Earnings Call: Q1 2021

Apr 28, 2021

Good morning, ladies and gentlemen. Welcome to Masco Corporation First Quarter 2020 Conference Call. My name is Michelle and I will be your operator for today's call. As a reminder, today's conference is being recorded for replay purposes. I will now turn the call over to David Chaika, Vice President, Treasurer of Investor Relations, you may begin. Thank you, Michelle, and good morning. Welcome to Masco With me today are Keith Allman, President and CEO of Masco and John Snuevais, Masco's Vice President and Chief Our first quarter earnings release and the presentation slides we will refer to today 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 you can take your question now, please call me directly at Our statements today will include our views about our future performance, which constitute forward looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward looking statements. We've described these risks and uncertainties in our risk factors. We have disclosed disclosures in our Form 10 ks 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'll now turn the call over to Keith. Thank you, Dave. Good morning, everyone, and thank you for joining us today. I hope everyone is staying safe and healthy. While we are well over a year into this pandemic, the effects are still being felt. We are encouraged by the rollout of vaccines, But many areas around the globe continue to experience a surge in cases. The safety of our employees remains our number one priority. And I would like to thank all our employees for keeping each other safe and for serving our customers. Through the efforts of our employees and the robust demand we continue to experience for our products, we delivered another outstanding quarter. Please turn to Slide 5. We had a strong start to 2021 and our ability to effectively navigate this Excluding acquisitions and currency, sales increased 19%. Operating profit increased 61 percent to $366,000,000 principally due to strong volume leverage and reduced spending in the form of lower travel, Entertainment and marketing expenses across our segments. Earnings per share increased an outstanding 89%. Turning to our Plumbing segment, sales grew 27%, excluding currency, driven by strong volume growth at Hansgrohe, Delta and Watkins. Our 2 recent plumbing acquisitions performed well in the quarter and contributed 5% to Plumbing's growth. North American Plumbing grew 28%, led by our wellness business, which continue to experience strong demand and begin to comp their March shutdown of 2020. Delta Faucette delivered another quarter of double digit growth with strength across all channels, particularly e commerce, which showed exceptional strength as consumers continued to shift their buying patterns to online. International Plumbing grew 37% in the quarter as many of our markets returned to strong growth with particular strength in Central Europe in China. In our Decorative Architectural segment, sales grew 15% against a healthy 9% comp from Q1 of Acquisitions contributed 2% to our decorative growth. Our lighting, Bath and Cabinet Hardware and Paint businesses each posted double digit growth during the quarter. DIY paint grew high teens in the quarter, which is impressive considering it was facing a strong double digit comp in Q1 of 2020. While propane was down low single digits for the quarter As it faced a tough comp in Q1 of 2020, we did see a return to positive growth in the back half of the quarter, and we're encouraged Purchases during the quarter by repurchasing 5,500,000 shares for $303,000,000 We anticipate deploying approximately $800,000,000 towards share repurchases or acquisitions for the full year as we guided on our Q4 call. In addition, we anticipate receiving approximately $160,000,000 for our preferred stock in cabinet works, resulting from their recently announced transaction, assuming it closes as expected. We intend to deploy these funds towards share repurchases or acquisitions, which would be in addition to the $800,000,000 that I just mentioned. Now let me discuss 2 issues that are top of mind right now, inflation and supply chain tightness. We have seen significant inflation in raw materials, namely copper, zinc and resin used in both to be up in the mid single digit range for the full year for both our Plumbing and Decorative segments, with inflation likely reaching high single digit levels in both segments in the 3rd and 4th quarters. To mitigate these impacts, we have secured price increases across both segments To begin offsetting these costs, we have further actions planned, including additional price increases and productivity While continuing to work with our customers and suppliers to offset these rising costs. Time and again, we have demonstrated that our strong brands, innovation pipelines and channel relationships gives us the ability to offset rising costs. We expect to continue this track record and achieve price cost neutrality by year end. And we are maintaining our full year margin expectations in both segments that we provided on our 4th quarter call. With respect to supply chain tightness, in addition to the strain caused by robust demand, We have been impacted by significant disruption in the supply of resins and products in both our plumbing and paint businesses due to the severe weather that Texas experience in February. Additionally, ocean container availability and timeliness continues to be constrained. This has temporarily reduced output of certain spot products during the month of April and limited our ability to build certain to build inventory of certain architectural coatings and other products. However, the availability of resins is improving And our teams have done an outstanding job utilizing Masco's size, scale and agility to countermeasure these issues By working with our key suppliers to increase availability of certain materials, by leveraging our purchasing power to increase container availability for our products and by working around the clock to adjust production to meet the needs of our customers. This once again shows the competitive advantage that From being part of Masco's portfolio. With our strong performance, the actions we have taken And we'll take to offset persistent inflation. The interest savings from our recent bond transaction and the continued strong demand for our products And innovative and products brands products and brands, excuse me. We are increasing our full year expectations of earnings per share to be in the range of $3.50 to 3.70 from our previous expectations of $3.25 to $3.45 With that, I'll now turn it over to John for additional detail on our Q1 results. John? Thank you, Keith, and good morning, everyone. As Dave mentioned, most of my comments will focus on adjusted performance, excluding the impact of rationalization and other one time items. Turning to Slide 7, we delivered a very strong start to the year as first quarter sales increased 25%. Currency increased sales by 2% in the quarter and the 3 recently completed acquisitions contributed an additional 4% to growth. In local currency, North American sales increased 21% or 17% excluding acquisitions. This outstanding performance was driven by strong volume growth in North American faucets, showers and spas, as well as DIY paint. In local currency, international sales increased 27% or 23% excluding acquisitions. Gross margin was 35.6 percent in the quarter, up 80 basis points as we leveraged the increased volume. Our SG and A as a percentage of sales improved 3.40 basis points to 17% in the quarter. This was primarily due to operating leverage, decreases in certain costs such as travel and entertainment and trade shows and the deferral of certain marketing and other spend. We expect SG and A as a percent of sales to increase Service and Innovation to Fuel Future Growth. We delivered outstanding 1st quarter operating profit of $66,000,000 up $138,000,000 or 61% from last year, with operating margins expanding 4.20 basis to 18.6 percent. Our EPS was $0.89 in the quarter, an increase of 89% compared to the Q1 of 2020. Turning to Slide 8, plumbing grew 31% in the quarter. Currency contributed 4% to this growth and acquisitions contributed another 5%. North American sales increased 27% in local currency or 22% excluding acquisitions. This was led by Delta's double digit growth in the quarter as they continue to drive strong consumer demand across all their product categories and channels. Watkins, our wellness business, was also a significant contributor to growth in the quarter as both demand and our backlog remains strong. Watkins performance also benefited from a softer comp in the Q1 of last year as government mandated COVID lockdowns resulted in 2 of their manufacturing plants being temporarily shut in 2020. International Plumbing sales increased 27% in local currency or 23% excluding acquisitions. Hansgrohe delivered year over year increases across most of their markets with continued double digit growth in both Germany and China. Demand remains strong in Central Europe despite continued COVID restrictions, and we are starting to see improvement in the UK. Operating profit was $253,000,000 in the quarter, up $94,000,000 or 59% With operating margins expanding 370 basis points to 20.3%. This Performance was driven by incremental volume, cost productivity initiatives and lower spend on items such as travel and entertainment, trade shows and Marketing. This favorability was partially offset by an unfavorable price cost relationship. We expect raw material inflation in this segment to peak in the 3rd quarter. During the quarter, we entered into an agreement to divest Our Hooper business, a small shower enclosure business based in Germany, as we determined it did not align with our strategic direction. Coupa sales were approximately €70,000,000 in 2020. Net proceeds will not be material. Given our Q1 results and the current demand trends, we now expect Plumbing segment sales growth for 2021 to be in the 15% to 18% range with 10% to 13% organic growth, another 3% net growth from the recent acquisitions and then divestiture of Hoopah. And given current exchange rates, we anticipate foreign currency to favorably benefit revenue by approximately 2% or $70,000,000 We continue to anticipate full year margins will be approximately 18%. Turning to Slide 9, Decorative Architectural grew 15% for the 1st quarter 13% excluding acquisitions. This exceptional performance was driven by low teens growth in our paint business. Our DIY paint business grew high teens against a strong double digit comp in the Q1 of 2020. Our pro business also faces strong comp and declined low single digits in the quarter. Despite this decline in our propane business, delivered positive year over year pro growth in the back half of the first quarter and anticipate high single digit growth for the pro paint business for the full year As consumers continue to become more comfortable with paint contractors in their homes. Our Builders Hardware and Lighting businesses each delivered double digit growth as their new products and programs capitalized on increased consumer demand. Operating profit in the quarter was $142,000,000 up $46,000,000 or 48%. This outstanding performance was driven by incremental volume, cost productivity initiatives and lower spend, partially offset by an unfavorable price cost relationship. For 2021, we are raising our outlook and now expect Architectural segment sales growth will be in the range of 4% to 9%, with 3% to 7% organic growth Another 1.5% from acquisitions. We continue to expect segment operating margins of approximately 19%. Turning to Slide 10. Our balance sheet remains strong with net debt to EBITDA at 1.3 times and We ended the quarter with approximately $1,800,000,000 of balance sheet liquidity, which includes full availability of our $1,000,000,000 revolver. Working capital as a percent of sales, including our recent acquisitions was 17.5%. During the Q1, we continued our focus on shareholder value creation by deploying approximately $103,000,000 to repurchase 5,500,000 shares. In mid February, we completed a significant bond refinancing. In this transaction, we called our 2022, our 2025 and our 2026 debt maturities, which aggregated $1,300,000,000 refinancings with a combination of new 7 year, 10 year and 30 year notes totaling $1,500,000,000 This refinancing accomplished 2 things. 1st, It lowered our interest expense. And secondly, it extended the duration of our maturities. From an interest perspective, the net effect is at $35,000,000 annualized interest savings. Due to the timing of this transaction, Interest expense will be approximately $110,000,000 compared to our previous guidance of $135,000,000 for 2021 It will be approximately $100,000,000 in 2022. From a maturity perspective, this transaction also means we've taken out all our near And our next debt maturity is not until 2027. And two reminders for everyone. First, We will be terminating and annuitizing our U. S. Defined benefit plans in the 2nd quarter, and we will have an approximate 140,000,000 Final cash contribution to these plans to complete this activity. And second, our Board previously announced its intention to increase our annual dividend by 68% to $0.94 per share starting in the Q2 of 2021. This will increase our targeted dividend payout ratio from 20% to 30%. We have summarized our updated expectations for 2021 on Slide 13 in our earnings deck. Based on Q1 performance, the current robust demand for our products, now anticipate overall sales growth of 10% to 14%, up from 7% to 11% with operating margins of approximately 17%. Lastly, as Keith mentioned earlier, our updated 2021 EPS estimate of $3.50 to $3.70 represents 15% EPS growth at the midpoint of the range. This assumes a 254,000,000 average diluted share count for the year. Additional modeling assumptions for 2021 can be found on Slide 14 of our earnings deck. With that, I'll turn the call back over to Keith. Thank you, John. Our markets remain strong and housing fundamentals are supportive of continued long term growth. Year over year home price appreciation increased to over 17% in March and existing home sales were up over 12%. Both of these metrics have a strong correlation with our sales on a lag basis. Furthermore, The U. S. Consumer is healthy with estimated built up savings of nearly $2,000,000,000,000 even before the new stimulus money and consumers continue to invest in their homes. We believe these factors along with the increased demand from the large millennial demographic will lead to continued growth in the repair and remodel markets. With our market leading brands, history of innovation and strong management teams, we are well positioned to capitalize on these growth drivers, serve our customers And deliver value to the shareholders. With that, I'll now open up the call for questions. Operator? The first question will come from Matthew Bouley from Barclays. Your line is open. Good morning. Thanks for taking the questions. I wanted to start out on the full year margin guide, Which is unchanged at 17%. With that, I guess, Q1 margins, did Come in better than planned or was it in line? I'm trying to understand if you tempered expectations for the balance of the year reflecting all that Cost inflation, you mentioned, I heard you say peak cost headwind, I guess for Plumbing in Q3 specifically. I'm just trying to understand how the cadence 2Q to 4Q may have changed versus your prior expectations. Thank you. Yes, Matthew Gaye, good morning. It's John. I think there's a couple of things That we experienced through the year. So as you expect the Q1 probably came a little bit better than we initially expected. But as we look out to the back half of the year And think about margins, I guess you think about 2 things. 1, I do think because we raised our top line guidance, We now are anticipating a little bit better volume than we anticipated. At the same time, what we are seeing is a little bit more And then so, what I think the 2 kind of offset each other and that's what's causing us to maintain our margin guidance at 17% as we Called out on our Q4 call. Okay. Thank you for that, John. And second one on Listing to your point, the organic growth guidance for the year, I guess it's a Similar question was how much of that was driven by Q1 itself. But more broadly, you guys have talked about North American R and R, for example, up low single digits this year. You talked about tougher comps in the second half. And my question is, as we do get further into the year, late April now, is it becoming clear that the Log of home improvement activity and what consumers are doing may not exactly shift overnight and maybe that Tough comps in the second half you guys had previously spoken to might have a little bit better outlook, just similar kind of question there on the organic side. Thank you. Matthew, there's a couple of things going on. One is the real strong continued strong demand that we've seen in Q1. So the Q1 demand is certainly a factor. When we look at how we exited the quarter and how things are starting this quarter, we continue to see a Strong demand, a little bit more than what we had initially planned. So nothing's going to move those tough They're still there and we have to face them. But when we look at how demand is shaping up both In the quarter and then what we expect going forward and the fundamentals, that really was the rationale for us lifting our guide on the revenue side. And your next question will come from Stephen King from Evercore. Your line is open. Yeah. Thanks very much guys. Strong results. Just following up on Matt's question about the margin. I just want to throw in that you also had the refinancing of the debt, Probably had about $0.09 for the full year. Just wanted to get an idea whether that had previously been contemplated in your guide. And then if I heard your answer, John, it sounds like it's higher inputs, which is totally understandable. But you had said, I think that you're expecting neutrality on input costs by year end, which I think is pretty much what you thought before. So just to get a sense for the arc of margins through the quarter relative to your previous expectations, are we looking at kind of maybe lower margins in 2Q and 3Q than you had previously thought, but then higher in 4Q as you get the neutrality back. And then of course you did better in 1Q as well. Is that the kind of the way we should Thinking about the trajectory of margins relative to your previous expectation? Yes. So a couple of questions there, Steve. Let me try to address those. So first of all, with respect to the interest savings, I think for this year, given the timing of that transaction, it's probably about a $0.05 to $0.06 benefit in 2021. Now that said, you may have heard in Keith's remarks, we talked about Receiving some proceeds from the sale of cabinet works that also then contemplates We need to update our guidance to reflect the fact that we will not be getting interest income from that investment. So I think the net benefit there is call it $0.02 to $0.03 So, well, I just want to make sure we're clear on that. So as you think about our Great. It's both the Q1 B plus the net impact of interest for the year. Now with respect to your second part of your question about price cost neutrality, yes, you're correct. What What we're committing to is exiting the year being price cost neutral. In terms of how that plays out through the course of the year, We're having pricing conversations with our customers and so can't really give you a good clear signal as to when those are all going to Flow through and hit the P and L. So I don't want to I'm not going to give we're not going to give clear guidance on Q2, Q3 or Q4 exactly how that flows through because those The second question just relates to the massive In plumbing sales, it sounds like it was very broad based. It certainly came as a welcome surprise to us and it came as a bit of a I just want to make sure that that's correct. Does that mean that things really intensified in February March? If you could just provide a little bit of color as you sort of look at it, it sounds like strength is continuing here in April. Exactly what would you attribute that to because I'm inclined to think that it's probably going to persist. So if you could just provide a little bit more context That would be great. Yes. Good morning, Stephen. This is Keith. We are seeing demand stronger than we expected in the quarter. And we're also feeling better about the back half of the year. And when you look across The Plumbing segment, we have strong North American growth as we talked about and that really is across all channels. We continue to do very well in retail. Obviously, the DIY component is strong. Our trade plumbing business continues to be strong We believe we're maintaining our leadership and growing quite nicely in e commerce. So strong across the board growth in North America. And then we're seeing a nice recovery in Europe, as we talked about, particularly in Central Europe. The UK is starting to get better And China is really performing nicely. So it's been very broad based and it gives us Confidence both now as we look at what we're seeing in the quarter, but also into the second half. And your next question will come from John Lovallo from Bank of America. Your line is open. Good morning, guys, and thank you for taking my questions. The first one is, I think that you had previously outlined about $40,000,000 of delayed investments That kind of accumulated during COVID. I'm curious what is sort of the cadence that you're expecting of this spend coming back in and if in fact This is contemplated to do that 18% SG and A that you're expecting for the remainder of the year? Yes, John, that $40,000,000 still contemplated in More back half loaded. And again, it's all going to depend on the rate of that investment will depend on what we're seeing out in the market, if all of a sudden the market start to contract, we'll temper that investment to ensure that it aligns with the growth that we expect Understood. Okay. And then maybe just on the raw mats freight headwind, You guys talked about mid single digit range for the full year and high single digits in 3Q, 4Q. Can you just help kind of parse out the difference between the Freight inflation versus Dashboard raw mat inflation? So Yes, maybe I'll start, John, and you can get into some Specifics, in terms of while we don't normally see this kind of significant commodity changes Occurring this quickly, we certainly are no strangers to commodity changes and this is really part of our business and we've consistently Communicated, John, and more importantly, I think demonstrated our ability to reach price and cost neutrality through cycles. And this is included garden variety sort of changes in costs related to the relationship between supply So our price and cost neutrality capability is really underpinned by this consistent investment that we've had in our brands and innovation and Customer programs and the like, as well as our well developed ability to drive total cost productivity and to ultimately deliver value to our customers and consumers that They recognize. So we're going to continue with this commitment and we will reach price cost neutrality as we exit this year. Now in terms of specifics, John, maybe you want to hit a little bit on some of the commodities and relative spikes that we're seeing. Yes, sure. So John, as you've referenced, we're seeing both Inflation in our raw material baskets, really across the enterprise as well as transportation and logistics. And If you think about how we're being impacted, obviously copper, zinc in the resins that go into Hey, Jean. Had been up pretty significantly. To get to your question specifically, as you break apart The impacts on the financial statements from either raw materials or transportation and logistics, the vast majority of the impact comes from the raw material basket. If you think about distribution and logistics, it's a relatively small part of our overall cost structure. That said, I guess I repeat your statement. We do continue to expect inflation to be up kind of mid single digits for the full year in Both segments are up high single digits in the second half of the year. And as Keith alluded to, we've secured price increases across our product categories. We do have plans for further price increases to offset the persistent inflation that we've been experiencing. That said, we're not going to shy away. We're Continue to implement cost productivity improvements across the enterprise as well and then work with both our customers and suppliers to continue to try to offset this inflation. So as we said earlier in response to Steven's question, we do expect the price cost neutral as we exit 2021. Okay. Thank you, guys. Your next question will come from Michael Rehaut from JPMorgan. Your line is open. Thanks. Good morning, everyone. Thanks for taking my question. I just wanted to make sure we're thinking about the And I'm sorry to beat a dead horse here, but I think it's top of mind with investors. And just trying to appreciate the timing differences around price And make sure we're thinking about it right. Are you basically saying because earlier you said, okay, the Higher volume on the margin side, you have higher volumes that are offset by higher inflation. Are we to take that as kind of net inflation, net of Your incrementally expected cost increases I'm sorry, price increases. In other words, It seems like in a perfect world, if you had higher inflation, but you're putting through price increases to offset that, That should be a wash. So are we to take this that there's this continued lag in Price cost that you're still maybe chasing is the wrong word. And then potentially The extent that you get a fuller benefit of the price increases in 2022 that in and of itself The extent that the inflation backdrop remains stable, that could actually turn into an incremental tailwind as you Fully catch up to the inflation, is that a right way to think about it? Yes, Mike, I think you're thinking about it the right way. All right, perfect. And then just more on the overall top line environment. If you could kind of go into a little bit around point of sale and inventory levels. What we've Heard so far is that from competitors or just broadly in the industry that the demand backdrop has been So robust or continue to be so robust that the inventory levels have remained constrained. Has that been the case for your businesses in the Q1 that you haven't been able to restock at any And is this something that you would expect to perhaps happen in the coming quarters To the extent that you're able to increase continue to increase production? Yes, Michael, the POS is strong and it's as I mentioned, it's strong through the quarter and exiting the quarter and we feel real good And that's across really most, if not all of our categories. With regards to the inventory position, The supply chain has been tight. There's no question about it. We've had disruptions and hats off frankly To our operation team and teams really across the world to be able to leverage our strengths and also our relationship And to work around the clock to move production around and to match production to specific demand and those things. So they've done a phenomenal job. Having said that, We're still working through some tightness and I would say probably and think about it from a Q3 sort of perspective that we will catch up and then start to replenish The inventories because our inventories in the channel aren't where we'd like them to be. So yes, I think upside to some inventory fill in the back half is the right way to think about it. Thanks. Thank you. Your next question will come from Ken Zener from KeyBanc. Your line is open. Good morning, everybody. Good morning, Ken. Good morning, Ken. I wonder if we could talk about demand a little bit In the plumbing business, relative to what you're seeing at retail versus the wholesale versus the new If you could kind of parse that out, trying to think about DIY Plumbing as opposed to and this is for the U. S. Please. Trying to think about DIY Plumbing Price points as opposed to the pro, which I think will benefit more is people are able Professionals able to get in the house and do larger renovation projects. When you think about Teasing out the market in terms of DIY and Pro are 2 segments. It's hardest to do in Plumbing because The channels and the fact that Plumbing Wholesale does have some DIY component to it and that we just It's not possible to get that kind of accurate data in terms of that. But we do know that we have a strong mix of DIY, Excuse me, of call it retail and wholesale and plumbing. Over half our business is in wholesale and wholesale certainly skews More towards the pro than DIY. So, but about the mix of that business in terms of being there to Catch improvements in demand be that on the PRO side or on the DIY side. We all know about the strength of DIY and we expect the PRO to start to come back as people are more comfortable Having PROs in their homes as vaccinations roll out. Specifically to your question of demand, it really has been broad based across all channels, Real good strength in e commerce and continued strength in both plumbing wholesale as well as the retail where we lead in So that's been really good for us. And international is a nice story. International, we talked about the strong growth rate there, Our position in Central Europe, China is doing very well understanding that there was a relatively easy comp there, but all in, It's been pretty broad based and that all feeds into why we've raised our confidence level in our guide. Right. Yes, which is nice. And it's to me, you guys mentioned home prices, which is really homeowner's Equity, it seems as though your sales are tracking with the very high rate of appreciation of homes. Real strong correlation between home price and existing home sales, no question about it. Right. And it seems to me that Could you maybe give us a little context, Keith, for demand is high because prices are up, assuming your guidance holds, which is that you'll be neutral by the end of the year. It certainly seems as some of these input costs related to the Texas storm Might be abating next year, yet prices are high and we all know there's a lag on demand from prices. What happens usually when When this type of context sets up, because it seems like it could be bullish for you, you're not asking for FY 'twenty two. If you're able to pass through the cost, Do you usually give back costs? Otherwise, it seems a higher volume will perhaps lead to a margin adjustment as we look down the road higher. When you look longer term through cycles of commodity increases and commodity decreases, and it varies depending on the nature of the cost. And we have inventory that needs to flow through before we get any sort of price change up or down to hit the P and L. But fundamentally, we've maintained and demonstrated neutrality as it relates to fluctuations in raw material cost inputs and that neutrality comes from real solid total cost productivity Improvements, it comes from us really watching our spend very closely and of course price is part of that. Now in terms of the impact Of how this could play out in future quarters or into next year, it's a real volatile environment. What we're focused on is delivering on what we say we're going to deliver on and ensuring that we continue to drive on the exit of next year this year rather to price cost neutrality and that's what we're committing to. Ken, one thing I would point out is I'd say over time that we're probably slightly price favorable in plumbing, Just because Hansgrohe does a good job of going out annually with price increases. Thank you. Your next question will come from Keith Hughes from Truist. Your line is open. Thank you. Questions on propane, I know it was weak in the quarter. If you could talk about what you think was going on and what's caused something in the quarter Acceleration in that business and any kind of April view on that would be helpful as well. Yes. So Keith, sorry about that. It's John. So yes, you're right. Propane was a little bit weak in the 1st part of the quarter. We did talk about the difficult comp it faced, the fact that we saw some positive growth in the back half of the quarter. I'm getting a little feedback. So we do believe there's kind of a little demand and the fact people are getting more comfortable with pro contracts. We do think there was probably a little bit of a weather impact as well in the quarter. As the That storm moved through Texas and much of the country in mid February. And so as soon as we saw that pass, we started to see better growth in that business. And So as we look at to the full in the back half of the year, we do continue to believe that we should see high single digit growth as consumers are really getting more and more comfortable having And then final question, you talked a lot about Cost, if we look at price cost, you're talking about your cost peaking in the 3rd quarter. If we look at price cost, when do you think that negative will As you head towards parity in the years of Q2, Q3, Q4, any view would help? Yes. My guess, Keith, and again, it all depends on some of Pricing conversations that we have probably peaks in the Q3 and we'll continue to update that on our subsequent Calls. Okay. Thank you. And your next question will come from Phil Ng from Jefferies. Your line is open. Hey, good morning, everyone. Congrats on a very strong quarter. Given the supply chain dynamics you called out, great to see that it really didn't impact you much at all from a revenue perspective in 1Q, but Will that have more of an impact in the Q2 as you kind of work down to that inventory you have? I'm particularly curious on any of your exposure where you're importing product from Asia And any of the impact that you may be seeing on shortages from resin? Putting comps aside and just talking about output and Disruptions in terms of what we expect. We think it's getting better. It really feels like it's getting better. We're not Through it all yet in terms of the hard work that we need to do in terms of matching inventory to demand, matching production to demand and those sorts of things. Still a little bit of tightness and timeliness in containers as we talked about, but it's getting better. Okay, that's great. And then from a pricing standpoint, we all have an appreciation with the pricing power you have in your core plumbing and paint business. But curious if you're seeing price traction for your Kitchener product and if your competitors have matched, just because In 2018, there was a little more challenge on that front. And do you anticipate price cost neutrality as well as you kind of exit 2021 in Yes, we're driving that and that's something that we believe in across the board at Masco and yes, that would be true of Kichler as This is doing well. The team is we committed to working that business and Positioning it to return to growth to 'twenty one. We're ahead of that plan. The team is doing well. We're seeing Good continued solid demand and our new products are doing well. The structural cost alignments that we've talked about in past calls Are bearing fruit and the team is doing a nice job. Okay, super. That's really helpful. And your next question will come from Susan Maklari from Goldman Sachs. Your line is open. Thank you. Good morning. My first question is, you highlighted the strength that you saw in your e commerce channels in Plumbing in the quarter. Can you give us a little more Color on what exactly you're seeing there and how you're positioned there and anything that you're taking to kind of increase your exposure to that channel and kind of drive those sales going forward? Sure. We expect to continue to grow. Obviously, as consumers Become more comfortable with online purchases in our space and we also continue to expect rather to continue to gain share. We believe that we're the leader in plumbing and ecom market and we've worked on a number of things to Build and maintain that leadership's product offering obviously is 1. We have put our best and brightest talent We are working very hard across our business unit to leverage learnings quickly, to leverage platform like product data management and IT space, To leverage the sharing of ratings and reviews to really understand what it takes to be on that first page and to get that second and third We're working hard to understand how to drive digital content and 3 60 degree spends. We're doing a ton of stuff there. And also capital, we made an acquisition of 1 of the leading digitally native brands in Krausz. And Krausz is a company that makes, I would say, more modern design sinks and faucets and the like. And we're learning a lot from them and we're helping them be all they can be as well. So a combination of capital deployment, Talent, products, IT, leverage, etcetera. This is important for us and it's paying off and we've been working at this hard now for 5 years. Okay. That's helpful color. My next question is, when we think about the business, you're obviously operating at margins that Ahead of those targets that you gave us at the Investor Day, can you talk to just the longer term sustainability of some of these trends that you're seeing and how you think about the longer term Margin of the business? Yes. We're really not changing our margin outlook for the long term. There's a lot of Variability in these dynamic times, we think that our normal SG and A spend of around 18% to 19% is where this business Margin outlook at this point, but certainly we have demonstrated and will continue to demonstrate solid drop down on our incremental volume. Yes, Susan, and I would remind you that our the information that we gave out on our 2019 Investor Day, It had a lot of very different assumptions related to it. It was a very different environment. We assumed much lower growth For the period, so it was I would not consider those as our current guide for the long term of the business. Okay. I'm sorry if I missed that too. I was talking about our margin guidance here. Yes. I think the way we think about it now, Susan, Again, we articulated this on our Q4 call is that continue to challenge our businesses to grow above market And continue to have our businesses expand margin every year. And again, it's not hundreds of basis points of margin expansion, but rather tens of basis points of margin expansion. Yes. Okay. John, thank you. That's helpful. Good luck. And your next question will come from Truman Patterson from Wolfe Research, your line is open. Hi, good morning, everyone, and thanks for taking my questions. First, I just wanted to dig in on the decorative architectural side, especially the DIY demand. Could Could you give an April update? Are you seeing any deceleration or pretty much in line with what you'd expect seasonally? And if I'm kind of parsing out the Seeing out the guidance, it looks like you all are expecting DIY to be down the remainder of the year. But the commentary on the call so far has been, I'll just put it pretty optimistic, just trying to understand Some of the moving parts there and whether or not there is maybe a little bit of conservatism built in? Well, the DIY demand continues to be strong. Obviously, we've got tough comps coming up in the back half of the year. But in terms of the demand, the actual demand that we're seeing, it continues to be strong. There's no question about Certainly, the pandemic has increased the interest in people's homes and we don't view The vaccine of the rollout is being a necessarily a switch that is flipped as it relates from the work from home The work from home environment or the amount of time that people are spending in their homes. And clearly, the millennial Demographic and cohort has shown interest as we look at first time DIYers and we look at That cohort and we expect that to continue. So yes, we have some tough comps coming up, no question about it, but the demand remains strong. Okay. Thanks for that. And then also in the spa business, I believe you all It was growing double digits, so nice improvement there. But can you just discuss how the backlog, the order back Paul is looking and you all have mentioned supply chain constraints throughout Mexico. Can you just give us a time When you somewhat expect that to be operating close or at full capacity? Yes. We're getting better and we were starting to approach that capacity, that full capacity, if you will, as we were bringing in our labor force to a greater degree and getting more output from that. But then we had these issues around resin and there's tightness there and We've missed some production and some selected units that require certain type of blended resins. But the demand there continues to be extremely robust and we have a very Solid backlog, that has not changed. And as we get through this short term blip here from the polar vortex in Texas and the resin tightness, This business will start to quickly approach stated production. All right. Thank you all and good luck on the Quarter. Thank you. Your next question will come from Steven Ramsey from Thompson Research. Your line is open. Hi, good morning. One quick follow-up on the spa business. In the full year guide, do you have spas operating at full production and generating full margins for the year? We're expecting strong double digit growth for Watkins in 2021. Okay, great. And then thinking about price cost And getting to neutral, I guess, are surcharges a part of that? Is that being contemplated for pricing such as resins? And then for price cost by product, do you expect to be price cost neutral on all products? So we have a number The levers that we can and do pull to drive cost improvements and price cost neutrality. We've used surcharges in the past and we're Certainly contemplating and using some of those here as we sit today. In terms of saying that every product will The price cost neutral, there's just such variability in cost inputs depending on the type of specific product that I won't say that, but when you look across Our business, we will exit this year in pricecost neutrality. Excellent. Thank you. And your next question will come from Eric Wachsnerich from Cleveland Research. Your line is open. Good morning. Good morning. Two things. First of all, can you give us a little bit more insight? The deferred marketing spend, I think $40,000,000 you've talked about, what is that made up of? And also curious related to that or maybe a part of that is promotional investment on your part and what you're seeing go on this year, what You're doing across your business, so the retailers are asking for in regards to promotional activity? Yes, Erez, it's a big basket of things that go into marketing. So things like trade shows that we obviously would have been pulled back and some of them are now beginning To come back online as people get vaccinated, some of it is advertising, some of it is personnel, Some of it is investment in e commerce that Keith referenced in response to an earlier question. So there's a variety of And there's also some growth initiatives to your point, there's some promotional activity that goes into that bucket as well. So it's A big basket of things that go across the entire segment. Okay. And then just a follow-up, your clarity on the propane path from here was helpful. On DIY, I appreciate that The business is continuing to be very strong and which is great to hear. But in terms of the growth of the DIY business, now that you're running against these tough Comparisons, what should we be expecting in terms of the growth out of that business as we move forward? Probably think of it in that flattish range to last year. Your final question for the day will be Mike Dahl, Altais and Mark of Capital Markets. Your line is open. Hi, thanks for squeezing me in. One more question on price productivity. I appreciate the sensitivity around the pricing side, but anything around just Qualitatively at a high level, when you think about covering the costs, how much is price versus productivity? Is it a pretty even balance? Is it skewed more towards Price, just any color there? And the second part would be, you've already talked about some of the ways you've continued to generate Cost productivity, but some costs are also returns. So just You've mentioned the levers that are left. Could you elaborate a little bit more on You've obviously done a great job on productivity. Just where is the incremental productivity coming from? Sure. So Mike, a couple of questions. As you think about The weighting of price versus productivity in offsetting inflation, just given the nature of in The rapid increase in the amount of inflation that we're seeing, it's naturally going to be more price than productivity to offset In order to get to price cost neutrality, in terms of our productivity measures, I'll start and maybe take it over to Keith to clarify. But Our teams have done a great job over multiple years of driving productivity within our operations. And it's not just on the plant floor, it's also in the administrative part of the operations. And we challenge our teams every year to get more efficient in a variety of ways. And so we do have TCP goals for every total cost for each of our businesses. Keith, do you want to give some examples? Yes, I think from a dollars and cents per day, the The greatest productivity comes from volume leverage. And when you look at our consistent and steady and repeatable drop down, say it's 30% -ish in incremental volume for plumbing and maybe closer to 25% in the Deco segment. That conversion efficiency It's very helpful to us. Obviously, there's direct labor productivity. We have hired a lot of people. And as those people become More familiar with our systems and how to work, that naturally drives productivity. We're consistently and constantly looking for material substitution and value engineering where we can take a 4 part assembly and make it a 2 part machine or injection molding that sort of thing. So It's really a combination of shop floor labor productivity, working with our suppliers and making sure that we have the most cost effective Way to meet customer requirements, so we don't want to mess or miss any customer requirements. So it's really all That concludes today's call. We'd like to thank all of you for joining us this morning and for your continuing interest in Masco. As always, please feel free to contact me at 313 Thank you everyone for joining us today. This will conclude today's conference call. You may now disconnect.