Earnings Call Transcript - MAS Q1 2026

Operator, Operator

Good morning, ladies and gentlemen. Welcome to the Masco Corporation's First Quarter 2026 Conference Call. My name is Jenny, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. Operator Instructions. I will now turn the call over to Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Robin Zondervan, Vice President, Investor Relations and FP&A

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2026 First Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer. Our 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 future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission. Our statements will also include non-GAAP financial metrics. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I will now turn the call over to Jon.

Jonathon Nudi, President and CEO

Thank you, Robin. Good morning, everyone, and thank you for joining us. Before I discuss our quarterly results, I want to spend a few minutes talking about the continued evolution of our Masco Executive Committee, which we established at the end of last year. Jay Shah, Group President, Plumbing and Wellness; and Rick Marshall, Vice President of the Masco Operating System, recently announced their intent to retire from Masco later this summer. I'd like to thank both Jay and Rick for their leadership and their important contributions to both our business and our culture. With Jay's retirement, we've taken steps to further streamline our organization. The leaders of our four largest businesses—Delta, Hansgrohe, BEHR and Watkins Wellness—will now all report directly to me. These four leaders have over 80 years of combined service at Masco, have extensive experience in our industry and are key contributors to Masco's performance and our culture. Furthermore, we are adding two new leaders to our executive committee with expertise in supply chain and procurement. The addition of these leaders and capabilities will enable us to drive additional efficiencies, leverage our scale and enhance our speed of execution across the enterprise. The structure and leadership composition of our executive committee will help enable greater agility and tighter alignment between corporate and business unit priorities, all in the pursuit of delivering above-market top- and bottom-line growth. In addition, we have continued the implementation of other initiatives that were announced earlier this year. Our integration of Liberty Hardware into Delta Faucet Company is on track as we further leverage the brands, capabilities and scale of our Delta Faucet business. Restructuring actions to streamline our business, reduce head count and optimize operations are ongoing. We incurred approximately $8 million in restructuring charges in the first quarter, and we continue to expect approximately $50 million in total charges in 2026. The savings generated from these actions will fund additional growth initiatives and contribute to our future margin expansion. We're already experiencing the positive impact of these actions in our results. With that, let's dive into our first quarter results. Please turn to Slide 5. Overall, we are pleased with our performance in an extremely dynamic environment. Net sales increased 6% or 4% in local currency, primarily driven by favorable pricing. Additionally, while still down slightly, this was our strongest year-over-year first quarter volume performance since the end of the pandemic. Operating profit was $324 million, an increase of 13%. Operating profit margin was 16.9%, an improvement of 90 basis points. Earnings per share grew 20% during the quarter to $1.04 per share. Now turning to our segments. Company product sales increased 7% in local currency, exceeding our expectations, largely due to more resilient-than-expected volume. North American sales increased 9% in local currency, driven by favorable pricing as well as slightly higher volumes. Delta Faucet delivered a strong quarter with sales growth across all three channels: trade, retail and e-commerce. Additionally, Delta Faucet was recognized by USA Today as a Most Trusted Brand and by Newsweek as one of America's Most Trustworthy Companies, demonstrating the significant strength of Delta's brand and service capabilities, which are resonating with customers and consumers. Turning to international plumbing, sales increased 1% in local currency, driven by growth across many European markets, particularly Germany, partially offset by the ongoing weak market in China. Operating profit for the Plumbing Products segment grew 10% to $250 million and operating margin expanded 10 basis points to 18.3%. Turning to our Decorative Architectural segment: sales were in line with the prior year. DIY paint sales decreased low single digits, while Pro paint sales grew mid-single digits. Operating profit for the segment increased 19% to $105 million, and operating margin was 19%. Showcasing our commitment to innovative new products, BEHR PREMIUM PLUS Ecomix was recently named a 2026 Green Building Sustainable Product of the Year. BEHR continues its industry leadership in delivering both innovative and sustainable products. Turning to capital allocation. Our strong cash flow allowed us to return $267 million to shareholders this quarter through dividends and share repurchases. We are pleased with our first quarter performance and the team's strong execution and operational focus. Additionally, I'm proud of how our teams are working quickly to implement various restructuring actions to ensure we have the appropriate cost structure for our business in this rapidly changing environment. Turning to our expectations for the full year. We continue to face a highly dynamic macroeconomic and geopolitical environment. Therefore, we believe it is prudent to maintain our 2026 earnings per share guidance in the range of $4.10 to $4.30 per share. Our guidance includes our expectation that our sales will now be up low single digits for 2026, but that we will also incur higher-than-previously-anticipated commodity costs. Rick will share additional details of our guidance in a few moments. While uncertainty remains in the near term, we are focused on positioning ourselves for ongoing sales and profit growth over the mid- to long-term. The structural factors for repair and remodel activity are strong, including record-high home equity levels, the age of the housing stock and increasing pent-up demand for renovation projects. As consumer sentiment improves, interest rates decrease and existing home turnover increases, we expect these favorable fundamentals to become a tailwind for our business. In addition, we are taking the right actions to optimize our business, leaving us well positioned to deliver above-market top- and bottom-line growth. We are committed to our consumer-driven strategy, which leverages our industry-leading brands, expanded commercial capabilities and enhanced operational excellence. We look forward to further sharing the strategy and our long-term goals with you, either in person or online at our upcoming Investor Day on Wednesday, May 13 in New York City. With that, I'll now turn the call over to Rick to go over our first quarter results and 2026 outlook in more detail. Rick?

Richard Westenberg, Vice President and Chief Financial Officer

Thank you, Jon, 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. We delivered strong first quarter results, with total sales increasing 6% or 4%, excluding the favorable impact of currency. In local currency, North American sales increased 5%, and international sales increased 1%. Gross margin expanded 10 basis points to 36% in the quarter. SG&A as a percent of sales was 19.1%, 80 basis points lower than the prior year. Operating profit grew 13% to $324 million in the quarter, and our margin expanded 90 basis points to 16.9%. Operating profit was driven by pricing actions and cost savings initiatives partially offset by higher tariff and commodity costs. Our EPS grew 20% to $1.04 per share in the quarter. Turning to Slide 8. Plumbing sales increased 9% in the first quarter or 7%, excluding the favorable impact of currency. While this growth was primarily driven by pricing actions, which increased sales by 6%, our performance was better than expected, driven by volume, which was up slightly in the quarter. In local currency, North American plumbing sales increased 9% in the quarter. This performance was primarily driven by strong growth in our Delta Faucet and Watkins Wellness businesses. In local currency, international plumbing sales increased 1% in the quarter. Hansgrohe grew in many of its European markets, including its key market of Germany. This growth was partially offset by softness in China and other smaller markets. Segment operating profit in the first quarter increased 10% to $250 million and operating margin expanded 10 basis points to 18.3%. Operating profit was driven by pricing actions and cost savings initiatives, partially offset by higher tariff and commodity costs. Turning to Slide 9. Decorative Architectural sales were in line with the prior year. This performance was driven by mid-single-digit growth in our pro paint sales, offset by a low single-digit decrease in our DIY paint sales. These results were largely in line with our expectations, and we continue to anticipate full year pro paint sales to increase mid-single digits and for DIY paint sales to decrease mid-single digits. Operating profit in the first quarter was $105 million. Growth versus the prior year was primarily driven by cost savings initiatives, which are inclusive of benefits from our recent restructuring actions as well as increased pricing. This was partially offset by higher commodity costs. Operating margin was 19% in the quarter and reflects the benefit of our Liberty Hardware business now being reported in our Plumbing segment. This was coupled with a more normalized first quarter for our paint business as we lap the inventory timing dynamic that unfavorably impacted the first quarter of last year. Turning to Slide 10. Our balance sheet remains strong with gross debt-to-EBITDA at 2.1x at quarter end. We finished the quarter with $1.3 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 19.5% of sales at quarter end. As expected, working capital balances in the first half of the year remained elevated versus the prior year due to the timing of when tariffs were implemented. However, we continue to anticipate working capital as a percent of sales will be approximately 16.5% at the end of the year. Our strong cash performance enabled us to return $267 million to shareholders through dividends and share repurchases, including the repurchase of $202 million of stock in the first quarter. Additionally, based on the strength of our balance sheet and confidence in our future performance, we recently entered into a two-year delayed draw term loan of up to $500 million. We plan to utilize the available funds under this facility to opportunistically repurchase our shares. As a result, we now expect to deploy at least $800 million towards share repurchases or acquisitions in 2026, up from our previous expectation of approximately $600 million. Now let's turn to Slide 11 and review our outlook for 2026. While we are pleased with our strong results in the first quarter, there remains a high degree of uncertainty in the macroeconomic and geopolitical environment. As a result, we are largely maintaining our full year outlook. For Masco overall, we expect 2026 sales to be up low single digits versus our previous guide of flat to up low single digits, and we continue to expect our margins to expand to approximately 17%. Regarding cadence for the year, given the timing of tariff impacts, which largely impacted our results in the second half of last year, we anticipate total Masco margin to be relatively flat in the first half of the year versus our previous guide of margin contraction and to expand in the second half of the year as we lap the tariff impact and as our mitigation actions continue to take hold. As it relates to tariffs, on our prior earnings call, we estimated the total cost impact from incremental tariffs to be approximately $200 million before mitigation this year. Given the recent ruling and the implementation of temporary Section 122 tariffs and changes to how Section 232 tariffs on steel, aluminum and copper are applied, we do anticipate the impact of these tariff changes before mitigation to be favorable. However, given the great deal of uncertainty as to where tariffs will ultimately land, it is challenging to quantify. In addition, we anticipate any tailwind from these tariff changes will be more than offset by anticipated increases in commodity and related input costs. Copper prices remain elevated and oil, which impacts a wide range of materials as well as logistics costs, also remains elevated and volatile. We continue to monitor these dynamics and we'll work diligently to mitigate the impact as we have demonstrated in the past. Turning to our segments. In our Plumbing segment, we continue to expect 2026 full year sales to be up low single digits and our operating margin to expand to approximately 18%, driven by pricing discipline, operational efficiencies and continued cost savings initiatives. In our Decorative Architectural segment, we continue to expect 2026 sales to be roughly flat with the prior year and our operating margin to be approximately 19% with a continued focus on cost savings initiatives. Finally, as John mentioned earlier, we are maintaining our 2026 EPS estimate of $4.10 to $4.30 per share. This now assumes a $200 million average diluted share count for the year versus our previous guide of 202 million shares and a 24.5% effective tax rate. Additional financial assumptions for 2026 can be found on Slide 14 of our earnings deck. With that, I would like to open up the call for questions. Operator?

Operator, Operator

Operator Instructions. Your first question comes from the line of John Lovallo with UBS.

John Lovallo, Analyst, UBS

The first one is just on the Section 232— you said that this could actually be favorable, which seems right to us. But is this really driven by the fact that the product that you're importing, whether it's faucets or shower heads, are not entirely copper and that some of the subassembly is done in the U.S.? And how do you kind of wrap your arms around what this potential benefit could be?

Richard Westenberg, Vice President and Chief Financial Officer

John, it's Rick. So with regards to our comments on the potential favorability on the tariff impact, it's really a composite impact. So it's not just the Section 232 tariffs, but it's really the actions at the end of February, the imposition of temporary Section 122 tariffs, and then, of course, the Section 232 tariffs. We look at it from a composite perspective. The Section 232 tariffs themselves are relatively nominal in terms of their net impact, but on a composite basis we expect a favorable impact. In addition to the ones that we talked about in our opening comments, as you probably are aware, the administration is looking into a couple of investigations and potential Section 301 tariffs as well. The environment remains uncertain. We think net-net, it will be favorable for us for the year, but it's difficult to quantify just given the moving parts—and as we also mentioned, we think any favorability will likely be offset by elevated commodity costs, as we talked about.

John Lovallo, Analyst, UBS

Okay. That's helpful. And then I think you guys said your prior estimate was for consolidated pricing to be up low single digits with mid-single-digit pricing in plumbing and sort of flattish in decorative architectural. How are you guys kind of thinking about this now, particularly with the move in resins since the conflicts in the Middle East began?

Richard Westenberg, Vice President and Chief Financial Officer

Yes. So with regards to our pricing expectations for the year, our plumbing expectation is mid-single digit. In terms of decorative architectural, it's really going to be dependent on where we end up on commodities. We are seeing significant headwinds given the elevated and volatile oil prices and the impact that it has across the input spectrum and including freight costs as well, but certainly on the decorative architectural side with regards to resins, et cetera. And so we're seeing upward pressure in the neighborhood of mid- to high-single digits. Obviously, it's still in discussion. And so that's something that we're tracking very closely. I think from an overall company perspective, we would expect mid-single-digit inflation, and that's really commodities as well as one-off inflation as well. So it's something that we're monitoring and managing very closely. We do have a track record of offsetting and managing through these challenges, and we believe we'll do so here as well through a combination of levers. But that's really the landscape. And caveat, as we all recognize, it's still uncertain, but there is upward pressure.

Operator, Operator

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

Stephen Kim, Analyst, Evercore ISI

I think you effectively have said that you—well, you just reiterated that you think that the changes in the tariffs will largely be offset by the commodity. I was wondering if you could give us just an overall estimate of how much that piece which will be transferred effectively will be for the year. And if there's a quarterly cadence to that that we should be mindful of?

Jonathon Nudi, President and CEO

Steve, just to clarify your question. In terms of the transfer of costs—could you just elaborate?

Stephen Kim, Analyst, Evercore ISI

Offset. Yes, the offset you are basically saying that the tariff changes could be beneficial to you, but the commodity costs will be higher and that those pieces would effectively be offsetting, if I heard you correctly. And so I'm just wondering how big is that piece effectively?

Jonathon Nudi, President and CEO

Yes. We're not going to quantify the actual magnitude of it. I think on a net basis, you can think of them as relatively flat to potentially a headwind for us for the year, just given the extent of commodity inflation that we've seen really across many input costs, particularly copper and zinc as well as oil-based inputs, particularly resins, et cetera. So we're basically tracking that. But I think at the end of the day, those commodity costs are going to offset the favorability or potentially more than that. In terms of your second question, quarterly cadence, this is largely a back half of 2026 phenomenon. As I think we've described in the past, particularly on the plumbing side of the business, commodity costs when they show up in the market really have to flow through our inventory and our P&L, usually a couple of quarters later. And we saw elevated copper and zinc costs really as we entered into 2026. So that will be more of a back half 2026 phenomenon. As it pertains to oil and resin costs, that's a little bit more near term because we've been seeing that as of late, and that's more of a quarter to two quarters out. So it's really kind of as we approach midyear and the second half of the year that we would see that impact—and that lines up pretty cleanly with regards to our tariff favorability because the tariff favorability is largely driven by the Section 122 tariff ruling—and that occurred, as we all know, on February 20. And so that takes some time to flow through our P&L as well. So they tend to map pretty cleanly. But at the end of the day, there's still a lot of volatility out there, Steve, as you recognize.

Stephen Kim, Analyst, Evercore ISI

Okay. Great. That's actually a good cleanup. I appreciate that. In the decorative architectural segment, your margins were stronger than we expected. I was curious if you could give us some sense for the relative importance of the cost savings initiatives from restructuring versus pricing? And give us a sense for what your expectation is about the quarterly cadence because we typically see the margins rise in Q2 and Q3 from Q1. Is there anything that we should be mindful of that would be different this year than normal?

Jonathon Nudi, President and CEO

Stephen, this is Jon. I'll jump in first, and then Rick can follow up with anything I missed here. We feel good about the trajectory that our paint business is on. As you know, we exited a challenging year behind us, and we feel better about our performance. Again, we saw our business overall flat with pro paint growing mid-single digits and DIY down low single digits. We feel great about the plans we have in place with our retail partner, and we'll continue to grow share with the Pro painter segment, which is a big opportunity for us, and we've got a significant amount of headroom there and then make sure that we continue to grow with DIY as well where we have a significant share. In terms of margins, yes, they were up significantly versus last year. They are much more normalized versus a typical Q1 though we had an easy comp this year versus Q1 of last year. We feel good about our ability to continue to manage our margins as we move forward. I would say our restructuring actions are paying off, particularly in our Bar business as we've taken significant steps to really streamline our cost structure and allow us to compete in the market. And I'll let Rick answer the question just on quarterly cadence, but hopefully that gives you perspective.

Richard Westenberg, Vice President and Chief Financial Officer

Yes, Stephen. Jon's comments were spot on in terms of the implications on Q1. I would just reinforce that the performance in Q1 was driven really by cost reduction actions that were in our control, including the restructuring actions that Jon alluded to. We did see some low single-digit inflation in the commodity input costs. So that's something that we are mindful of, and as I mentioned earlier, are expected to increase over time. So that's something that we're tracking. But I think in terms of our margin performance in Q1, it was largely in line with what we would have seen from a historical standpoint on a clean Q1.

Operator, Operator

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

Sam Reid, Analyst, Wells Fargo

Coming back on the quarter here. In Plumbing, really nice beat versus expectations. I just wanted to perhaps unpack the plumbing volumes that you put up during the quarter. I know they were modest, but I believe there was some volume benefit there. I just wanted to double confirm that there wasn't any one-time or any pull forward in there around pricing that we should be mindful of?

Jonathon Nudi, President and CEO

Sam, this is Jon. I would say the short answer is no. It was a pretty normalized quarter in terms of inventories. We feel really good about deploying business and the performance that that team put up really around the world where we saw our business grow nicely. Our North American business, in particular, with Delta Faucet had a terrific first quarter, growing high single digits. I think one of the things if you look at our beat versus our internal expectations for Q1, it was really plumbing and primarily North American plumbing, and the vast majority of that was really just volume versus expectations. As you're aware, we took a fairly significant amount of pricing as we exited last year. And the team has done a terrific job putting that pricing in place and navigating with our customers to have really good plans. And we saw our volume perform better than we would have expected from an elasticity standpoint. So we feel like the fundamentals are incredibly strong. We grew share across our channels. In fact, we grew in every channel across plumbing, whether it be wholesale, trade or e-commerce. We've got a great new product lineup. Our marketing plans are strong. We feel really good about our plumbing business, and we'll continue to focus on that as we move through the rest of the year.

Sam Reid, Analyst, Wells Fargo

That's super helpful. And then maybe double-clicking on the plumbing price in a little bit more detail. It sounds like the strength was widespread across all of your channels. But could you perhaps give us a little bit more color on whether there were any nuances between plumbing price, say, retail versus wholesale, wholesale versus e-com? We just lost maybe a view on how that plumbing price might have looked by channel.

Jonathon Nudi, President and CEO

Yes, this is Jon again. We typically don't get into that level of detail from a pricing standpoint. I think it's suffice to say, though, if you look at our results, we executed our plans well from a pricing standpoint across all channels, given that we saw the price realization in the market that we had hoped for, and our elasticities were as expected. So again, we feel really good about how we navigated—and the performance was pretty consistent through all channels. And again, in North America, it was high single digits, which is terrific.

Operator, Operator

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

Matthew Bouley, Analyst, Barclays

Wanted to start on the growth guidance in plumbing. So you obviously started the year at this 9% growth and still guiding the full year up low single digits. And—so presumably those pricing comps will get a lot tougher in the second half. I guess the question is, should we be expecting that deceleration in growth is already happening here in Q2? Or are you building in a lot of conservatism on the volume side that you think is prudent to hit that guide?

Jonathon Nudi, President and CEO

You're welcome. This is Jon. So as I mentioned, really pleased with the performance in Q1. As we look to the remainder of the year, it's the uncertainty that we see in the road that causes us to keep our guidance where it is. Certainly, you had all of the uncertainty prior to the war and ramp with tariffs. And consumer sentiment and things like that. And then obviously, the war adds a whole another level of uncertainty. So we're looking at two things very closely. One, the demand environment and how our consumers are purchasing across our markets. And today, we have not seen a meaningful change, but it's something that we're looking at very, very closely. I think as the oil shock ripples through the economy, we have questions in terms of how the economy is going to perform. Again, nothing to date that gives us pause, but we're going to continue to watch that closely. As Rick mentioned earlier, what we have seen certainly is the impact of inflation from the oil shock, particularly in petrochemicals and particularly in our decorative architectural business. As Rick also mentioned, our team has really distinguished itself as being able to navigate through tough times in a dynamic environment, and we'll do everything that we can to offset that inflation by negotiating with our suppliers, looking at footprint and taking cost out. Ultimately, if we have to take price, we'll work to do that in a very efficient and effective way.

Matthew Bouley, Analyst, Barclays

Got it. Okay. That's very helpful. Secondly, shifting over to the Hansgrohe business. As the conflict began, have you sort of seen any changes either from a consumer perspective? It sounded like Europe was still positive in the quarter. But anything changing on the margin around demand in Europe or just the energy costs related to natural gas in your business there? Any color on how you expect that to play out?

Jonathon Nudi, President and CEO

I'd say similar to what we're seeing in North America. We haven't seen a dramatic change to date; it's something we're obviously watching closely. We see commodity pressure in Europe just like we do in North America, and that team at Hansgrohe has taken initiatives to offset it. From a demand standpoint, Hansgrohe is really a global business. We like how Europe is holding up at this point. China is no secret—it remains a challenging market from a new home construction and building standpoint. So if anything, that's the market we continue to look at in terms of trends and looking to improve our trends in that market. But Europe is hanging in there pretty well to date. So we feel good about Hansgrohe as well.

Operator, Operator

Your next question comes from the line of Ketan Mamtora with BMO Capital Markets.

Ketan Mamtora, Analyst, BMO Capital Markets

Congrats on a strong quarter. Maybe just coming back to the full year guidance Jon or Rick, what is the right way to think about sort of what you're betting as the base case? If volumes and the demand environment stay kind of where it is today, do you expect to be more sort of at the midpoint of that range? How should we think about that?

Richard Westenberg, Vice President and Chief Financial Officer

It's Rick. With regards to our guidance, it's informed by all the information that we have to date with regards to what we're seeing in the marketplace. Obviously, the uncertainty in the macroeconomic and geopolitical environment as well as from an earnings perspective, the tariff implications and the commodity implications that we've spoken to already. At the end of the day, we feel confident in terms of delivering our results within the range. Without further input, I think you can comfortably assume that we'll end in the mid part of the range. From a top-line perspective, our guidance, we did increase our expectations for the year from flat to low single digits to up low single digits. So we do expect growth in our top line this year from a total company perspective, driven primarily in our plumbing space. And from a bottom-line perspective, we do expect earnings growth and EPS expansion in the $4.10 to $4.30 range for the year.

Ketan Mamtora, Analyst, BMO Capital Markets

Got it. That's helpful, Rick. And just as a follow-up on the capital allocation side, you moved the target higher to $800 million. Is it fair to say that you see bigger opportunity on the share repurchase side? Or are you seeing more M&A opportunity as well?

Richard Westenberg, Vice President and Chief Financial Officer

Fair question. As it pertains to the increase in our share repurchase expectations or availability for share purchases or acquisitions, basically, we saw an opportunity given the strength of our balance sheet. We've got a very healthy gross debt-to-EBITDA ratio and our confidence in our performance, obviously demonstrated in Q1, and our confidence in our future performance and opportunity led us to increase the cash available for share repurchases from $600 million to at least $800 million. To enable that we entered into, as I mentioned in my opening comments, a delayed draw term loan facility to enable that. So it's really going to be opportunistic. We like the flexibility that that offers. And we like the opportunity in terms of the valuation that we're at today to be able to be opportunistic and leverage that. And so we'll keep providing updates as we progress each quarter. But right now, we do expect an increase in share repurchases from $600 million to $800 million-plus absent any M&A at this point.

Jonathon Nudi, President and CEO

And just reiterating our capital allocation strategy hasn't changed. We continue to look at M&A—bolt-on M&A is our focus. If we find the right deal, we'll do it. As Rick mentioned, we just felt like this was a great opportunity: we have the ability to go out and borrow a bit more, and we frankly believe that our shares are valued attractively given our performance. We believe we're performing well and we continue to as we move into the future as well.

Operator, Operator

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

Michael Dahl, Analyst, RBC Capital Markets

I wanted to circle back to some of the cost and margin dynamics. If you look at this being kind of net neutral to less favorable in terms of costs and tariffs and a lot of uncertainty around the second half, I understand that historically you had the ability to do things to offset this. When you have broad increases in inputs and global tariffs, it's a little harder to get those savings from shifting footprint. So in your guide, if that is potentially a net negative versus your initial assumption, what is the primary lever that you're relying on to offset that and giving you the confidence to still guide margins up in the back half?

Richard Westenberg, Vice President and Chief Financial Officer

Mike, it's Rick. Your understanding of the playing field is accurate in terms of our read that commodity and input costs are likely to be a headwind that may exceed the favorability on tariffs. And as I mentioned earlier, it is more of a back half of 2026 dynamic. In terms of the levers that we're looking at, it's really the same levers that we've been executing against already. So sourcing footprint is still a lever that we're pulling, and that is on track in terms of helping to mitigate the tariff impact that we are encountering but it's also a cost reduction. We've executed well on cost savings initiatives. And of course, the restructuring that we announced in our February call and Jon alluded to earlier in his opening comments is really taking hold. So that is amplifying our cost savings initiatives, and we're streamlining the business, reducing head count and optimizing operations. That's a huge lever for us, and we're going to continue to do that. And then pricing, obviously, we've been really effective at our execution on pricing and although much of the pricing actions that we've been pursuing are implemented, there's still a lever that we're looking at selectively as we proceed during the course of the year. So I would say overall the levers remain the same, and we're going to continue to execute like we've done in the past, and we believe that the mitigation actions that we are executing and intend to execute through the course of the year will be sufficient to allow us to mitigate the headwinds and allow us to deliver results within the guidance range that we provided.

Michael Dahl, Analyst, RBC Capital Markets

Okay. Great. That's helpful. Then shifting gears and back to the potential refunds, I noted some commentary about the potential to seek relief or refunds from previously paid tariffs, but that nothing has currently been done or contemplated. What can you articulate about your strategy in terms of seeking refunds? And does that tie in at all to the expanded buyback guide where if you do get some refunds, your inclination would be to return that back to shareholders? How would you frame that?

Jonathon Nudi, President and CEO

Mike, this is Jon. I would say we think the refund process still has a lot of uncertainty in it. Until, if and when we get refunds, we'll obviously report what they might be and how we might handle them. But we are not banking on refunds, and it didn't really play any kind of role in our decision to take on the incremental debt that we talked about. So again, it's still highly uncertain. If and when we have something to report, we'll report it.

Operator, Operator

Your next question comes from the line of Trevor Allinson with Wolfe Research.

Trevor Allinson, Analyst, Wolfe Research

I wanted to follow up on the restructuring actions. I think last quarter you guys had talked about those being bigger impacts to 2027 and 2028, but it sounds like you're seeing those come through this year as well and providing nice tailwinds. Can you size for us what sort of benefit you're getting from the restructuring actions here in 2026? And then how much larger does that become as you move into 2027 and 2028?

Richard Westenberg, Vice President and Chief Financial Officer

Trevor, it's Rick. With regards to the restructuring actions, we're really pleased with the execution, both the execution and the timing of our restructuring actions. As we disclosed, we incurred about $8 million in Q1. We had incurred several million dollars in Q4 of last year, and we expect $50 million of restructuring costs for the calendar year and those are on track. And so we're starting to see those savings. We haven't quantified nor do we intend to quantify the savings per se because part of the savings are going to be redeployed in terms of growth initiatives as well as helping us to expand our margins, and that's a contributing factor to our margin expansion this year. You're absolutely right. The restructuring actions are going to be executed over the course of 2026. And so we'll see more of a full-year benefit as we move into 2027 and into 2028. But we're going to be managing those cost savings and leveraging those, as I mentioned, to drive growth as well as manage our margin expansion.

Trevor Allinson, Analyst, Wolfe Research

Okay. And then second question related to that. You guys have made some changes in your incentive compensation structure recently. It looks like you've been more focused on growth than you have been in the past. Can you talk about that change? Why you made the adjustment? And does that imply some shifting priorities for you guys in terms of growth moving forward?

Jonathon Nudi, President and CEO

Trevor, this is Jon. As I joined Masco last summer, it's clear to me Masco is a high-performing company. As I wanted to do a listening tour and talked to a lot of key constituents, the one thing I heard is that there is an opportunity for us to drive our top line a bit faster. Don't take the focus off margins—we don't take the focus off cash flow. The company has done a great job on that. But if you can continue to deliver the bottom line and grow a little bit faster, it's probably a benefit to everyone. So we've been focused on doing just that. We're taking actions across the board, including the restructuring of our executive committee to bring some external expertise in areas where we believe we can benefit and see some additional savings. We're setting up centers of excellence around things like digital marketing and e-commerce, commercial excellence—all in the pursuit of helping to not only grow the bottom line, but also grow our top line a bit more quickly. And then certainly incentive is important. So we did make a change to change the weight in terms of how we incent our teams. Profit is still the largest percentage of the pie; we have balanced it out a little bit to make sure that we have the appropriate focus on top line as well. So I'm really pleased with the progress we're making. I'm pleased that we were able to grow the way we did in Q1. And again, our goal over time is to be able to do that consistently.

Operator, Operator

Your next question comes from the line of Adam Baumgarten with Vertical Research Partners.

Adam Baumgarten, Analyst, Vertical Research Partners

On the margin piece, you talked about first half margins now being flattish year-over-year, which would still imply some margin pressure in Q2. Do you expect both segments to see margin pressure next quarter?

Richard Westenberg, Vice President and Chief Financial Officer

Adam, it's Rick. In terms of our margin expectations, you're right—our updated guide for the first half of the year is flat margins. Given the fact that we expanded margins in Q1, it does imply a margin contraction in Q2. I would remind you that Q2 of 2025 was a strong quarter and we weren't impacted by tariffs as significantly at that point in time. So it's a challenging year-over-year comparison. We do expect a solid quarter in Q2 from a margin perspective. I'm not going to comment on the segments per se, but overall we do expect some margin contraction, but we do expect to deliver a very strong quarter in Q2.

Adam Baumgarten, Analyst, Vertical Research Partners

Got it. And then you alluded to maybe some incremental price actions. Would that be in both segments? And would that happen if commodity costs stay where they are today or would you need to see more commodity inflation to then think about raising prices further?

Jonathon Nudi, President and CEO

Adam, I guess I would say we're not going to talk about prospective price actions. I would point to our history in terms of how we approach things. Pricing is the last resort for us. We start with negotiating with our suppliers, changing our footprint where possible, taking cost out of our own system. But if the need is there, our team has proven that they can take pricing very effectively and efficiently and do it in a way that benefits not only the bottom line but doesn't harm the top line as well. We'll continue to monitor things. The one surprise for us so far this year has been the impacts on petrochemicals and particularly on our architectural business. That's an area we have a lot of focus on. We're spending a lot of time with our suppliers to negotiate the best deals we can. And then ultimately, we'll work with our retail partners in terms of how we move forward. Just know that we've had good practice over the last few years given a dynamic environment and feel really confident the team can navigate as we move forward.

Operator, Operator

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

Philip Ng, Analyst, Jefferies

Congrats on a really impressive quarter. John, volumes for plumbing came in better than you expected. Is that a more resilient consumer, better price elasticity, or can you tease out if there is any share gains of note that drove some of that? Help us think through where plumbing surprised and how it was so resilient thus far.

Jonathon Nudi, President and CEO

Yes, Phil. We're really pleased with plumbing. It's global—we grew, which is great. Versus expectations, it was really North America that beat. The majority of that versus our expectation was volume. Our Delta team was firing on all cylinders. They've got a great marketing plan for the year and terrific new products. Our velocity continues to increase year-over-year. Our commercial plans with our key customers are incredibly strong as well. We grew high single digits in North America across each of the channels. That's tricky to do, and the team is hyper-focused on building strong plans at each of our customers. So we believe we took some share. At the same time, we executed pricing in a really effective way and we didn't see the elasticity we might have modeled out beforehand. That's a testament to strong execution. The high-end consumer seems to be hanging in there and we see strong margins in that segment as well. So we feel great about the performance and the plans we have for the rest of the year.

Philip Ng, Analyst, Jefferies

For Plumbing, you kept your guidance for up low single-digit top-line growth. It sounds like there is nothing of note in Q1 and volumes were up—could that be a source of upside? Or are you expecting volumes to decelerate in the back half, perhaps given the macro dynamics? Just help us think through puts and takes on demand.

Richard Westenberg, Vice President and Chief Financial Officer

As Jon mentioned and we talked before, Q1 was a really strong quarter. We're very pleased with our results and the consumer in terms of our businesses is holding in there. The uncertainty is something that we're continuing to track both on the macro and geopolitical side. The fundamentals of our business are strong. The only thing I would point to from a first-half versus second-half perspective is we started taking pricing from a tariff mitigation standpoint in the second half of 2025. So we'll lap that as we get to the middle of the year. As evidenced by our Q1 pricing of 6% in Q1, we won't see that type of year-over-year comp in the second half of the year. So that's part of the dynamic mechanically, but we still feel confident. We're hopeful there is upside relative to our expectations, but at this point we're guiding at low single-digit growth for the year.

Operator, Operator

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

Michael Rehaut, Analyst, JPMorgan

Wanted to shift the focus to decorative. Sales were flat, still better than what we were looking for and down low single digits in DIY. Hoping to get a sense of DIY versus Pro and the different drivers there and where things might be—if it's indeed the case, maybe coming a little stronger if you're seeing any momentum similar to what you've seen in plumbing. How would you contrast the sales momentum in plumbing versus decorative across DIY versus Pro on the paint side?

Jonathon Nudi, President and CEO

Mike, good question. Our sales for the quarter were flat, which was a better performance than what we saw in Q4 of 2025 and most of 2025. When you break it down, we saw Pro continue to grow mid-single digits. DIY was down low single digits, and we feel good about the plans we have in place. DIY is highly correlated with existing home sales, which remain pressured. So we're putting strong plans in place and focusing on the quality and value we provide. The pro side is where we continue to see a tremendous amount of opportunity. We have a relatively small share in that space and have grown share by about 200 basis points over the last few years. We're investing to take friction out of the experience for Pros—order online, pick up in store, online delivery to the job site. We continue to hire inside and outside sales reps to develop those pro relationships. We hope to see incremental progress as we move through the year. DIY is likely to remain pressured in the short term, but we feel good about our plans and the trajectory we're on.

Michael Rehaut, Analyst, JPMorgan

No, that's helpful. On the sustainability of the plumbing share gains: are we to think about the share gains in Q1 as sustainable? Are there parts of the market where this share gain dynamic can persist into 2027 and 2028? Any shifts within the market or competitors that lead you to believe share gains can persist medium-term?

Jonathon Nudi, President and CEO

We feel terrific about what our team delivered in Q1, particularly in North America. We don't take anything for granted—our competitors are strong. We're going to keep focusing on building brands, innovating and executing at a high level. If we do that, we believe share gains can persist. The big question mark is what happens with the end consumer. Since the conflict in the Middle East, there's another level of uncertainty. We're being prudent and watching how consumer behavior and inflation play out. To what we can control, I feel great about what our teams are doing and we have a clear line of sight into our plans for the rest of the year. I expect our performance to be strong relative to the category, but ultimately the category's performance amid macro uncertainty will matter.

Operator, Operator

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

Anthony Pettinari, Analyst, Citi

Just following up on plumbing. Can you give any additional color on the growth you saw in Watkins and the opportunity or the TAM there? I think you flagged Delta and Watkins as your strongest growers. Is Watkins growing similar to Delta or growing faster off a lower base? Is there any product set or brand within Watkins that's really driving the strength?

Jonathon Nudi, President and CEO

Anthony, we feel great about Watkins and the opportunity. Watkins did grow in Q1. We'll get into more detail at Investor Day next month in New York City where we'll walk through TAM and the opportunities. What I can tell you is hot tubs are the biggest business and we are the share leader in that space across North America. Where we're seeing outsized growth is in hot tub accessories and wellness products, which have very low penetration and are front and center of the wellness movement. We're seeing a lot of demand for that product and grew nicely in Q1. We'll provide more detail next month.

Anthony Pettinari, Analyst, Citi

Given the rise in diesel and gas prices, have you historically seen sensitivity between gasoline prices and consumer spending for your products? Specifically DIY paint and some smaller-ticket items—has gasoline been a meaningful driver historically?

Richard Westenberg, Vice President and Chief Financial Officer

Anthony, it's Rick. It's tough to single out gasoline as a particular driver. We generally watch consumer sentiment and overall health of the economy. Higher oil prices are generally a headwind to consumer confidence and disposable income and a headwind in terms of input costs. Those are things we're monitoring closely and why we're prudent with our expectations. Our products tend to be lower-ticket R&R items, so they tend to be more resilient, but we're not immune. We'll continue to monitor and track progress through the year.

Operator, Operator

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

Susan Maklari, Analyst, Goldman Sachs

I want to talk about the longer-term growth path. With the changes in leadership that you announced this week, do you now have the heads of those four key businesses reporting directly to you, Jon? Can you talk about what that means in terms of your ability to drive growth over time? How is the executive committee focused on some of these items and what will that mean for Masco?

Jonathon Nudi, President and CEO

Great question. As I mentioned, when I joined Masco I heard top-line growth was an opportunity and that we could be more agile. With the executive committee changes, we want the right experts in deep functional areas and centers of excellence—procurement, supply chain, digital marketing, e-commerce and commercial excellence. We announced bringing in a Chief Procurement Officer with decades of experience to modernize capabilities. We've removed a layer and are streamlining the organization to increase speed and agility. We meet weekly as an executive committee and I talk to direct reports frequently. The new structure is intended to help us read and respond faster and deliver to customers and consumers what they expect from us.

Susan Maklari, Analyst, Goldman Sachs

Despite the moving parts around inventories and costs, you're still targeting to get working capital down to about 16.5% of sales this year. Can you walk through the pieces in there and how we should think about that coming together?

Richard Westenberg, Vice President and Chief Financial Officer

Sure, Sue. Part of the reason working capital is higher than typical this time of year is because of the implications of tariffs. The tariff costs and commodity costs that lead into our inventory and receivables have elevated our working capital. Shorter payment terms on tariff bills also reduces payables. We'll see that normalize as we get into the second half of the year. The team is very focused on managing cost and working capital. Once we get through the normalization of the tariff implications in the second half, we should be able to execute toward working capital more in line with our historical average, and we've guided toward 16.5%.

Operator, Operator

And your last question comes from Rafe Jadrosich with Bank of America.

Rafe Jadrosich, Analyst, Bank of America

The outperformance in plumbing volume in the first quarter in North America, how much would you attribute to broader consumer resilience versus your market share outperforming what you were expecting going into the quarter?

Jonathon Nudi, President and CEO

I'm not going to quantify it precisely, but I would say it's a bit of both. The category performed fairly well, and I'm very confident we also took market share. If I had to say which was the bigger driver, I'd lean to our market share gains given the strength of our execution.

Rafe Jadrosich, Analyst, Bank of America

Great. That's helpful. In terms of the input cost inflation you're expecting, can you talk about what the copper price is embedded in guidance for the second half of the year, or should we assume copper prices stay where they are today? What are you assuming to get to the full year guidance?

Richard Westenberg, Vice President and Chief Financial Officer

Rafe, we're not going to disclose a specific copper assumption. Suffice it to say that where we closed out 2025 is a reasonable place to be referenced. Obviously it's volatile. Sitting at $6 or above per pound is a headwind to us, but it's volatile. At the end of the day, we're monitoring the situation and proactively taking actions from a cost reduction standpoint, sourcing and efficiency standpoint and, as necessary, pricing to mitigate those impacts—whether they are copper, oil inputs, tariffs, et cetera—to be able to deliver the results that we've guided to for the year.

Operator, Operator

This concludes the question-and-answer session. I will now turn the call back to Robin Zondervan for closing remarks.

Robin Zondervan, Vice President, Investor Relations and FP&A

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.

Operator, Operator

This concludes today's conference call. Thank you all for joining. You may now disconnect.