Good morning ladies and gentlemen. Welcome to Masco Corporation’s fourth quarter and full year conference call. My name is Slessor, and I will be your Operator for today’s conference call. As a reminder, today’s conference is being recorded for replay purposes. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star, zero for the Operator. I will now turn the call over to Renee Benedict, Director, Investor Relations and FP&A. You may begin.

Thank you, Operator, and good morning. Welcome to Masco Corporation’s 2023 fourth quarter and full year conference call. With me today are Keith Allman, 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. 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 in our Risk Factors and other disclosures in our Form 10-K and Form 10-Q that we filed with the Securities and Exchange Commission. Our statements 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’ll now turn the call over to Keith.

Thank you, Renee. Good morning everyone and thank you for joining us today. Before I get started, I’d like to share with you that we have appointed Robin Zondervan as our incoming Vice President of Investor Relations. Robin is currently our Controller and Chief Accounting Officer and will be transitioning to lead Investor Relations at the end of this month. I have full confidence that, with Robin’s leadership, we will continue to have a world-class investor relations function at Masco and provide the investment community with the information and transparency you have come to expect from us. Now onto our results. I’ll start this morning with some brief comments on our fourth quarter and full year results, and I’ll finish with our view on 2024 as well as our long-term margin expectations. Please turn to Slide 5. We delivered a strong finish to another dynamic and successful year. In the fourth quarter, our top line decreased 2% with volumes down across most categories, partially offset by favorable pricing, currency, and our acquisition of Sauna360. The smaller decline in volume relative to the first three quarters of the year supports our view that many of our markets appear to be stabilizing. Operating profit increased $38 million in the quarter due to a favorable price-commodity relationship as we continued to recover the significant inflation that we have experienced over the past two years and due to our continued efforts to drive efficiencies across our operations. Operating profit margin improved 230 basis points to 14.5%. With our strong execution, our earnings per share for the quarter increased 28% to $0.83 per share. Turning to our segments, plumbing sales were in line with the prior year in local currency with lower volumes being offset by favorable pricing and our acquisition. Plumbing performance in the quarter was led by Delta Faucet’s mid-single digit sales growth driven by strong performance in the wholesale channel. International plumbing performed better than expected in the fourth quarter as demand in Europe and China, while still challenged, appears to be stabilizing. Investments in our leading global plumbing brands, innovative products, and customer service are producing results, and we will continue to capitalize on these initiatives. Turning to our decorative architectural segment, sales declined 7% primarily due to a soft DIY paint market, with DIY paint sales declining high single digits. While our propane business declined slightly in the quarter, we are very pleased with our three-year pro paint stacked comparison of approximately 60%. This significant growth and share gain demonstrates the strength of our Behr brand and the quality of our products that continue to resonate with pro painters. We will continue to invest in this business to expand our services and build upon our successful collaboration with Home Depot to capitalize on the large opportunity in the pro paint market. Now let’s review our full-year performance. Please turn to Slide 6. Masco executed extremely well in 2023 and improved nearly every operating metric for the full year. Gross margin improved 360 basis points to 35.2%. Operating margin expanded 120 basis points to 16.8%. Plumbing margin expanded 210 basis points to 18%. Decorative margin expanded 10 basis points to 17.8%. Earnings per share grew 2% to $3.86 per share, up from $3.77 per share in 2022. We delivered a return on invested capital of 36% and our free cash flow conversion was approximately 122%, which allowed us to return $610 million to shareholders in the form of dividends and share repurchases in 2023, and to complete the bolt-on acquisition of Sauna360 for approximately $136 million. Importantly, we have achieved compound annual earnings per share growth of 14% from 2019 to 2023, delivering on our commitment of double-digit EPS growth through cycles and demonstrating the power of our brands, innovation, and portfolio of lower ticket repair and remodel-oriented products. I want to thank all our employees for their strong execution, focus on the customer, and their continuous improvement mindset that delivered this tremendous performance. Turning to Slide 7, as we look to the future, we are well positioned to achieve strong profitable growth over the next few years through top line growth, market share gains, margin expansion, and disciplined capital deployment. Our current market assumptions for 2024 are as follows. For the North American repair and remodel market, we expect the market to be flat to down low single digits. For our international markets, we expect the markets in aggregate to be down low to mid single digits. For the paint market, we expect the DIY paint market to be down low single digits and the pro paint market to increase low single digits. We expect to outperform the market and for Masco’s overall sales to be approximately flat in 2024. Despite this flat top line assumption, we will continue to improve margins through disciplined pricing, selective cost reductions, innovative product introductions, and operational efficiencies across our business. This margin expansion will not be without its challenges as freight and shipping costs have recently increased, other commodity inputs remain elevated, and costs such as people-related expenses and insurance are increasing. We are up for the challenge and have demonstrated our ability to execute in dynamic times. We expect to deliver increased plumbing margins of approximately 18.5% and decorative margins of approximately 18% in 2024, resulting in a Masco operating margin of approximately 17%. Turning to capital allocation, our strategy remains unchanged. Firstly, we will reinvest in our business to maintain and grow our leadership positions and win in the marketplace. This includes continuing to invest in our growth initiatives such as growing our share in the domestic plumbing wholesale channel, continuing to expand our international plumbing share, and continuing to gain share in pro paint. It also includes investing in our facilities to ensure we have the capacity to support future growth by completing our European faucet and shower facility and our midwestern paint manufacturing and distribution center. Secondly, our capital allocation strategy is to maintain a strong investment-grade balance sheet with gross debt to EBITDA levels of below 2.5 times. Our balance sheet remains extremely strong with gross debt to EBITDA of 2 times at year-end. Thirdly, we have a targeted dividend payout ratio of 30%. I’m pleased to share that our Board declared a 2% increase in our dividend for 2024, which will bring our annual dividend to $1.16 per share and marks the 11th consecutive annual increase. Fourth and finally, we expect strong free cash flow conversion in 2024 of approximately 90% and will deploy that free cash flow after dividends through share repurchases or acquisitions. Based on our projected free cash flow, we expect to deploy approximately $600 million through share repurchases or acquisitions in 2024. Our M&A strategy has not changed. We continue to review and selectively pursue opportunities that have the right strategic fit and the right return for Masco with the goal of adding 1% to 3% top line growth through acquisitions annually. Based on our expected operating performance and capital deployment actions, we anticipate earnings per share for 2024 to be in the range of $4 to $4.25 per share. Now looking out over the next three years, we will continue our strong execution and deliver margin expansion through 2026. For our plumbing segment, with our industry-leading brands including Delta and Hansgrohe, we expect to expand margins to 20% in 2026, up from 18% in 2023. For our decorative segment, led by our industry-leading Behr brand, we expect to achieve margins of 19% to 20% in 2026, up from 17.8% in 2023. This would result in overall Masco operating profit margins of approximately 18.5% in 2026. We believe we can achieve these margins with normalized 3% to 5% repair and remodel industry growth in ’25 and ’26 through leveraging incremental volume, exercising pricing discipline, and executing operational improvements. While 2023 clearly saw a reduction in demand, we believe that our markets will stabilize in 2024 and return to typical growth rates in 2025 and 2026. Structural factors are supportive of increased repair and remodel activity in several ways. Many homeowners have taken advantage of low mortgage rates and are likely to remain in their homes longer. 1.7 million more homes will reach the prime remodeling ages of 20 to 39 years old over the next three years, and home equity levels remain high. All of these structural forces provide tailwinds for our business and increase our confidence for a strong repair and remodel market. We will continue to invest in our brands, capabilities, and people to outperform the competition in both the near and long term. With favorable fundamentals and our continued focus on executing our growth strategy, together with our strong free cash flow and capital deployment, Masco is well positioned to continue to drive shareholder value over the long term. Now I’ll turn the call over to Rick to go over our fourth quarter, full year, and 2024 outlook in more detail. Rick?

Thank you, Keith, and good morning everyone. Thank you for joining. As many of you know, I joined Masco as the CFO in mid-October. I’m excited to be part of this strong-performing company and team, and I’m happy to be sharing our results with you this morning. As Renee mentioned, my comments today will focus on adjusted performance excluding the impact of rationalization charges and other one-time items. Turning to Slide 9, sales in the quarter decreased 2%, or 3% excluding favorable currency impacts. In local currency, North American sales decreased 3%, or 4% excluding acquisition. In local currency, international sales decreased 3%. We continued to drive operational efficiency and price-cost performance in the quarter, which helped lead to gross margin expansion of 560 basis points to 35.1%. SG&A as a percent of sales was 20.6% and was impacted by higher employee-related costs such as incentive compensation. Our operating profit grew 16% in the quarter and margin expanded 230 basis points to 14.5%. This strong operating profit and margin performance was due to pricing actions, lower commodity and freight costs, and cost savings initiatives partially offset by lower volume and higher employee-related expenses. This resulted in EPS growth of 28% to $0.83 per share. Turning to the full year 2023, sales decreased 8% over the prior year, slightly better than our expectations given sales performance in our plumbing segment. FX and acquisitions did not have a material impact on full-year results. In local currency, North American sales decreased 9% and international sales decreased 6%. SG&A as a percent of sales was 18.4%, in line with more normalized levels. Operating profit for the full year was $1.3 billion and operating margin expanded 120 basis points to 16.8%. Lastly, our EPS increased 2% year-over-year to $3.86. This figure assumes a tax rate of 24.5% versus the previously guided 24%, which unfavorably impacted full-year EPS by $0.03. Turning to Slide 10, plumbing sales in the fourth quarter increased 1% and showed signs of stabilization. Lower volume and mix decreased sales by 4%. This was more than offset by favorable pricing of 2%, the impact of acquisitions of 2%, and FX of 1%. In local currency, North American plumbing sales increased 1%, however, decreased 1% excluding acquisition. In local currency, international plumbing sales decreased 3% as demand continued to be soft in Europe and in China. Segment operating profit in the fourth quarter was up $50 million or 34% year-over-year, and operating margin expanded 400 basis points to 16.4%. This operating profit improvement was driven by pricing actions, lower commodity and freight costs, and cost savings initiatives, partially offset by lower volume and higher employee-related expenses. Turning to the full year 2023, plumbing sales decreased 8%, slightly better than our expectations. Lower volume and mix decreased sales by 12%, partially offset by net pricing which favorably impacted sales by 4%. Acquisitions had a favorable impact of 1% and FX was immaterial for the full year. In local currency, North American plumbing sales decreased 8% net of the 1% impact from acquisitions, and international plumbing sales decreased 6%. Full year operating profit increased 4% and margin expanded 210 basis points to 18%. Turning to Slide 11, decorative architectural sales decreased 7% for the fourth quarter. Paint sales declined mid-single digits with pro paint sales down slightly against a mid-single digit comparison in the fourth quarter of 2022. Operating profit was $100 million, in line with 2022 performance, and operating margin expanded 90 basis points to 14.8%. Operating profit was impacted by lower volumes and pricing offset by cost savings initiatives and lower material costs. As expected, we did experience relief in certain paint input costs with modest low single-digit deflation in the fourth quarter. Turning to the full year 2023, sales decreased 9% driven by high single-digit declines in our DIY paint business and a mid-single digit decline in our pro paint business. This performance was in line with the expectations we set at the beginning of 2023 as we cycled over 25% pro paint growth in 2022. Additionally, over a three-year period, pro paint sales have grown by over 60%, demonstrating our ability to gain and retain share. Full year operating income was $557 million in the segment, and operating margin expanded 10 basis points to 17.8%. Turning to Slide 12, our year-end balance sheet was strong with gross debt to EBITDA at two times. We ended the quarter with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital improved by six days to 59 days, or 16% of sales. With this improvement in working capital, our adjusted free cash flow for the year was $1.1 billion, an improvement of over $500 million compared to the prior year, driving our free cash flow conversion to 122%. Given our strong cash performance, we were able to return $610 million to shareholders through dividends and share repurchases, including the repurchase of $227 million of stock in the fourth quarter. Now let’s turn to Slide 13 and review our outlook for 2024. For Masco overall, we expect 2024 sales to be flat but with operating margin growing to approximately 17%. Currency is projected to have minimal impact on our 2024 results. We will continue to invest in our business for future growth while also maintaining cost discipline. As a result, we expect SG&A as a percent of sales to be in the range of 18% to 18.5% in 2024. As always, we will take appropriate actions to address our costs as the year develops, based on market conditions. As we think about the cadence for the year, we expect sales to be down slightly in the first half of the year with modest growth in the back half of the year. Also as it relates to operating margin, with the softer sales outlook in the first half of the year, we anticipate Masco margins will be roughly flat in the first half of the year with expansion expected in the second half. In our plumbing segment, we expect 2024 full year sales to be plus or minus low single digits. We anticipate the full year plumbing margin will be approximately 18.5%, up from our 2023 margin of 18%. Margin expansion will primarily be driven by pricing discipline, operational efficiency, and continued cost savings initiatives. In our decorative architectural segment, we expect 2024 sales to also be plus or minus low single digits. Looking specifically at our paint business in 2024, we anticipate our DIY business to decrease low single digits and our pro paint business to increase low single digits. We anticipate the full year decorative architectural margin to be approximately 18%, up from our 2023 margin of 17.8% driven by cost savings initiatives. With regards to capital allocation, we expect to reinvest approximately $200 million through capital expenditures, pay a dividend of $0.29 per share per quarter, and deploy approximately $600 million towards share repurchases or acquisitions in 2024. Finally, as Keith mentioned earlier, our 2024 EPS estimate is $4 to $4.25. This assumes a $221 million average diluted share count for the year and a 24.5% effective tax rate, which is consistent with our 2023 effective tax rate. Additional financial assumptions for 2024 can be found on Slide 16 of our earnings deck. With that, I’d like to open the call for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from John Lovallo. Your line is now open.

Good morning guys. Thank you for taking my questions. The first one is your R&R is expected to be flat to slightly down in 2024. It seems like you expect flattish sales for both plumbing and decorative architectural, so seemingly basically in line, maybe slightly above the overall market. How are you thinking about Masco’s ability to outgrow its markets longer term?

John, thanks for the question. I haven’t changed my opinion on our ability to gain share, which is that we expect as a company to both outperform the market and to expand margins, and we expect to continue to do that. We will outperform the market and that’s driven primarily by our brands, which have developed over the years, as you know, to be leaders in their spaces. There is both consumer pull as well as trade pull, where we’re well recognized by plumbers and pro painters as a quality brand, our service proposition as it relates to our channel partners, to be able to help them drive profitable growth with minimal inventory positions due to our repeatable delivery and service, and our people and our teams around the globe. Our expectation is to outperform the market. Now, in some spaces that we compete with, there will be greater share gains; in other spaces, where we already have substantial leading market share, those share gains will be more modest. But we definitely expect to outperform the market going forward.

Okay, that’s helpful. Then maybe just help us with the cadence of the planned margin expansion across plumbing and decorative architectural to your 2026 targets. I mean, is the improvement expected to be fairly linear in 2025 and 2026, or how should we think about that?

We believe 2024 will see flat growth in revenue, with modest margin improvements. Our innovation pipeline and projects aimed at enhancing efficiency and reducing costs will materialize over the coming years, leading to greater margin expansion in 2025 and 2026. A significant driver will be the drop in incremental revenue, with our plumbing segment expected to see nearly a 30% drop in incremental volume. Our outlook for 2024 is flat, but we anticipate a return to a more typical growth rate of 3% to 5% in renovations and repairs in 2025 and 2026, which we base on historical trends. This growth will significantly contribute to margin expansion.

Thanks, Keith.

Your next question comes from Matthew Bouley from Barclays. Your line is now open.

Morning everyone. Thank you for taking the questions. On that margin cadence into ’24, looking at the past three quarters, your year-over-year margins have expanded, actually kind of improved the past three quarters, and it sounded like you’re saying that kind of margin expansion will flatten in the first half and then go back to expanding in the second half. I’m just curious if you can kind of touch on that a little bit, sort of why wouldn’t the recent improvements in margins continue to flow through on a year-over-year basis into the first half of ’24. Thank you.

Good morning, Matt. When considering the improvement rate we've experienced this year, we needed to adjust our pricing in response to notable cost inflation. Looking ahead to 2024, we will continue to pursue operational enhancements. We anticipate facing some challenges regarding pricing in our paint segment. We've consistently discussed our pricing strategy with our channel partners, ensuring that our operating income remains stable in relation to commodity prices, which influences our margins in both directions. Consequently, we expect a slight pressure on pricing in our decorative segment while our plumbing segment may benefit slightly from pricing. To directly address your question on margin improvement rates, the outlook largely revolves around pricing dynamics. We expect to see margin enhancements, even with a relatively flat revenue forecast for 2024, driven by the efficiency improvements we will pursue through our ongoing projects.

Yes Matt, I would just like to add that in terms of timing, our margin performance will align with our sales growth. As we noted, we anticipate some softness in the first half of 2024. However, as growth begins to accelerate, we expect to see the benefits that Keith mentioned in the second half of the year. Moving into 2025 and 2026, as growth returns to more normal levels, we believe that margin expansion will become more pronounced.

Got it, really helpful. Thanks for that. Then second one, just actually coming off that last point there, Rick, the cadence to the top line in ’24, obviously there’s been a lot of volatility in R&R end markets probably more recently year to date, maybe some noise around weather and all that. Can you just put a finer point around that early 2024 expectation - you know, how is demand tracking year to date, any kind of color on some of the volatility or improvement as you get into Q2 and beyond? Thank you.

Matt, in terms of the year-to-date demand or the current demand, I’d characterize it as stabilizing. I would say in terms of what was favorable to our expectation in ’23 was a combination of both our execution, the timing and impact of our cost reduction projects or solid pricing, etc., and then also a little bit better demand than we anticipated. There’s certainly some volatility out there, but we’re seeing signs of stabilization. We had a nice quarter in wholesale plumbing as it relates to top line demand. While still challenged, certainly, in Europe, we have seen some stabilization and starting to see some positive signs coming out of China as well, so that’s how I’d characterize the demand in general.

Yes, and what I would say is it’s in line with what our guidance is indicating, so there’s nothing inconsistent with that, which is we do expect some stabilization, as Keith mentioned, but a bit softer, so down slightly in the first half of the year - that’s kind of what we’re seeing in the market today, but we are seeing some stabilization globally.

All right. Thanks, Rick, thanks, Keith. Good luck guys.

Thank you.

Your next question comes from Stephen Kim from Evercore ISI. Your line is now open.

Yes, thanks very much, guys. Appreciate all the info here. Could you talk a little bit more about the trends you’re seeing in hardware and lighting within the decorative architectural business, and how that figures into your fiscal ’24 guide and maybe also your long-term margin targets for decorative architectural?

These businesses were impacted by market softness in 2023 - no question about it. We’ve talked consistently about it. Both businesses, and I’m talking about our lighting and hardware businesses, Kichler and Liberty, took pricing and cost actions to offset the inflation they experienced, partially offset the volume loss in ’23. In ’24, I’d expect these businesses to perform more in line with how we’re seeing the overall R&R market, which is flat to down low single digits. Did you have a second question there, Stephen?

Yes, within the hardware and lighting segment, that was pretty much what I was looking for. As I think about your guidance for next year, Matt touched on it, but I wanted to clarify. Are you suggesting that we could see sales and margins decrease on a year-over-year basis in the first quarter, or is that not what you’re anticipating?

They could be. I’m thinking more kind of flat to maybe slightly down in 1Q, first half, and then better performance both in sales and margins in the second half.

Okay, that’s very helpful. Appreciate it, thanks very much.

Thank you.

Your next question comes from Michael Rehaut from JP Morgan. Your line is now open.

Thanks, good morning. It’s Mike Rehaut. I wanted to first ask about the 2026 targets - appreciate kind of laying some of those out. You know, thinking about the margins, I think Keith, you laid out a framework of in ’25 and ’26, getting to those targets, kind of thinking about a sales growth backdrop of 3% to 5%, so just wanted to make sure that I’m understanding that the margin expansion off of ’24, how much of that would be driven by volume leverage or incremental margins off of the volume leverage, as opposed to perhaps other initiatives around either productivity or discrete cost efficiency measures around manufacturing or SG&A, etc.?

Our margin improvement expectations, and frankly the history of it, has been driven by a basket of initiatives that we drive. Certainly, there is the incremental margin improvement that comes from incremental volume, so that drops down at, call it 25% to 30%, and that’s certainly above our fleet average of the company, so that’s the significant driver in our margin expansion. But it’s also part of the benefits of our continued investments in innovation, so we have an innovation pipeline and an expectation over those years to be launching margin accretive products and products that both contribute to our market outperformance on the top line as well as margin improvements. We’re very excited about the momentum we have in terms of the Masco operating system and what that’s been able to produce in terms of leverage in our factories, in terms of variable overhead. In addition to the new product launches and our brand building, in addition to the benefit to the top line, that gives us also pricing power, and we’re confident in that and being able to have that be a contributor to margin expansion as well. The big driver would be the drop down in the incremental volumes, but we also have a pipeline and defined initiatives around labor productivity, variable cost productivity, etc. to drive the margin expansion.

Yes, and Mike, the only thing I would add to that is, as Keith mentioned, a big driver is the drop down on the volume, but as we’re growing, as we’re introducing new products and getting the price for that from innovation, we continue to stay disciplined on price and disciplined on cost, so as we grow, we do see that 25% to 30% drop down. Although pricing and cost initiatives may not be as significant of a contributor, they will contribute both directly as well as indirectly in terms of continuing to leverage that incremental drop down.

Thank you for the insightful information. To follow up on this topic, it appears that from 2015 to 2021, the decorative segment averaged around 19.5% to 19.4% margins, and it looks like you're approaching that midpoint again. In contrast, plumbing seems to be exceeding that margin, which indicates more volume leverage. I want to confirm my understanding: is it correct to think that over the next couple of years, the operating leverage and incremental margins are more pronounced in plumbing, while in decorative, you're returning to historical gross margins? Additionally, it seems there might be some deflation that could positively impact margins compared to the recent inflationary environment that had a negative effect. I'm trying to grasp the assumptions behind the decorative margins and if indeed the sales leverage applies more to plumbing than to decorative. I would appreciate any clarification on this perspective if it differs from yours.

No, I think simply said, you’ve got it. I think that’s right - we have a higher drop down on incremental margins in plumbing, a little bit lower, call it in the 25% range in deco. In deco specifically thinking about paint, we have a different pricing dynamic, which we’ve talked about - I won’t get into the details on that, but no, I think you’ve got it right, Mike.

All right, perfect. Thanks so much, appreciate it.

Your next question comes from Anthony Pettinari from Citi. Your line is now open.

Good morning. Can you discuss the price-cost spread in plumbing and decorative architectural in Q4, and maybe any updated expectations around brass carryover? Then just thinking about cost of goods sold more holistically, what level of cost inflation does the full-year guidance contemplate?

Yes Tony, thanks for the question. From a Q4 perspective, we did see some favorable pricing in the plumbing segment, with increases in the low single digits for both the quarter and the calendar year. However, for decorative architectural products, the pricing was more subdued. Looking ahead to 2024, we anticipate low single digit pricing in the plumbing segment as a positive factor, while for decorative architectural products, we expect some challenges due to modest price reductions.

Okay, that’s very helpful. Then this is maybe just a minor point, but in terms of the decorative architectural margin target in ’26 being a range versus plumbing and company targets single points, is that the pricing mechanism you discussed, or just any background there?

No, I think we will provide point estimates and range estimates for our guidance due to some uncertainty. As Mike mentioned, there is a bit more of a drop-down dynamic regarding the volume affecting margins in plumbing, so we are confident in our 20% margin target for 2026. For decorative, we have a margin range of 19% to 20%, which is consistent with our historical performance.

Your next question comes from Susan Maklari from Goldman Sachs. Your line is now open.

Thank you. Good morning everyone.

Morning.

My first question is thinking about the macro and what that could imply for the business this year. There’s increasingly an expectation that rates will move down as we get later into the spring and the summer, and as we think about that perhaps driving that existing home sales coming back, how should we think about the timing of those events relative to how you could start to see that coming through in the business, and what are the segments that could be most benefited by that?

Susan, good morning. When considering our top line drivers, existing home sales play a significant role, but consumer sentiment and confidence are even more critical. This confidence is influenced by factors such as the equity in their homes. For instance, if we assume there are 5 million existing home sales within a 130 million unit market, that's about 3%. We estimate that new homeowners typically spend around 30% more on home improvements. So, when you factor in that 3% with 30% higher spending, you can see how the impact is lessened. To put it another way, a million-dollar increase in existing home sales only contributes a small fraction to the overall market volume, meaning a 25% increase in existing home sales would lead to an approximate two-tenths of a percent increase in market volume. This is particularly relevant for DIY paint, which is more sensitive to existing home sales. However, the stronger link is with repair and remodel spending relative to home price increases and consumer confidence. As interest rates decline and consumer confidence rises, we expect that to be a major factor driving the repair and remodel market.

Okay, that’s helpful. Then shifting to the working capital, you’ve made a lot of really impressive progress there over the last year. As you think about ’24 and just the go forward, what’s the ability to continue to drive benefits from that, and anything you’d highlight there?

Yes Sue, it’s Rick, good morning. Appreciate the question. As you noted, we did as a business unit, really across the business drive working capital efficiencies and improvement. We brought it back down to 16% of sales in 2023, which is more in line with historical levels, and it really was a big contributor to our cash flow in 2023 - it contributed over $200 million in terms of cash flow, in terms of our free cash flow number, which was very beneficial. I think going forward, we plan to really hold working capital in a disciplined manner, make sure we’ve got enough inventory to keep up our service levels, which are important from a customer perspective, but to stay disciplined on that. Our guidance for 2024 is that we’d have working capital as a percent of sales of 16.5, so a modest increase, but we’ll calibrate that based off of the timing of when the market comes back and starts to grow. But we’ll as a business stay disciplined, now that we’ve got the working capital kind of back to where we’d like it to be.

Okay. Thank you and good luck with everything.

Thanks, Sue.

Thank you.

Your next question comes from Adam Baumgarten from Zelman. Your line is now open.

Hey, good morning everyone. I believe you mentioned on the call that paint pricing was lower in ’23. I guess a couple questions - one, when did that occur throughout the year, and is the outlook for ’24 that you mentioned down based on just the carryover, maybe from some of the movements in ’23, or do you expect incremental pricing pressure beyond what you maybe recently saw?

Yes Adam, maybe just to clarify, for the calendar year 2023, we saw a very modest price increase. It actually corresponded with commodities, so we saw material costs down in Q4 in the paint sector, but for the full year, we saw appreciation overall, and so we saw a slight price increase in terms of the 2023 number. As we look into 2024, as I indicated or as we indicated, we do see some price down in 2024, and that’s really a reflection of what we expect to see, which is kind of modest low single-digit deflation in the inputs, so kind of keeping that price-cost relationship in check.

Okay, got it. That’s helpful. Then for you, Rick, now that you’ve been at Masco for, I believe it’s almost four months now, where do you see the biggest opportunities for Masco from a cost side going forward?

That’s a good question. Yes, as I mentioned, first of all, as I mentioned in my opening comments, I’m really excited to be part of the Masco team and the strong business and operations and portfolio that we have. I’m really excited about the portfolio, brands, and products in the business. I’ve had the opportunity to really get out and meet all of the business unit leaders, and I’ve been out to many of the business units - I was actually in Germany at Hansgrohe last week, really impressed with the team and really impressed with the mindset in terms of the Masco operating system and the mindset of continuous improvement, operational efficiency, and cost reductions. I think we need to continue to exercise ourselves in that regard. I think with regards to opportunities, it’s really leveraging the mindset that we have here at Masco and across the business units, as well as leveraging our scale as we continue to grow the business and drive that productivity and that efficiency, really across all of our business but particularly on the plumbing side as we look at our global business.

Great, thanks. Best of luck.

Thank you, Adam.

Your next question comes from Mike Dahl from RBC Capital Markets. Your line is now open.

Hi, thanks for taking my questions. I wanted to ask again about costs - I think a question was asked earlier around price-cost spread, and I heard the comments around price. I didn’t hear specifically your expectations for input costs for both segments that are embedded in the ’24 guide, so could you address that please?

Sure Mike, I’m happy to do that. As it pertains to 2024, we’re expecting for input costs not to be a material impact, not to be significant in 2024. Obviously we’ll see how the year plays out. In plumbing specifically, we expect to see some modest decline in input costs, but offset with some freight and some other inflation. Obviously, as I think we all know given the dynamics in the Red Sea, freight cost is a little bit volatile and there’s a bit of a headwind in the first half - that’s baked into our outlook as a contributor to our expectations in the first half of the year. That’s a little bit of the dynamic on plumbing. In terms of decorative architectural products, I think we mentioned a couple times, we expect relatively modest input cost decrease in 2024.

Mike, we are considering that plumbing commodities will remain relatively flat. While the costs for paint inputs have moderated recently, especially with resins showing some deflation, other costs such as copper-zinc and TIO2 have shown more moderation and are expected to moderate slightly more, although the benefits will not be significant.

Got it, okay. Thanks. Then my second question, just back on the free cash flow, the conversion rate, obviously 90% is still high. I think your business typically targets 100% conversion on that income. When I look at the moving pieces, it doesn’t seem like working capital is that much of an incremental usage, and then you’ve got capex, I think down year-on-year. Just any other drivers in terms of things we should be thinking about, levels of investment or non-working capital line items? Any other moving pieces there?

Mike, those are the two, really. Working capital, I think Sue had asked in terms of that dynamic, we do expect a little bit of build in working capital in 2024. We’ll watch that, obviously, but we’ve got it down to a pretty balanced level right now, so as the market returns, we expect some building working capital. Capital expenditures, as you noted, will be down year-over-year from ’23 to ’24, but it’s still higher than our depreciation and amortization, so our capex guidance for 2024 is $200 million, our D&A is $160 million, so that capex versus D&A is another contributor to the 90% guide. Sure.

Your next question comes from Truman Patterson from Wolfe Research. Your line is now open.

Hey, good morning guys. Rick, looking forward to working with you going forward. First question for me, in your plumbing segment, your supply chain is heavily reliant on shipping products to the U.S. and Europe. I’m hoping you can give an update on some of the Red Sea shipping issues currently, any supply chain issues or incremental costs embedded in your ’24 guidance.

We are seeing, as you might expect, elevated costs for the containers that normally would be routed through the Red Sea, that now have to go around, and you’re exactly right - it’s primarily for our European business. Those container costs have increased and we’ve contemplated that in our guide, and that’s all part and parcel of how we think next year is going to shake out, but we are seeing an increase in those costs.

Truman, to your other question, although we’re seeing elevated costs, so far our service levels have been able to be retained, and so we’re not having disruption per se but we’re watching, obviously, the dynamics closely.

Okay, got it. Just thinking through your ’24 revenue guidance of flattish versus flat to down low single digit R&R market, first, are you all expecting your smaller ticket portfolio to outperform big ticket, and then second, you all have mentioned some incremental market share gains this year specifically, could you just elaborate on that a little bit - product categories, geographies, channels, etc. of some of these kind of near-term gains?

We believe that our strategy of repositioning our portfolio to focus on lower-priced, lower-ticket repair and remodel projects is more resilient than higher-priced items often associated with new construction. When comparing our consumer projects, such as paint, plumbing, lighting, and hardware, these tend to be more stable than larger purchases like cabinets and windows. This approach aligns with our strategy to be appealing to investors through a higher margin and less cyclical portfolio, which is crucial for us. We have shown our capability to achieve double-digit EPS growth throughout different cycles, highlighted by a 14% EPS compound annual growth rate from 2019 to 2023. We are pleased with this achievement, which we believe is significantly influenced by the reconfiguration of our portfolio. Remind me of your second question, Truman, the second end of that?

Yes, just the near term market share gains that embedded in your guidance, just hoping you could elaborate on product categories, geographies, channels, etc.

Sure. We’re going to continue to invest in our share gains and continue to outperform the market, as we have up to 2023. To highlight a few of those, we’re particularly focused on the showroom channel in plumbing, and that involves our channel relationships with and our programs to drive growth. Our innovation pipeline is certainly a part of that brand and the pull that we have, as I mentioned before, both from the trade and the consumers is part of that. We’ve invested extensively in involving showroom associates and creating advocacy in the showroom market, so it’s not just about products, it’s also about capturing the hearts and minds of the folks in the showroom that sell our products, as it relates to involving them in literally in the design of our products, and we treat that as an operational type of exercise for us to create advocacy. We measure it and we drive it. Certainly pro paint - when you look at our pro paint, Truman, on a stacked basis over the last three years, we’ve driven 60% growth - six-zero. I know a year, year and a half ago, there was a lot of questions on the stickiness of that demand, and we’ve proven that we’re not only able to maintain those share gains but also intend to grow those share gains, and that’s through service, through having the right product in the can, obviously, but through our overall competitiveness as it relates to as applied costs and jobs. Look at our net promoter scores that we’re clocking on our new and existing pro paint customers - it’s industry-leading, so we feel really good about that, so there’s a couple areas there, plumbing, wholesale, pro paint, but we’re really driving across the board an expectation of market outperformance and margin expansion.

Great, thank you and good luck in ’24.

Thank you.

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. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect.