primarily in 2025, where we had to be lean and implement 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 and 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 [indiscernible] something you do in the normal-course 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 with a view of higher OpEx than normal? Or is this more transitory, just as you get a pull forward from it? I guess how should we be thinking about the investments as we look out to maybe '27 and kind of rolling off for '28?

Yes. One thing we look 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 are 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 underpenetrated 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 it. 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 is 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 underpenetrated 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 players in each of those areas. We've got strong brands like HotSprings 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 in 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 brand. And it's really in the hospitality hotels resort 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.

Got you. 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 like 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 specing 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 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.