Good morning, ladies and gentlemen. Welcome to Masco Corporation's Second Quarter Conference Call. My name is Ludy and I'll 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, Vice President, Investor Relations and FP&A of Masco Corporation. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2024 second 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 second quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we 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. As we sit here midway through the year, I'm pleased with our performance. Despite a challenging macroeconomic environment, we have delivered solid financial results with our continued focus on operational excellence, brand, service and innovation. Additionally, the strength of our repair and remodel oriented product portfolio has enabled us to drive operating profit margin expansion in the first half of the year, better than we expected despite a decrease in sales. Turning to our second quarter results. Please refer to Slide 5. Demand continued to stabilize as net sales decreased 2%, in line with the prior two quarters. Second quarter sales performance was primarily impacted by lower volume and mix. In the quarter, our gross profit grew $16 million and gross margin rose 140 basis points to 37.6% as a result of our ongoing initiatives to drive operational efficiencies and achieve cost savings. Our solid execution resulted in operating profit of $399 million and an operating profit margin of 19.1%. In addition, our earnings per share grew 1% to $1.20 per share. Moving to our segments. Plumbing sales increased 2% overall and 1% excluding the impacts of acquisitions and currency. In local currency, North American Plumbing sales increased 5% overall and 2% excluding the impact of acquisitions. In International Plumbing, sales decreased 1% in local currency, demonstrating continued signs of stabilization particularly in Europe and China. Operating profit for the segment was up $4 million to $249 million and operating margin was 19.9%, largely in line with the prior year, driven by our pricing discipline and operational performance as we continue to focus on productivity, efficiency and cost savings. We are pleased with our performance in the Plumbing segment throughout the first half of the year as our teams both in North America and International continue to leverage our operating system and execute on our strategic priorities. Lastly, in Plumbing, Delta Faucet was awarded the J.D. Power Customer Service distinction for the third year in a row. This award recognizes our outstanding customer service and reinforces our commitment to industry-leading service. Moving to our Decorative Architectural segment. Sales decreased 7% in the quarter. Overall, paint sales were down high single digits as DIY paint sales decreased low double digits, while pro paint sales grew mid-single digits. In pro paint, we continue to execute on our strategic initiatives to grow share with our partner, The Home Depot. Our partnership dates back over 40 years and together, we are focused on meeting the needs of our customers through quality, service, brand and performance. We are proud of our sales growth and market expansion with the pro paint business and we are continuing to invest to drive additional growth going forward. Operating profit for the segment decreased $6 million to $174 million, while operating margin was up 80 basis points to 20.8%. For the first half of this year, demand in our Decorative segment overall was generally in line with our expectations. However, DIY paint was more challenged than expected, partially offset by stronger performance in pro paint. Turning to capital allocation. We continue to generate strong free cash flow during the quarter and maintained a solid balance sheet. As a result, we executed on our capital deployment strategy and returned $206 million to shareholders through dividends and share repurchases. Now for a few comments on our outlook for 2024. Overall, sales for the total company were largely in line with our expectations for the first half of the year at down low single digits. As uncertainty within the broader macroeconomic environment has continued, we are tempering our expectations for sales in the second half of the year from up low single digits to roughly flat, leaving our full-year sales within our previously guided range of plus or minus low single digits. However, we are raising our full-year operating margin expectation to be within the range of 17% to 17.5%, driven by the strong first half performance in the Plumbing segment. We remain confident in our ability to drive margin expansion through our continued execution of our operating system. Additionally, with our strong focus on our cost structure and productivity, we are well positioned to leverage volume growth when the market returns to normalized growth rates. We now anticipate adjusted earnings per share for 2024 to be in the range of $4.05 to $4.20 per share, narrowed from our previous expectations of $4.00 to $4.25 per share. We continue to believe that the long-term fundamentals of our repair and remodel markets are strong and that structural factors, such as age of housing stock, consumers staying in their homes longer and higher home equity levels will drive increased repair and remodel activity in the mid- to long-term. With these favorable fundamentals, the continued successful execution of our strategic initiatives and our disciplined capital deployment, we are well positioned to drive shareholder value creation. We will continue to invest in our brands, capabilities and people to outperform the competition and deliver double-digit EPS growth through cycles for our investors. Now, I'll turn the call over to Rick to go over our second quarter results and 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 2% year-over-year or 1% excluding the unfavorable impact of currency. Our acquisition of Sauna360 in the third quarter of last year added 1% of growth to our second quarter results. In local currency, North American sales decreased 1% or 2% excluding acquisitions. In local currency, International sales decreased 1%. Despite modestly lower sales levels, our initiatives to drive operational efficiencies and our favorable price cost performance in the quarter contributed to significant gross margin expansion of 140 basis points to 37.6%. SG&A as a percent of sales was 18.5% and was impacted by higher employee-related costs. Overall, our operating profit was $399 million in the quarter, down slightly year-over-year, driven by lower sales. However, our margin remained strong at 19.1%. Our strong margin performance was primarily driven by cost savings initiatives and a favorable price/cost relationship. We also grew EPS during the quarter by 1% to $1.20 per share. Turning to Slide 8. Plumbing sales increased 2% in the quarter or 3% excluding the unfavorable impact of currency. Volume in our Plumbing segment was flat year-over-year for the first time since the second quarter of 2022, demonstrating encouraging signs of stabilization. Pricing actions increased sales by 2% and acquisitions contributed another 2% to growth year-over-year. This was partially offset by unfavorable mix and currency which reduced sales by 1% each. North American Plumbing sales increased 5%, including 3% related to acquisitions. Delta Faucet delivered another quarter of low single-digit sales growth and our Watkins Wellness spa business returned to year-over-year sales growth before factoring in the benefit of the Sauna360 acquisition. In local currency, International Plumbing sales decreased 1% and were driven by unfavorable mix, partially offset by pricing actions and favorable volume as we continue to see signs of stabilization in our key markets of Europe and China. Segment operating profit in the second quarter was up $4 million or 2% year-over-year and operating margin was 19.9%, in line with the prior year. This operating profit performance was driven primarily by cost savings initiatives and a favorable price/cost relationship, partially offset by unfavorable mix and higher employee-related costs. Turning to Slide 9. Decorative Architectural sales decreased 7% for the second quarter. In the quarter, total paint sales decreased high single digits due to lower volume and price. Pro paint sales were up mid-single digits and DIY paint sales decreased low double digits. A portion of this DIY decrease was driven by timing of sales across the first half of the year. For the first half of the year overall, we saw total paint sales decreased mid-single digits with pro paint sales up low single digits and DIY paint sales down high single digits. As we continue to experience overall softness in the DIY market, we now anticipate our full year DIY paint business to be down mid-single digits versus our previous expectation of down low single digits. In our pro paint business, we continue to expect sales to increase low single digits. Operating profit was $174 million, down slightly year-over-year. However, operating margin was up 80 basis points to 20.8%. Operating profit was impacted by lower volume and an unfavorable price cost relationship, partially offset by cost savings initiatives and the timing of marketing spend. Turning to Slide 10. Our balance sheet remains strong with gross debt-to-EBITDA at 2x at quarter end. We ended the quarter with $1.4 billion of liquidity, including cash and availability under our revolving credit facility. Working capital as a percent of sales decreased 50 basis points to 18.4% as we continue to stay disciplined on our working capital levels. During the second quarter, we repurchased 2 million shares for $143 million and paid a dividend of $64 million to shareholders. As we previously guided, 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. For total Masco, our top line for the first half of the year came in largely as expected. While we previously expected sales growth in the second half of the year, we are moderating our view and now anticipate sales to be roughly flat in the second half of the year and for our full-year sales to remain within our previously guided range of plus or minus low single digits. With our strong first half execution and operating margin performance in our Plumbing segment, we now expect full-year operating margin to be approximately 17% to 17.5% and increased from our previous guide of approximately 17%. And while we are seeing increased commodity and ocean freight costs across both of our segments, we expect to continue to deliver operating margin expansion in the second half of the year, with most of this to occur in the fourth quarter. In our Plumbing segment, we are maintaining our top-line expectation of full year 2024 sales to be plus or minus low single digits versus the prior year. Based on strong execution in the first half of this year, we are increasing our expected full-year operating margin to approximately 19%, up from our previous guide of approximately 18.5%. In our Decorative Architectural segment, we are lowering our 2024 sales expectation to be down low single digits year-over-year versus our previous guidance of plus or minus low single digits. This change is primarily due to continued softness in the DIY paint market. Despite lower expected sales, we are maintaining our anticipated full-year operating margin of approximately 18%, which would be up from our prior year margin of 17.8% and primarily driven by cost savings initiatives. Finally, as Keith mentioned earlier, we are narrowing our 2024 EPS estimate to be in the range of $4.05 to $4.20 per share. This assumes a 220 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 would like to open up the call for questions.

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

Maybe I'll start on Decorative. Thinking about the guidance for a low single-digit decline for the year and you're obviously tracking down kind of mid-single digits in the first half. Did I hear you correctly that you were saying paint would be down mid-single digits for the year? Just if you could clarify that relative to the total segment of down low single digits and I might have misheard you. But in general, the question is around what's happening in DIY with this kind of deceleration here in Q2 and what are you assuming to expect some level of acceleration there in the second half to get to the full-year guide?

Matt, Keith here. Thanks for the question. I think when we think about the DIY, specifically the DIY paint subsegment, it's well known that that subsegment tends to be more sensitive than other segments — sensitive to economic conditions, sensitive to affordability, sensitive to consumer confidence overall. So when you look and think about what's happened in the market with regards to the price that's been put in, I think over the last couple of years, we're knocking at 40% price increases across our total company on average. So there's a lot of pressure that's been put on that sensitive subsegment: rates being high overall, affordability in that whole consumer basket through gasoline to groceries to everything. So it's well known that that subsegment is more sensitive. And we expected it to be down. I think when we look across regionally, it's pretty consistent. So it's a little bit more pressured than we expected. I think we highlighted that in our remarks. Looking forward, why we have the guide where we have it is based on really three fundamental things. One is our comparables. When you look at the first half over the second half, our comparables soften a little bit and there will be some tailwinds. Secondly, we've talked about some of our SG&A spend being transferred from last year where it was in the second quarter to the third quarter this year. We're going to be using that to drive demand principally through advertising. We obviously have a lot of experience in that and we know what to expect. And then lastly, I would say that our guide contemplates what we're seeing in recent demand trends as we exit the quarter.

Yes. And Matt, the only thing I would add to that, just to clarify the guide for the full year, what we indicated is that the Decorative Architectural segment overall would be down low single digits for the year. Within that, we indicated that pro paint would be up low single digits and DIY paint to be down mid-single digits. We didn't give an overall paint guidance but you can assume that it's in line from a total paint perspective with the overall segment of down low single digits.

I think, Matt, when you think about how we've performed in this volatile time, not only in our Decorative Architectural segment but across the company, and you see what we've been able to do with our margins as it relates to driving sticky and sustainable productivity enhancements across the P&L statement, and what we've been able to do with regards to price which is an opportunity we have given our strong brands and our innovation pipeline; this business has really handled this volatile market well and we are in good shape. And what's exciting about what we have to look forward to when this demand does return to more stabilized and more normal growth rates is we have this business dialed in to really contribute incremental earnings on that incremental volume. So feel real good about both of our segments in terms of what we've been able to demonstrate in terms of performance.

Got it. Okay. Thank you for all that color and detail and for clarifying the guidance there. And then maybe shifting to Plumbing. Certainly, the top line result there in the second quarter, I mean, you did see, I guess, I would call it, acceleration in organic growth U.S. and international. I mean, maybe across both U.S. and international, what exactly is driving that? I mean you gave some great color there on why DIY paint is having a specific issue but perhaps here on the Plumbing side, you saw some better trends. So any color on sort of the shape of demand and how you're envisioning demand continue to evolve in the Plumbing segment?

If you think about — I'll talk globally now, international versus domestic. We've started to see some demand challenges earlier last year in domestic and then international lagged a couple of quarters. Last call, I talked about how I felt strongly that we've come to a stabilization point in North America. And while we were seeing signs of stabilization in Europe, I was a little reticent to call that stable at that point but it was moving in the right direction. I'll tell you that we continue to see more signs of stabilization in international and I feel that we are in that period of stabilized demand internationally. So that goes for our key markets in Central Europe, Germany in particular, and China. So it feels very much like it did a quarter or two ago in North America. Internationally, the team at Hansgrohe continues to do a wonderful job and we are clearly taking share there. And while it's been consistent in talking about how it's difficult to nail down market size, specifically quarter-to-quarter, when you look at our performance vis-à-vis our major competitors on the continent, we're doing a very good job and we're gaining share. So it's a combination of the market starting to come around, stabilization of demand, strong initiatives with regards to share gains and organic growth and a slight bit of carryover pricing from last year. There is some incremental spot pricing in parts of our assortment this year. In North America, I can't say enough about the team in North America continuing to do a very strong job of organic growth with influencer advocacy development that we've been focused on for about a decade, frankly, and that just continues to pay off and we view that as a factory where we're producing advocates through influencers where there is an assisted sale in showrooms, for example. Our product assortment and our product launches in our spa business has been wonderful and we've got a great assortment that continues to roll out. So we've returned to growth in our spa business. That's over and above the benefits of the acquisition of Sauna360; we think Sauna360 has some nice legs as we start to leverage our outstanding dealer network and get that brand and that assortment more available here in North America. So good hard work and we anticipate that continuing. And again, like my comments on your Decorative question, the margins are indicative of how well we're operating our operating system. We have a pipeline of Kaizen and continuous improvement activities across our P&L. We're working on variable cost productivity, labor productivity, scrap rate reductions, overall equipment effectiveness improvements. We're working on variable cost productivity with regards to trying very hard and keeping a close eye, taking shifts off-line and combining shifts, maybe even working some overtime to enable us to take a shift offline so we can drive that sort of productivity; those are sticky initiatives. So looking forward, when this demand does return to normal, we're excited about the prospects of earnings and what it can do for shareholder value.

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

Appreciate all the color. I had a couple of longer-term questions for you, though. I guess the first one relates to what adjustments you might make in the event that there's an abrupt change in tariff policy? And if there are any lessons you learned from last time this happened that you would expect to apply in the future if needed.

Yes. I think when you think about tariffs — when the original tariffs were enacted, we've been working very hard with our suppliers. I would tell you, Steve, that in terms of moving to alternative sourcing solutions that would avoid tariffs, we've been able to reduce our exposure by approximately 30%. So that's a big number. We've obviously been driving margin improvement initiatives that I've already talked about. I won't go into that as much. And we've demonstrated the ability to manage through it. And I think that's the best indicator of future performance is what we've been able to do in the past. Our margins are above pre-pandemic levels. So it took some time but we've been able to manage it. So should those tariffs come back into play, we have incentive systems that we've learned from on how to appropriately guide the behaviors of our teams to address these issues in a quick fashion. We're starting from a better spot where we have 30% less of our buy tariff exposed. So that's a big help. And we'll continue to execute much of the same playbook that we did in the past. I think we'll do it more effectively, more judiciously and faster based on our experience, but all of our key management teams have been through this and we're keenly aware of it.

That's very helpful. And then a broader question about your product portfolio. I was wondering whether you're actively seeking to broaden or narrow your product portfolio at this time. Anything specific that you might talk about. And as you look out over the next few years, how do you assess the key strengths that Masco brings to the table that makes you a better owner of certain assets?

So in terms of our product portfolio and the question of broadening or narrowing, I think there's a couple of components to that. First, we begin with the consumer and we look at pain points that the consumer is experiencing and try to find ways that we can resolve those pain points and we continue to drive that. So that's not so much with a lens on broad or narrow. It's more with a lens of can we meet an unmet need and do it efficiently and rapidly get it to market, hopefully wrap some IP around it so that we can have some protection and then move on to the next innovation. So things as simple as how consumers clean their glasses and their sink and what we can develop to help them do that. How we can work with better technology to avoid germs on your hands and how we can activate various technologies to enable consumers to have their problems solved in the kitchen. We certainly are looking at environmental issues and our sustainability work, where we're working hard on water conservation and how to utilize technology to give better shower experience at lower flow rates, for example. So it's really about customer-backed innovation to meet an unmet need and to continue to leverage our brand and build our brand and give us that pricing power and that must-have position on the shelf. So that's really the fundamental nature of where we're focusing our innovation. In terms of narrowing, 80/20 is a fundamental component of our operating system and we look at the long tail and we understand the costs associated with that and we know and we believe that there's no line item on the P&L that says complexity but there is a cost to complexity. And so we're keenly aware of cutting that long tail to be as productive as we can and save those costs to put back into a combination of more growth and higher margins. So it really is a two-edged sword of unmet customer need and complexity reduction. In terms of the key strength of Masco, really, there's brand, service and innovation are the strengths that we bring to the market. Coupled with that is strong customer and channel knowledge that we leverage across our product assortment. So when you look at our portfolio, you see that we've pruned our portfolio down to where we now have very similar businesses that perform very similarly in terms of margin profile and capital requirements, low ticket and we're able to leverage our channel expertise and our expertise as it relates to supply chain management across these businesses to make what we believe is our portfolio more valuable because they're part of our portfolio and that's our view.

Okay. I appreciate that very much, guys. Best of luck with the rest of the year.

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

The first one, Keith, just talking about some of the cost-savings initiatives and efficiencies that have been in place. I'm curious how you guys think about the sensitivity of your EPS guide to the top line? And what I mean is that if sales were to come in at the lower end of the range, do you think you could still sort of achieve the midpoint, maybe even the higher end of the EPS range just on the cost saves and execution?

Yes, I do. And the reason, John, is because of the nature of the improvements that we've done, we're not hoping on things to happen in the future to enable us to hit our margin targets. We are confident in being able to hit our margin targets because of the pipeline we have for execution going forward and because of what we've done and completed, and those are things that are sticky that the teams have done an excellent job of executing against and we remain confident in. We do have a demonstrated ability over time to price and to get a fair price and we've earned that with our brand, our innovation pipeline and how we perform in terms of service and our advocacy with the channels that we've driven to help us get that kind of must-have position on the shelf. So yes, we're confident we will hit our margin targets.

Yes. And John, the only thing I would add is, as you obviously saw from our comments this morning, we've tempered our expectations for the second half of the year and that's factored into our guide. And even in spite of the tempered expectations for sales, we've narrowed our guide keeping that midpoint. And we're confident we'll end within that EPS guide range.

Okay, that's helpful. And then can you guys comment on the June exit rates for both businesses? It seems like Plumbing may have actually been positive as things exited. Any kind of help you can give us on what July trends are — and then within that, why is pro paint hanging in there so strongly, given kind of the softness in some of the overall economic metrics and things of that nature?

Yes, John, I'll comment on exit rates. Coming out of the quarter, there's complexity in looking at quarter-to-quarter and month-to-month comparisons year-over-year because timing differences can introduce noise. So we don't generally parse the business at that very granular level publicly, but I will tell you that our exit rates and our run rates at the end of the quarter and through July are contemplated in our guide. So those are factored in. Regarding what is keeping pro so strong: I think it's a couple of things. One is the nature of the consumer who uses a pro versus the DIY consumer and how sensitive they are. We're seeing that mix dynamic where the pro customer tends to be less sensitive to macroeconomic uncertainty and consumer confidence issues; they are a more robust consumer because they're a little more affluent. The other piece is our performance and our share gains which we continue to drive and hold. So I think that sheds light on why pro is performing better than DIY and why the upper end of our assortment across the business is hanging in there better than the lower end. It really has to do with the subsegment of the consumer base and how sensitive they are.

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

If we think about DIY, where do volumes currently sit compared to pre-COVID levels in paint?

So Adam, DIY volumes are below where we were pre-pandemic. Pro volumes are above where we were pre-pandemic. And so overall, we're relatively consistent in terms of pre-pandemic levels. Obviously, the mix has changed. As Keith articulated, DIY is more challenged given the factors he discussed but pro is performing. As you may recall, we had incredible growth in pro really from 2020 to 2023, roughly a 60% stacked comp in growth and that's more or less offset the DIY headwind that we're facing. That said, we've been able to really hold on to our margins in that environment and we're positioned well both in pro and DIY for when the market turns to growth again.

Adam, I might add to that and expand a little on your question which was specifically on pro paint pre-pandemic to now and take a broader look at our entire company and our assortment. I do so because I think it tells an interesting story. When you look at pre-pandemic levels of volume and you extend that out at a traditional growth rate of, say, 2.5%, you get to where we are today with some timing differences. Broadly speaking, when the pandemic hit, we had a substantial bump in demand and then that demand went below the historical run rate extended from pre-pandemic levels and we went through a pull-forward. When you look at where we are now in terms of volume and inflation adjust that COVID bump because there was significant pricing in there, you really look at where the volume is and what you see is a deferral of demand, we believe, and that the size of that deferral — the area under the curve — is roughly the same as what we saw post-pandemic inflation adjusted. So our view is that we're seeing a deferral of spend in the DIY space. And that's exciting for us because as we've talked quite a bit today, our business is tuned in and that's measured by our margins. We have a state-of-the-art new paint plant coming up in Ohio and that ramp-up is going fabulously; the team is doing a great job. We have a significant plumbing manufacturing plant in Serbia that's coming online and that plant is coming up nicely. So as this demand starts to return to normalized levels, we've got the business tuned with regards to our cost control. We're watching our SG&A spend closely on growth investments and our capacity is in great shape to support it, including surge capacity for selling seasons on our paint side. So this business is ready to do some exciting stuff when the market turns.

Okay, got it. Good to hear. And then just in Plumbing, a couple of questions. Can you walk through how North American growth trended across retail and wholesale? And then you mentioned negative mix in the segment. Maybe what drove that?

A couple of components: we are seeing some trade down in the assortment while the upper end assortment is holding on very well as I talked a bit earlier. There is a bit of trade down from mid to lower parts of our assortment, understanding we don't play in the very low piece of the assortment. So there's a bit of trade down and there was also a bit of geographic mix where earlier on we were seeing it more challenged but now seeing stability — China was challenged for a couple of quarters. For us, with Hansgrohe and Axor brands which tend to be higher-end, when China goes down that naturally impacts mix. Now having said that, we're not calling for much of an impact on mix for the year.

And Adam, to your question about channel performance, there's a bit of noise quarter-to-quarter from a comp comparable perspective. So I'd like to think about it from a first half perspective. We saw solid low single-digit growth in wholesale trade and retail held up reasonably well. We're expecting that trend to continue in the second half of the year as we've guided for the segment overall, plus or minus low single digits. So we're seeing some stability. On top of that, some pricing that led to a favorable price-cost relationship is adding to our margin expansion for the year.

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

Hi, everyone. Thanks for taking my question. This is Andrew on for Mike. I just wanted to ask, high level, thinking about your repair and remodel outlook with some potential rate cuts here and some pressure on existing home sales. Just curious if you're leaning more towards the upside or downside on that outlook?

Not really leaning to either extreme. We're calling repair and remodel to be flat to down low single digits and I think that's the right place to be.

Got it. And then in terms of commodity volatility, curious how you're thinking about input costs across segments and pricing to offset that.

Sure, Andrew. From a commodity perspective, in Q2 we didn't see a significant driver one way or the other. In the first half of the year we saw commodities be a slight tailwind to our performance. In the Plumbing segment, we have a positive price/cost relationship. As we think about where we sit here today, we've seen an uptick in metal prices like copper and zinc, which have trailed off a bit but are still elevated, as well as some paint inputs such as TiO2 and resin putting pressure on the coatings cost base. So we see that as a headwind in the second half of the year, recognizing it takes time for those commodity and ocean freight costs to work through inventory and hit the P&L. Given the inflation we saw during the quarter, we expect that to be a headwind later in the year. Despite that, we are expecting margin expansion in the second half of the year in both segments and have raised our operating profit margin expectations for the year. We'll continue to monitor and take action accordingly.

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

For DIY paint year-to-date, do you think your volume performance has been in line with the underlying DIY market? Or have your volumes maybe tracked a little better or a little worse than the industry? And if there's any variance there, what do you think is driving it?

Anthony, when you get into subsegments of DIY that go through multiple channels, it's difficult to accurately pin down market size quarter-to-quarter. That's a caveat. When we look at the first half and consider system fill volume timing differences from last year to this year, and what we hear from competitors, it's not easy to get precise. But we think we're right there and holding share. That's attributable to a couple of things: we have an outstanding partner in The Home Depot which generates foot traffic and strong merchandising, and our Behr brand is a leading DIY brand. Based on external measures of quality, service, awareness and brand equity, Behr performs very well. So I feel extremely good about our business, knowing full well that the DIY channel is challenged now. As I've said, when this starts to turn around, we are ready with surge capacity, a tuned-in cost structure as demonstrated by our margins, and a fired-up team. We are holding our own and the pro side has gained significant share over the years and demonstrated the ability to hold it. We also have white space and a nice value proposition we're going to continue to invest in.

Okay, that's very helpful. And then we've seen existing home sales below 4 million, historically low levels. I'm just wondering how that is impacting different parts of your business. Can you remind us which parts of Masco are most impacted by the slowdown in existing home sales in the U.S.?

More existing home sales are better for us, particularly when you talk about paint — people paint their homes before they sell and new owners repaint to their taste. But when you peel back the numbers it's not a material impact: you're talking about 4 or 5 million existing home sales on a 130 million household base. An existing home turnover might see a 25% to 30% increase in DIY spend during that transition, but when you take 4 out of 130 and apply that bump, it is a small effect. We're a small-ticket repair and remodel portfolio purposefully tuned into that to give stability and resilience through cycles and to deliver double-digit EPS through cycles for investors. The key correlations are consumer confidence and existing home equity, which is why we feel so good about the long-term prospects. So yes, more existing home turnover is better, but it's not materially transformational for our business when you look at the numbers.

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

This is Chris on for Mike. Just going back to the DIY paint comments. Earlier you mentioned a more sensitive consumer in DIY. How would you characterize the dynamics in DIY today relative to what you saw last quarter? And within the down low double-digit sales decline in Q2, any way you could break out what price versus volume looked like and your expectations on both those drivers in the back half?

I don't think there's a substantial difference in DIY dynamics this quarter versus last quarter from what we observe in the channel. Regarding the low double-digit decline in DIY, you really have to look at the first half because there were some volumes that straddle between quarters year-over-year which complicates quarter-to-quarter comparisons.

Chris, that's why we think it's appropriate to look at the first half. DIY was down high single digits in the first half with no clear intra-half trend to focus on. We haven't broken down specifics for the quarter, but both price and volume were headwinds. Price was a low single-digit headwind and volume accounted for the remainder. As we've articulated in the past, we have a relationship with The Home Depot regarding pricing and commodity neutrality; in the back half of last year, commodity costs decreased and we provided some price downs as part of that. That carryover is manifesting itself this year. We'll see that carry through the second half, but we do see improvement in DIY paint as we enter the second half — some of it is a comp dynamic and some are actions taken by the team. We expect for the year that DIY will be down mid-single digits based on those actions.

Understood. That's helpful. And then, just shifting over to Plumbing. How do the channel inventories look today? Is there any notable restock or destock dynamics we should be aware of?

No. There are always seasonality adjustments to get ready for selling seasons, but nothing out of the ordinary.

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

Wanted to talk about the Decorative Architectural segment but focus on the lighting business for a moment. I think you made some moves to stabilize this last quarter. It looks like growth might have improved sequentially in lighting; is my math correct? Remind us what you've been doing there because you've done streamlining in the subsegment. What are the opportunities to further stabilize top line here?

Sam, good memory. With regards to the lighting business, the team has taken proactive actions including opportunistic pricing, streamlining lines of business, exiting less profitable lines and cutting costs. That has positioned the business for success going forward. We don't provide detailed breakouts within the segment, but top-line performance has improved sequentially and we expect lighting and hardware, which complement paint in the Decorative segment, to perform in line with repair and remodel industry expectations — flat to down low single digits. We're definitely seeing a positive trajectory relative to a few months ago.

That's helpful. Then on Plumbing, were there any noticeable differences in pricing between channels, thinking wholesale versus retail? And in terms of what's embedded in your outlook for the second half, any divergence in pricing we should think about from a channel perspective?

From a pricing perspective, overall for the Plumbing segment it was a positive 2% contributor in the quarter. We don't provide a channel-level pricing breakdown publicly. From a trade perspective it's pretty robust. The team is focused on taking price that reflects our strong brands and product portfolio and capturing value, while working hand-in-hand with customers to ensure profitable growth across the ecosystem. For guidance and expectations, stick to segment-level commentary: we saw positive low single-digit pricing this quarter and expect similar dynamics for the year.

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

You mentioned seeing some benefit from cost savings and broader initiatives across both segments in the quarter. Can you talk more about what some of those were and how they've come together? And as you think further out, the ability to continue to realize those benefits as you try and close the margin gap with where we are today relative to the longer-term guide?

To give you flavor, our pipeline is very large and the Masco operating system measures and drives performance by taking down a gap we want to attack and putting it into a module of continuous improvement we can execute on; we call these Kaizen events. We measure them in our five-step process, look at size and flow-through and have finance validate the actual benefit to ensure it's put into the P&L. These are generally small and discrete items with outsized benefits. Examples include identifying a capacity constraint in a part of our business where demand grew faster than expected and driving improvements in that capacity so the rest of the factory isn't waiting on output. Equipment productivity events can deliver big benefits from small changes. On people productivity, balancing shifts and consolidating partial shifts to reduce semi-variable overhead and then running Kaizen events on that consolidated shift can deliver sustainable efficiency. On the top line, it's about executing better through sales force execution, better segmentation and standardization of sales calls to more effectively highlight our advantages versus competition. These initiatives not only help margins but also develop our leaders. They are a series of small, steady improvements that we execute and harden so we don't back-step.

Okay, that's great color. Turning to capital allocation, you're still on track for the $600 million of repurchases or bolt-on M&A. Any comment on M&A — how that pipeline is looking? Anything of note there?

Not a whole lot of change from last quarter. It's still a little quiet with where rates are and where valuations sit — people ready to sell are awaiting clarity — so valuations are a bit lower. But there's plenty of work and we're evaluating opportunities. Our capital allocation strategy hasn't changed; we're focused on paint and plumbing and looking for businesses we can learn from and leverage. Sauna360 is a good example: a modest-sized business in that range that we can add value to through our U.S. network. That's the type of deal we're evaluating and deal flow is about the same as before.

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

Earlier in the call you discussed some input inflation coming. To offset that, do you think you'll need to use price increases and can you talk about that for paint versus Plumbing?

Keith, as we've mentioned, we do see commodity and ocean freight inflation serving as a headwind in the second half. Specific to pricing, we do see pricing in the Plumbing segment as an offset; we're continuing to take low single-digit price increases in Plumbing and will continue to leverage that. For coatings, it will be a balance between where inputs end up and our net price with our retail partner. In addition to price, the team has driven operational efficiencies and cost reductions with Behr that help offset the commodity headwind. Price is part of the equation but not the only lever — operational efficiency and running the business tighter are also driving the margin expansion we expect.

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.