Masco Corporation (MAS) Earnings Call Transcript

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.