Good morning, ladies and gentlemen. Welcome to Masco Corporation's First Quarter 2024 Conference Call. My name is Lidy, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. I will now turn the call over to Robin Zondervan. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2024 First Quarter 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 first quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at (313) 792-5500. Our statements today will include our views about 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 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 Keith.

Thank you, Robin. Good morning, everyone, and thank you for joining us today. Please turn to Slide 5. I'm very pleased with our strong start to the year as we reported another quarter of operating profit margin expansion and EPS growth compared to the prior year. Our results were driven by improved operational efficiencies, solid execution and the strength of our repair and remodel product portfolio. We remain focused on growing our market share by engaging with our customers, launching innovative new products, and building on the value of our brands. Turning to our overall company performance. Our top line decreased 3% in the quarter, which was in line with our expectations. Volume was down 4%, partially offset by pricing actions of 1% and the impact of our recent acquisition of Sauna360, which we finalized in the third quarter of the prior year. Operating profit improved in the quarter by $10 million to $322 million net dollars and operating margin grew 90 basis points to 16.7%. The improvement in our operational performance was primarily driven by cost savings initiatives and a favorable price cost relationship, partially offset by lower volume. Our earnings per share grew 8% to $0.93 per share. Turning to our segments. Plumbing sales declined 2% overall and 4% excluding acquisitions. In local currency, North American Plumbing sales decreased 1%, including the favorable impact of acquisitions. In International Plumbing, sales decreased 5%. Operating profit for the segment was up $26 million to $228 million, and operating margin was up 260 basis points to 19.1%. In addition to our focus on operational excellence and continuous improvement, both our North American and International Plumbing businesses remain focused on developing new and innovative products that serve the needs of our customers. In North American Plumbing, for example, Delta Faucet showcased several new and award-winning products at the Kitchen and Bath Industry Show held in February, including a multi-level offering of steam showers, headlined by the Brizo Mystic steam shower system, a tankless reverse osmosis water filtration system and several cross expansions in brick-and-mortar retail and in the bathing category online, all of which are launching later this year. In our spa business, Watkins Wellness launched FreshWater IQ, a smart monitoring system that automatically tests the water in your spa and communicates recommendations when adjustments are needed to maintain clean, natural-feeling water. This breakthrough technology provides our customers with a superior ownership experience and continues the legacy of innovation that makes Watkins Wellness an industry leader in the spa market. In our international plumbing business, Hansgrohe Axor brand recently presented a variety of new products at the Milan Furniture Fair, including the Citterio C bathroom collection, customization options with Axor signature service and the Axor Shower Select ID temperature control technology. These products continue to demonstrate Hansgrohe's innovative bathroom solutions, which offer premium design while simultaneously saving energy and water. With our strong brands, global presence and innovative products, our Plumbing segment is well positioned to continue to gain global market share. Turning next to our Decorative Architectural segment. Sales declined 3%. Pro paint and DIY paint sales were both relatively flat year-over-year. Operating profit for the segment declined by $8 million to $125 million, and operating margin declined 60 basis points to 17%. In our paint business, we remain focused on working closely with our partner, The Home Depot, to drive further share gains with both Pro and DIY paint customers. During the quarter, Behr continued to invest in services focused on meeting the needs of the Pro painter. This included expanding the Pro sales force into additional markets across the United States, increasing job site delivery availability and providing exceptional brand loyalty programs. Additionally, in a recent third-party quality study, Behr was rated #1 in interior paint, #1 in exterior paint and #1 in exterior stain demonstrating the strength and exceptional quality of our leading Behr brand. Moving to capital allocation. Our strategy remains unchanged. During the quarter, we returned $212 million to shareholders through the repurchase of 2.1 million shares for $148 million and a dividend payment of $64 million. Now turning to our outlook for the remainder of 2024. With the year beginning largely as expected, we continue to anticipate that 2024 adjusted earnings per share will be in the range of $4 to $4.25 per share. While we expect a relatively flat top line for the year, our focus on cost savings initiatives, disciplined pricing, and operational efficiencies will help us continue to drive operating margin improvement and earnings per share growth in 2024. For the remainder of the year, we remain cautiously optimistic as we continue to monitor inflation data, the likelihood of current year interest rate cuts and changes in consumer confidence levels. However, we continue to believe the fundamentals of our repair and remodel markets are strong and that structural factors, such as the age of housing stock, consumers staying in their homes longer, and higher home equity levels will drive increased repair and remodel activity over the mid- to long-term. We believe these favorable fundamentals, our portfolio of low-ticket repair and remodel products, our focus on operational excellence and our disciplined capital allocation strategy will continue to drive shareholder value creation. Now I will turn the call over to Rick to go through our first quarter results and the 2024 outlook in more detail. Rick?

Thank you, Keith, and good morning, everyone. Thank you for joining. As Robin mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other one-time items. Turning to Slide 7. Sales in the quarter decreased 3% year-over-year or decreased 4%, excluding the favorable impact of our Sauna360 acquisition in the third quarter of last year. FX had a minimal impact on our first quarter results. In local currency, North American sales decreased 2% or 3% excluding acquisitions. In local currency, international sales decreased 5%. Despite lower sales, our continued efforts to drive operational efficiencies as well as our price cost performance in the quarter helped lead to gross margin expansion of 210 basis points to 35.7%. SG&A as a percent of sales was 19.1% and was impacted by higher employee-related costs including incentive compensation. Overall, our operating profit grew 3% in the quarter, and margin expanded 90 basis points to 16.7%. This strong operating profit and margin performance was due primarily to cost savings initiatives and a favorable price cost relationship, partially offset by lower volumes. We also grew EPS during the quarter by 8% to $0.93 per share. Turning to Slide 8. Plumbing sales decreased 2% in the quarter, in line with our expectations. Lower volume and mix reduced sales by 7%. This was partially offset by favorable pricing of 3% and the positive impact of acquisitions of 2%. North American Plumbing sales decreased 1%; however, decreased 4% excluding acquisitions. Delta Faucet had another solid quarter, achieving low single-digit revenue growth driven by continued strength in the wholesale channel. In local currency, International Plumbing sales decreased 5%, driven by soft demand in our key markets of Europe and China. Segment operating profit in the first quarter was up $26 million or 13% year-over-year, and operating margin expanded 260 basis points to 19.1%. This operating profit improvement was driven by cost savings initiatives and a favorable price cost relationship, partially offset by lower volume and mix. Turning to Slide 9. Decorative Architectural sales decreased 3% for the first quarter. Paint sales were relatively flat year-over-year with sales in both DIY and Pro paint in line with last year. This performance was consistent with our expectations, and we continue to anticipate our full year DIY paint business to decrease low single digits and our Pro paint business to increase low single digits. Operating profit was $125 million, and operating margin was 17% down 60 basis points year-over-year, primarily due to lower pricing, partially offset by cost savings initiatives. Turning to Slide 10. Our balance sheet remains strong with gross debt-to-EBITDA at 2x at quarter end. We ended the quarter with $1.3 billion of liquidity, including cash and availability under our revolving credit facility. Working capital as a percentage of sales declined 50 basis points to 18.6% as we continue to stay disciplined on our working capital levels. During the first quarter, we repurchased 2.1 million shares for $148 million and paid a dividend of $64 million to shareholders. As we discussed on our February earnings call, we continue to anticipate deploying approximately $600 million during the year towards share repurchases or acquisitions. Now let's turn to Slide 11 and review our outlook for 2024. The year has started largely as expected, and as a result, we are maintaining our full year outlook, which is as follows: for Masco overall, we expect 2024 sales to be roughly flat with operating margin growing to approximately 17%. Currency is projected to have minimal impact on our results. We expect sales to be down slightly in the first half of the year, with modest growth in the back half of the year. Additionally, we expect operating margin to 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 versus 2023 and our operating margin to expand to approximately 18.5% up from our prior year margin of 18%. Margin expansion will be primarily 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 versus 2023 and operating margin to be approximately 18% up from our prior year margin of 17.8%, driven by cost savings initiatives. Finally, as Keith mentioned earlier, we are maintaining our 2024 EPS estimate of $4 to $4.25 per share. This assumes a 221 million average diluted share count for the year and a 24.5% effective tax rate. Additional financial assumptions for 2024 can be found on Slide 14 of our earnings deck. With that, I'd like to open up the call for questions. Operator?

Your first question comes from the line of Anthony Pettinari from Citi. le digits versus 2023 and operating margin to be approximately 18% up from our prior year margin of 17.8%, driven by cost savings initiatives. Finally, as Keith mentioned earlier, we are maintaining our 2024 EPS estimate of $4 to $4.25 per share. This assumes a 221 million average diluted share count for the year and a 24.5% effective tax rate. Additional financial assumptions for 2024 can be found on Slide 14 of our earnings deck. With that, I'd like to open up the call for questions. Operator?

DIY paint accelerated pretty meaningfully from 4Q to 1Q. And I'm just wondering if you could talk a little bit about whether that acceleration was related more towards improving demand or maybe the timing of comps? And how should we think about maybe pathway to restoring price/cost and Decorative Architectural given volumes are improving?

I'm not quite tracking with you, Anthony, in terms of volumes improving. Tell me what you mean by that?

I guess the move from DIY paint from 4Q to 1Q, if you could just talk about the trends you're seeing there.

Well, when we look at the rate of volume decline across our business and specifically in DIY paint, we continue to see that the market is down a little bit. We haven't really seen a restoration of volumes. I don't know if you're implying sequentially or if you're looking at year-over-year.

Yes, year-over-year.

Anthony, the only thing I would add is there's nothing really noteworthy in terms of trends. I think it's more seasonality. But in terms of our DIY performance as well as our Pro volume or sales performance, it was roughly flat year-over-year on a Q1-to-Q1 basis. And as we indicated in terms of the calendar year outlook, which is probably more meaningful on a calendar basis, we do expect DIY to be down low single digits, but Pro to be up low single digits. So that provides some context in terms of what we're expecting this year.

That's very helpful. And then I'm just — plumbing ball mix, I think, decelerated from down 4% in 4Q to down 7% in 1Q despite what looked like an easier comp. I'm just wondering if you could talk about if that — if you view that as a deceleration, if there's anything in the weaker channels that you'd flag and maybe just more broadly about trends that you're seeing in Kitchen and Bath remodel that you'd identify as maybe tracking better or worse than expected for Masco?

I think in terms of what we're seeing on a sequential basis, it's driven largely by the geographic performance. So it wasn't really until Q2 of last year where we saw more of a slowdown in our international market. As we look year-over-year, our North America Plumbing was down 1% or 2%, but our International Plumbing was down about 5% on a currency-adjusted basis. So I think that's perhaps explaining the dynamics that you're seeing.

When we look at our rate of decline in Plumbing it really shows a moderation in terms of what I would call stabilization, probably a better word, particularly in North America. The slowdown last year happened, as Rick said, a couple of quarters later in our International business. In North America, our trade business is doing quite well. Overall North America is stable. We feel it's safe to say that we've hit the bottom in North America, although it's a little bit of a different story internationally. There's more stability in Germany, certainly, but there's still some variability in China. So it's maybe a little bit too early to call to say that we've seen a bottom internationally. We're expecting our international sales to be down a little bit more in terms of the total market this year than we would in North America.

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

Maybe starting at a high level, just talking or thinking about your outlook for repair and remodel sort of flat to down low single digits. But we've had a move in rates here and perhaps a little bit more pressure on existing home sales. Just curious if you're kind of leaning more towards upside or downside there, if anything has changed in your overall thought process?

Really no change. We've performed this quarter as expected. We're holding our guidance and believe that we will start to see an uptick in the second half in the overall market. No real changes as we see it in terms of how the consumer is behaving. Certainly, there's volatility and we're calling for flat, plus or minus low single digits. Our market is driven primarily by consumer confidence. So we're watching carefully where the rates go, what happens geopolitically. There's a lot of dynamics here, but fundamentally, how we view the market has not changed. And by and large, first quarter came in right where we expected it to come in.

Okay. That's encouraging. And then considering that DIY and Pro paint were both sort of flattish on a sales basis year-over-year. That would seem to imply that Kichler and the hardware business were down maybe closer to 15%. I mean are we thinking about that right? What's driving that? And then how are you thinking about these businesses as we move through the year?

No, it wasn't quite that significant, but Kichler and Liberty were down a bit more than our overall portfolio. Some of that's driven by decisions that are made. For example, Kichler has done a really nice job at taking some restructuring actions with regards to cost and price, but also portfolio exiting some lines of business that weren't as profitable. So that's driving a bit of the year-over-year comp. As we look for the rest of the year, we expect those business lines to be more in line with the repair and remodel industry as we lap some of the comps.

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

A couple of questions on the margins. I think you again spoke to a total company operating margins being sort of flat year-over-year in the first half. Obviously, Q1 was up year-over-year. So I guess my question is for the second quarter, does that imply margins really need to be down as soon as the second quarter here? Any finer point on how should we think about margins in the second quarter?

I appreciate the question. We are pleased with our performance and have reiterated our guidance for the year as well as first half and second half performance. We do still expect to see overall margin expansion in each of our segments for Masco overall for the calendar year. But when you look at quarterly performance, Q2 is a comparison to a strong comp last year. In 2023 Q2 we had very strong margin performance for Masco overall—around 19%. So it's fair to say we do expect some margin reduction year-over-year in Q2 versus that strong comp. But we're expecting flattish margin in the first half of the year and expansion overall for the year. We still expect to see a solid Q2 and a sequential increase in margins from Q1 to Q2 as well.

And second one, just zooming into the Plumbing margin specifically, 19.1% margin in the first quarter. You kept the full year guide unchanged. I guess it would be helpful if you can outline how price/cost is playing into that. You had the benefit in Q1 and maybe we are seeing copper prices increase. So just how is price/cost playing into that? And was there anything else beneficial in Q1 that is not continuing for the year? Just what is the reasoning behind holding that guide unchanged?

Not a real big impact in price/cost in Plumbing in the quarter. Again, as Rick said, we're pleased with the margin performance. The team has done a phenomenal job of lining up a pipeline of productivity initiatives, and this has been going on for several quarters and is part of the reason we have confidence in the overall margin increase year-over-year. So it's really not a question of what's not going to continue; we're holding our guide. The business performed well, not a whole lot of impact either way from the price/cost relationship. It's just good solid execution, and we expect that to continue.

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

Keith, just to follow up on that. It does seem like the progression in Plumbing is driven by some sustainable things that you expect to continue. You have articulated a medium-term guide that is higher than this 18.5%, and you're approaching that with your Q1. When we look forward, are there specific things that you can point to for the balance of the year that would end up coming in as incremental headwinds to the plumbing business, whether it's mix or other things that would bring the margin down from what you're experiencing here?

I think we've demonstrated an ability to manage commodity changes. We're seeing a little variability and we're watching crude oil, freight components related to Red Sea shipments, pending labor negotiations on the East Coast. Those are things we watch and are uncertain where they may go and if they will result in headwinds. We've demonstrated the ability to manage those with our pipeline of productivity initiatives and cost-out as well as the strength of our brands and innovation and ability to get price where we need to. In terms of what could materially drive margin, we're focused on overall volume. Our plan is to convert volume at that 30% to 35% range in Plumbing, which could be upside if volume turns positive. We'll manage decrementals tightly if it goes the other way. We don't have in mind any significant negative headwinds in our Plumbing business that we're anticipating, but we're ready to manage volatility.

Okay. And then shifting gears to the overall capital allocation environment. We've seen building products businesses trade hands or announce transactions. Can you update us on what you're seeing out there, how you're thinking about the environment and how it's unfolding year-to-date?

Our capital allocation strategy has not changed. We're anticipating roughly $600 million this year for share repurchases or acquisitions. Those are fungible and we're not going to hoard cash. We're focused on bolt-on acquisitions in Paint and Plumbing, which we think is the right place given current deal pricing. Deal flow is up a bit but not materially. We're cultivating opportunities and looking at several options but no change in our capital allocation strategy. With regards to specific announcements, particularly in the paint business, assets of that size are rare and worth looking at. We're evaluating opportunities consistent with our capital allocation and M&A strategy. It's too early to discuss specifics; the process has just started and any potential deal could take various forms.

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

Going back to some of the company-specific initiatives you've got coming through, it seems like you're really starting to gain some momentum even with the backdrop still fairly tepid. Given the progress, is there any change in the timeline or progress that we should be thinking about that could come through over the course of this year or next year?

No, not really. We're pleased with the first quarter performance, but it's on plan. We're one quarter into the year and marching toward our 2026 margin guidance. No change at this point. Things are going well, we're executing, and we remain flexible and reactive in a volatile environment. We're focusing leadership teams on gross spend and SG&A to ensure productivity and continuing to drive our pipeline of efficiency improvements through our standardized operating systems that we've had for over a decade. We're moving along nicely and see no change to our 2026 outlook.

Okay. That sounds great. You also had some nice improvements on working capital. Does that reflect some of these efforts? Can you talk about what drove that and how it might trend over the next couple of quarters?

From a working capital perspective, we continue to be disciplined. We had elevated working capital in 2022, brought it back in line in 2023, and expect to keep it normalized as we go through the year. There will be seasonality—it's higher in Q1 as we and channel partners prepare for the seasonally stronger Q2 and Q3 selling season. We expect to end the year with working capital around 16.5% of sales, relatively in line with where we finished 2023.

Your next question comes from the line of Adam Baumgarten from Zelman.

Just in Plumbing, how should we think about the magnitude of the price/cost tailwinds on a go-forward basis? Do you think that Q1 was maybe the peak for that relationship? Or do you expect tailwinds throughout the balance of the year?

We're pleased with Q1 performance. For the rest of the year, for Plumbing price, we're expecting a low single-digit tailwind or favorability for the year overall and commodities to be relatively neutral. There is variability in commodity and freight markets, so that's TBD as the year plays out. But from a price perspective, low single-digit favorability.

And then on the mix side in Plumbing. Did you see any headwinds in the quarter? If so, was that really due to International? Or are you seeing some trade down? More color on the mix side.

It was pretty minimal during the quarter. There was a slight headwind in our International business, largely driven by China being more volatile and China tends to be a more profitable market. So it was geographic mix, but it wasn't very meaningful for the overall business.

Your next question comes from the line of Philip Ng from Jefferies.

Keith, have you seen any noticeable trends into the quarter and going into April? Have your channel partners changed any behavior in terms of how they're managing inventory? Any inter-quarter improvements or has it been pretty steady?

It's as we expected. I don't comment much on inter-quarter dynamics because there's a lot of variability with system fills for new product launches and the like. It's as expected and no specific comment beyond that on intra-quarter shifts.

Okay. And as you mentioned earlier, one of the larger paint assets is on strategic review. Your partner on the retail side has made a huge investment in reaching the Pro market. Is this something you're putting hard consideration to, particularly on the store side which is different operationally? Would you look at it holistically or in parts? Any color on how you're thinking about it?

That was a significant acquisition for The Home Depot; it illustrates their focus on the Pro. We've been working closely with them on the paint side with regard to the Pro and continue to be focused on both DIY and Pro. Our stacked comp over the last several years—some 60% in Pro paint—shows our capability and the strength of our Behr brand and service proposition and our relationship with The Home Depot. Regarding the paint asset under review, it could take any form and it's too early to get into specifics. We'll look at all aspects consistent with our capital allocation and M&A strategy. It may or may not involve various parts of the assets under review. We're taking a look but it's too early to comment on potential components of any deal.

And your next question comes from the line of Garik Shmois from Loop Capital.

Just wondering how you're thinking about International Plumbing as the year progresses; maybe you have some easier comparisons throughout the year. Do you expect that part of the business to show growth over the next several quarters?

International is lagging in finding a trough versus North America. We expect the International market to be down low to mid-single digits. Hansgrohe has done a phenomenal job and is outperforming major competition in Europe and gaining share. We expect that to continue against international markets that will be down low to mid-single digits. There's more stability in Germany and Central Europe than in China, which is lagging a bit.

And then with respect to commodity volatility, how are you thinking about pricing over the remainder of the year? Have you announced additional price increases to offset?

We've had pricing actions last year and targeted pricing this year in Plumbing. It's been a mixed bag with commodities. Container costs have decreased slightly but freight risks remain elevated given East Coast labor negotiations and Red Sea shipping issues. At quarter end, copper was up about 3% from year-end and is currently above $4 again. Zinc prices are starting to rise. In Plumbing, because of the supply chain timing and inventory, it takes about six months for commodity changes to appear in our P&L. For Plumbing, we expect roughly flat commodity impact for 2024, all in.

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

Similar question, but on the paint business. What's the outlook for inputs in the next couple of quarters there?

On the paint side, we saw some modest favorability in Q1 year-over-year but sequentially flat. For the calendar year, we don't see a significant impact as of today on a year-over-year basis in the coatings business. There has been some increase in oil prices, which impacts resins, and some pressure in TiO2. Good start to the year, but stability with some potential upward pressures; we're monitoring closely.

Any upward pressures later in the year? That sounds a bit speculative.

There is a delay due to inventory lags as Keith mentioned. We're monitoring it, but we're not baking in any significant benefit or headwind from commodities for the year at this point.

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

I wanted to drill down a bit more to start with on Plumbing, specifically Plumbing pricing. Can you talk about pricing strategy by channel and any differentials you might be seeing, whether it's in showrooms versus home centers versus distribution and wholesale? I want to understand any pricing dynamics in those channels that we should be aware of.

We view pricing as a function of the strength of our brands and where commodities go relative to our ability to drive cost improvement. There's really no difference in the overall pricing strategy by channel; we stay consistent. I won't get into specific customer discussions. Fundamentally, our approach is to drive productivities, leverage our brands and innovation, and over time we've demonstrated the ability to get effective pricing across cycles. Our performance in Plumbing and ability to drive margin improvements in the face of challenging volume speaks to our continuous improvement culture and the tools we use to drive productivity. Pricing also considers the desire to gain share, which we've consistently balanced over the years.

And then switching gears to Decorative Architectural. Last year you were gaining some shelf space in subcategories. How are those conversations with The Home Depot coming this year and is there opportunity to continue to gain share in paint as part of your initiative?

We think there is opportunity to continue to gain share. Our relationship with The Home Depot is outstanding. We're focused on DIY paint, Pro, and our Plumbing businesses where Depot is a big customer. We're looking for ways to drive solutions that result in share gains, both in terms of shelf and volume, and we'll continue to work closely with them.

Your next question comes from the line of Stephen Kim.

It seems like North America Plumbing margins were up significantly, maybe around 350 basis points, while International margins were down due to volume. Could you talk about any specific cost savings programs in North America Plumbing, how far along they are, and how much more we could expect?

The initiatives cover multiple fronts across North America and International with Hansgrohe and our Plumbing platform. Key areas include: - Purchasing: how we buy, consolidation of purchases, and leveraging scale to lower costs. - Value engineering: commonizing component sets where it doesn't affect consumer interface to consolidate volumes and lower purchasing costs. - Operating system execution: driving variable cost productivity, fixed asset efficiency (shifts and utilization), direct labor efficiencies, scrap rate improvements, and indirect labor productivity. - Managing new assets: ensuring efficient ramp-up of our Serbian plant and new paint plant. These are part of our Masco operating system we've applied for over a decade. You can expect margin enhancements in Plumbing; our guidance to 18.5% in a flat-to-down year reflects those productivity initiatives and we're confident in hitting it.

One more: to what degree is this really just managing the human capital better versus technological improvements introduced into systems or processes?

It's a mix. Efficient management of direct and indirect labor is key, as is providing leadership and coordination with engineering. Technology plays a role—particularly in Plumbing in e-commerce and distribution/logistics systems. We also use technology to enable component commonization where the consumer doesn't see the change. It's a combination of human management, technology, and incentives, driven by our operating system and a decade of continuous improvement momentum.

Your next question comes from the line of Eric Bosshard from Cleveland Research.

Two things. Keith, curious what you're observing with the consumer regarding price elasticity in an environment where the consumer seems more disciplined?

It's hard to get a clear handle on elasticity given recent rapid inflation. Elasticity varies by technology, price point and country. We're seeing a bit more price sensitivity in China and more elasticity at lower price points in Plumbing. We've worked to reduce the margin gap between higher-end and lower-end assortments, and geographic diversity helps. Mix hasn't been a material impact and we don't expect it to be as we look forward. Overall, understanding elasticity has been challenging given the inflationary dynamics over the last few years.

Secondly, you called out Delta growing in a down market. Is that sustainable for Delta to keep growing when the market is down? Was anything Q1-specific contributing to that growth?

We noted growth in Delta aided by sales performance in the wholesale channel. Our guidance for the year in Plumbing is plus or minus low single digits. North America is performing somewhat stronger than International given the lag in international recovery. We haven't provided a specific outlook just for North America Plumbing, but Delta's performance is in line with our guidance for the year at this point.

And our last question comes from the line of Rafe Jadrosich from Bank of America.

First, you've had really strong margin performance with volumes declining. If volumes start to turn positive, how should we think about your incremental margins versus historical levels?

I'd expect it to be pretty consistent with historical performance—around 30% to 35% for Plumbing and a little lower for Decorative. On the downside, we've managed decrementals tightly and had strong performance in keeping decrementals less than incrementals. So no real change from historical incremental margin behavior.

On Decorative Architectural, I think volume is below 2019 levels and remains a bit soft. How are you working with The Home Depot or channel partners to drive better demand? What macro indicators should we watch that could drive volumes positive?

We work with channel partners across pricing, cost productivity, innovation pipeline and product availability to drive demand. Specifically in paint, we collaborate on programs to drive DIY and Pro demand. Our Pro performance has been strong, contributing to share gain and profitability. We continue to partner with channels to deliver the right consumer solutions that drive share.

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

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.