Okay, great. Good morning, everybody. Thanks for joining us. I'm Tim Wojs. I cover building products here at Baird, and we're delighted to have Masco join us again this year at our Global Industrial Conference. Masco is a global leader in branded home improvement and building products. They've got a portfolio that includes Behr paint, Delta and Hansgrohe faucets and shower fixtures, and then Hot Spring spas. From the company on stage with me, we have President and CEO Jon Nudi, and Renee is from IR, is up front here in the audience. We're going to start with a few kind of overview prepared remarks from Jon, and then we'll hop into Q&A. With that, I'll turn the floor to you.
Awesome. Thank you, Tim. It's great to be here. In terms of an overview of Masco, we're just short of $8 billion in revenue, really playing in three global categories. Is this on?
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categories. We are a global leader in plumbing.
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All right. Jon Nudi, happy to be here. Talk a little bit about Masco. As Tim mentioned, we're a building products company. We're just short of $8 billion in revenue, high teens margins, which we've been focused on growing over a long period of time. Three core categories. We're a global leader in plumbing, here in North America with the Delta, Brizo, and Newport Brass brands, and then globally with Hansgrohe and AXOR. We are the largest manufacturer of hot tubs and saunas in North America. Finally, we have a decorative architectural business, so Behr paint, which is predominantly sold through The Home Depot. From a strategy standpoint, we're really focused on accelerating our top line via consumer-driven strategy. At the end of the day, we want to understand our consumers and their problems and solve them for them better than all of our competitors.
Really three core things we're focused on. One is our industry-leading brands. Brands really truly are important in our categories. At the end of the day, it's what drives our ability to innovate and to really have the margins that we do. Second, develop capabilities, increasingly digital capabilities, which I'm sure we'll get into. Finally, Masco's been known for a long time for operational excellence. We want to make sure that we maintain that and even focus our teams a bit more to make sure that we can continue to take cost out, drive margins that we can then reinvest back in our business to grow it. With that, happy to jump in.
Great. Jon, you've been CEO for a year and a half now, plus or minus. As you've kind of assessed the business, what are some of the key strengths and weaknesses, or opportunities that you kind of see, and where has your time kind of migrated as your tenure has kind of lengthened here at Masco?
Yeah, so it's been a great 18 months. Prior to coming in as CEO, I was actually on the board of Masco for a couple of years, so I had a pretty good perspective of where the company was. As I entered the company, as management, I went out and spent a lot of time with investors. The one thing that I heard consistently was love the focus on margins and operational discipline. Would love to see Masco grow a bit more quickly on the top line. I would say for me, that's one of the things we're really trying to do, is certainly not take away the focus from margins. They're incredibly important. We've got to continue to do that. But probably sharpen our focus in terms of our growth mindset. We've likely grown with our categories over time.
We want to consistently outgrow our categories and continue to deliver strong margins. I think one of the trickiest things is to do both. As I go out and I talk to teams, and it's been the case in my prior life as well, people want to choose, is it growth or is it margins? It's really the and that's what we've been focused on, really building, make sure that we have the right leadership, the right teams. I can tell you, Masco has really terrific people that really know our industries, which is fantastic. Then building out capabilities, particularly in the digital space, that are really required for us to be successful today. So, spending a lot of time around those capabilities.
Okay. What types of changes have you made to the organization? Used to be kind of just like two segments. Maybe just talk about some of those things that you've done.
Yeah, I would say a couple things. From a leadership standpoint, we made several changes. One, we eliminated a group president role that sat between the CEO and the individuals running our businesses. Our four largest businesses, so Delta Faucet, Hansgrohe, Behr, and then Watkins Wellness, make up 85% of our business. Those leaders, the presidents of those businesses, report directly to me, and they sit on the leadership team. I would say having the businesses closer to our senior team has been a real advantage. We meet once a week in short hits to understand what's happening in the business, understanding what help our businesses need, and that's been a real benefit. We've also augmented our senior team with some real functional experts.
We brought in a new chief procurement officer from the outside, a new chief marketing officer who came from more of the consumer side of industry, with a deep understanding of consumers and digital tools, which has been fantastic. We just brought in a new digital leader as well, someone with a vast amount of digital transformation as well as AI experience. We have great people that understand our categories, understand our customers and consumers. We want to augment all of that amazing talent with some capabilities that can allow us to differentiate ourselves on the top and the bottom line.
Okay. I mean, you held an analyst day earlier this year, and you were talking about 3%-4% organic growth. Recognizing that is not quite five or six, but what are kind of the assumptions to that? Because I think the market is a lot less of a benefit, and there is maybe more outperformance in that kind of algo on a go-forward basis.
Yeah, for sure. We were setting some goals out to 2028, and that 3%-4% growth is what we were targeting, and that does assume some return to category growth. Again, obviously, it has been a bit more challenging. What I can tell you, though, is even in a year like 2026, which has been a bit more challenging in our categories, we are going to grow low single digits, and really have quality growth as well, bringing along nice profit margins with it. I think we are on the right things with the right strategies, innovation, creating capabilities, and when the market comes back again, we believe that we can outgrow our categories. Our categories consistently, over time, grow in that 3%-4% range, so again, hopefully we can do even better than that.
Okay. I guess what is I feel like it is like the Groundhog Day, it is like the same thing every year, but I guess as you are looking into 2027, what are kind of the puts and takes as you see it to kind of the R&R market? I know it is a small bit, but just kind of what you are hearing in new construction as well.
Yeah, I have been involved in this industry for just about four years between the board and management, and every one of those four years, I hear, "Well, next year is the year the inflection is going to happen," right? It is yet to happen. As we look to 2027, we are not assuming a major inflection. We feel like we have got to make our own way, both from a top line and a bottom line standpoint. This year certainly was not a robust year category-wise, yet we like the way we are performing. As we look to the coming year, we know that we are going to have to drive demand, and really grow our top line by being close to our consumers, innovating.
We have got a great innovation pipeline across each of our businesses. You win across all channels. I mean, particularly in plumbing, it is complicated.
There is wholesale, there is retail, there is e-commerce, and you cannot win in one or even two of them. You have got to win across all three. We feel like we have been doing that for the last several years, and we have plans to continue to take our leadership position and grow it in the coming year as well. That is important, and then frankly, on the cost side, we have been more aggressive in the last year in terms of self-help. We have not historically at Masco done a lot of reorganizations. At the end of Q4 last year, we announced a $50 million restructuring, and in some cases, the first time we have restructured some of our businesses in over 40 years.
I think businesses are great at adding capabilities and adding things over time, but without discipline, it is hard to go back and sunset things that maybe are not fit for purpose today. We are going to remain aggressive in making sure that we have the right cost structure for the size of our categories and our business as we move forward as well.
Okay. Maybe just talk about kind of the consumer journey. I mean, you hired a digital and kind of AI chief. Just how, as you go from like a Google SEO kind of environment to like an AI environment, like what are the capabilities? Because you guys have done a really good job in e-commerce. Like, how do the capabilities change to make sure that like you guys show up in the relevant spots through that journey?
That's a great question. I know we're at an industrials conference, and I tell you, our business is really a consumer durable business where brand does matter, and I'll use plumbing as an example. If you think about an average consumer, you don't buy a faucet or shower every year. In fact, on average in the U.S., you buy one every seven or eight years, and you just don't typically run out and buy one. You tend to research it. So, how you show up in the digital world is really, really important. Most consumers, and including pros, so plumbers, do research online. To your point, for the last decade, it was about Google Search, and essentially, you could buy search terms and make sure that you show up the way that you want as search came back.
In the last year, it's changed dramatically as LLMs and Claude as well as ChatGPT continue to grow. The way you show up in those searches is very, very different. They scrape a lot of different sources. They go to Reddit. They look at long-form content. They really mine your own websites. So, we are doing a lot of work to make sure that we're showing up the way we want as consumers start doing the research. It doesn't happen overnight, as I mentioned. Consumers will go online multiple times to research brands, research the reliability of different brands. We've got to build that, and as consumers use LLMs, we've got to make sure that we show up the way we want. So, we're spending a lot of time and focus there.
Okay. Then, you mentioned with the kind of restructuring, you did kind of change some of the locations or the responsibilities of some of the businesses. So, I think Liberty moved into Delta, and Newport Brass kind of moved, I think, into Delta. Can you just kind of talk about those moves and kind of the genesis of that and how they've kind of progressed?
Yeah. As I mentioned before, we have four major businesses, Delta, Hansgrohe, Behr, and Watkins. They make up 85% of our business. We have multiple other business units as well, much smaller businesses, and historically, Masco has been very, very decentralized. So, one of the businesses was Newport Brass, which is a high-end luxury faucet brand based out of Newport Beach, California. Most of them sell over $1,000. Amazing products, super high quality. They were fully independent. They would show up to our key customers like Ferguson and The Home Depot separately than our Delta team. So, as we looked at things, we felt like we could be more effective by combining Newport Brass into Delta, where we are the industry leader in faucets. We have great relationships with our key customers.
We have great capabilities when it comes to e-commerce that a smaller team just can't build on their own. We think we're much more effective by integrating some of these businesses. Liberty Hardware was another business based in North Carolina, selling branded, mostly Delta, hardware products for bathrooms. We integrated that into Delta, and again, leveraging our scale. We're seeing greater top line on those businesses, and at the same time, there's obviously some synergy benefits as well by putting it together from a cost standpoint.
Okay. I guess on the We haven't had a lot of growth in the end markets for the last couple years. Just how has the competitive environment kind of changed or stayed the same?
Yeah. So, we, as a strategy, have been focused on repair and remodel, which has been more stable. A good chunk of our business is break-fix, meaning something breaks and someone has to replace it. That's obviously remained robust. We've seen smaller ticket remodels hold up fairly well too. It's just really the big remodels that have slowed. We historically have not made new home construction a focus, and I can tell you, we think that's the right strategy. We have some contracts with smaller builders that we like the economics of those contracts, we like the builders, but we've not been impacted as much because we don't play as much in new home construction.
Yep. Okay. I guess, as you kind of think about just kind of material cost inflation, there's a lot of moving pieces with tariffs and price and those types of things. As you kind of exit 2026 and kind of head into 2027, how do you kind of balance higher input costs, pricing, tariff refunds, all of those types of things?
Yeah. So, one of the things I think our team has done a nice job of over time is just manage whatever has come our way. Obviously, as you mentioned, we've had COVID, we had supply chain disruptions, we've had tariffs, we've had quite a bit of inflation, and the team has been able to navigate all of that very, very well. Certainly not guiding towards 2027. We'll do that as we report earnings in February. But I'm very sure that we can navigate the current challenges. And again, as we head into the coming year, there will likely be some inflation. I can tell you, we take every effort we can to not take price. We really work with our suppliers around footprints. We take cost out of our own system.
But when having to price, again, I think the team does it in a very targeted way, an increasingly sophisticated way in terms of leveraging digital to understand elasticity and understand where we have some headroom and where we don't. Again, certainly the last thing that we want to do is take price, but over time, we've proven that we can do it pretty effectively.
Okay. When you think about the plumbing business, could you just kind of spend a minute just kind of reviewing the individual pieces? Because you've got some retail in there, you've got wholesale. Brizo's done kind of really well. You've got Hansgrohe. Just kind of the status of each of those kind of brands or channels, I think, would be helpful.
Yeah, for sure. Again, we break our business apart in plumbing with North America and then really the rest of the world. In North America, Delta's our flagship brand, so about a third of all faucets in the U.S. are Delta. Really strong business that's really respected by both consumers and pros. Pros value some different things, so a plumber wants reliability, particularly if you're putting something behind a wall, you don't want to have to come back and rip out tile to fix something. And again, Delta, over many, many decades, has built a really strong reputation with pros. In that portfolio, we also have Newport Brass, which I mentioned. We have Brizo, which is an upper premium product really focused on design aesthetic that is tied to specific designers and really unique product.
Brizo and Newport Brass are sold exclusively in the wholesale channel, really in showrooms, and that is something that is a real strength for us. As we look at our business over the last few years, the upper income consumer and the K-shaped economy continues to do well. Again, we have seen a lot of momentum on those brands. They are some of our higher margin businesses as well. That is North America. Outside of the U.S., hansgrohe is our brand that we really lead with. It is a really strong brand, just turned 125 years old out of Germany. We have strong share positions across Europe. We have a leading position in China, and we compete in over 100 different countries as well. hansgrohe is a great brand. I would say it is upper premium part of the category. AXOR is also a brand that we have globally.
It is a very high-end, German-made, all-metal products that are terrific, and we see a lot of growth in both hospitalities as well as high-end residential units as well in that space.
Okay. On the retail side, you guys have really kind of done a very good job in retail. What are some of the key kind of success points in that market? There is a velocity of inventory, there is shelf space, there are people on the street. Just kind of how have you built that retail business?
As I mentioned earlier, you really have to win across all three channels. Historically, go back 15 years ago, wholesale was really where most of the plumbing business was. Retail and e-commerce have grown very, very quickly, and wholesale remains a good chunk of our business today. It still remains incredibly important, but we cannot win if we are not winning across all three channels. Retail specifically is more about a consumer-driven strategy. You have got to really understand consumers, you have got to innovate. Bringing new products to market is really critical because it helps drive your share of shelf, and that is something that we stay focused on, and then ultimately driving velocity. We have got to make sure that we have increasingly grow our share of shelf and then increase our velocity, and we have had a really nice track record.
If you look at our business in retail over the last few years, we've got exclusive lines that we've introduced at some of our key partners. This year in particular, we're gaining share of shelf at most big box retailers, which is fantastic. We love that space. E-commerce is one that we've historically led in, and I can tell you that's one of our fastest growing businesses. It does require unique capabilities, and I think Delta in particular has really been on the forefront of building some of those capabilities. We've got a lead. We don't take that for granted. We've got to continue to evolve as consumers evolve and technology evolves, and that's a big focus area for us as well.
In e-commerce, I mean, there's a lot of that, it's not like they go to delta.com. I mean, you're really supporting your retailers and your wholesalers through those channels, right?
Yeah. We sell almost nothing direct to consumers. Again, it's through Ferguson Home, it's through homedepot.com, Amazon, those types of channels.
Okay. You spent a lot of the time at the Analyst Day on the Watkins Wellness business. I guess, what's your kind of vision for that business? Because you've always had spas, and it's always kind of been a part of the plumbing segment, but it seems like that's going to be an incremental focus for you over the next three to five years. So, how does that kind of evolve?
Yeah, we really haven't talked much about our Watkins Wellness business, and there's several things. First of all, the business has grown nicely over time. As I mentioned, we're the leading manufacturer of hot tubs in North America with Caldera and Hot Spring, very high-end, profitable businesses. That continues to grow, which is fantastic. I'll tell you the area that probably excites me the most is saunas. It's kind of all the rage right now. If you look at the U.S. market, very small, 1% household penetration today, growing very quickly. I can tell you, again, our challenge right now is really keeping up with demand, as opposed to other things. If you look at other parts of the world, if you look at Scandinavia, household penetration's greater than 100. Most people have multiple saunas in their homes, one indoor, one outdoor.
We're never going to get there in North America, but we think there's a lot more room to run. What the underpinnings of that category and what we're seeing there is really about wellness and health benefits, and there's all kinds of health benefits being attributed to saunas. So, we like the space. We have a leading position. We think we can do a lot better job of really letting Americans know about brands, which brands matter, which brands stand for quality. That's something for us to do. But we really like that business. We think it's a great growth driver, and we like the margins in the business as well.
When you think about kind of inorganic or organic growth, I mean, is that an area where you can do I mean, can you do one or the other, or are there really opportunities for you to expand your presence inorganically?
We'll continue to look in terms of inorganic opportunities. We like our position today as being the leader. We just acquired Sauna360 two and a half, three years ago. That's really brought us the sauna business. So, bolt-on acquisitions that are very much close to where we sit today are areas we'll continue to look at.
Okay. Okay. I guess, with Hansgrohe in Europe, obviously there's a lot of moving parts with energy prices and things like that. I mean, that business has held in. Do you feel like you're holding share, gaining share? How do you think about Europe?
Obviously, when you compete across 100 different markets, it's challenging to have a great handle on exactly where you are from a share standpoint. I can tell you we have seven or eight core focus markets for us that make up the bulk of the business, and we do track share very closely in places like Germany, the U.K., and China. I can tell you we feel good about how we're performing. We look at competitors like GROHE that are very much similar products, and we feel like we're performing well versus some of those key competitors.
Okay. As you think about margins in the plumbing business, I mean, you're at 20% or so right now. Is the idea that you really want to focus on growth and maybe just modest margin expansion? Is there still any low-hanging fruit that you'd call out?
Yeah, I certainly wouldn't say low-hanging, but going back to what I mentioned in the beginning, I think it's the job of us to drive not only the top line, but the bottom line. So, I think you'll see a continued focus on doing both of those things. If you think about our margin structure on plumbing, certainly we don't break it out, but it's probably not a surprise it would be higher in North America just because it's one market and we've got a lot of scale. I think globally there continues to be an opportunity for us to focus our margins on our Hansgrohe business. So, that's something that we certainly work with that team on, and I think it'll continue to be an opportunity over time.
Is there an opportunity for I know you own a majority stake in Hansgrohe, but it's not a full stake. I mean, how close can the Delta and Hansgrohe teams get as they work together? Or can they work together?
We do work together. Again, I think that's been something that our team's been working on for the last five or six years, and it's great to see us share. For all intents and purposes, we really don't compete with our JV outside of the U.S. So, they've got a little bit of business in the U.S., but not much. So, we're increasingly sharing more. I think some of the strategies we've taken in the U.S. to drive margins can work globally as well. It is a bit more complicated across 100 markets versus one or two, but I think there's more for us to do together as we move forward.
Okay. Then, I mean, we've spent a lot of time on the consumer. How do you think about the commercial opportunity in plumbing? That was another thing you talked about at the analyst day in terms of larger jobs, hospitality. It seems to be like you have a portfolio that you can bring in with Watkins Wellness and faucets and things. So, how do you think about that commercial big job opportunity?
Yeah, so this is really looking at things like high-end residential buildings as well as hotels, high-end hotels. Our team, particularly our Hansgrohe team, have done a terrific job here. It's a very different sales process. It's usually multiple years, three to five years, before you go from spec-ing to getting an order. So, we have reps across some of the key design cities around the world, whether that be New York or Paris or London, where a lot of the designers and architects spec these products out. Again, if you were to travel globally, you would find AXOR in a lot of high-end hotels around the world. That's the result of hard work over multiple years and decades to build that business. I think there's more of that we can do in the U.S.
One of the things we're learning from our Hansgrohe partners is, how do you do that? It is about building teams in key design markets. We are getting ready to unveil a new Brizo and Newport Brass showroom in New York City, which will open up in the first quarter of next year. That is really getting not after end consumers, but really designers and architects that spec these products. We think it is a good opportunity for us, certainly around the world, but we think in North America as well.
Okay. Maybe just flipping over to decorative. Obviously, you have a very strong relationship with The Home Depot. Can you just maybe talk about kind of the key attribute to that relationship in terms of what you are trying to do and what they are trying to do?
Yeah, it is a really unique relationship, and one that I appreciated when I was on the board of Masco, and I appreciate even more today. It dates back 40-plus years. Our companies were formed just about the same time. Behr became exclusive at The Home Depot when The Home Depot had a single-digit number of stores. Really, these businesses have grown together over time. It is a very constructive relationship. I spend a lot of time with senior leaders at The Home Depot. It is an important category for them, a profitable category for them. We are very squarely focused on the same things. We are a leader in DIY paint, with over a 30% share, a relatively small player in pro paint, although again, our collective teams have really grown a lot there. So we have just short of 10% share of that pro market.
It is no surprise that The Home Depot is very focused on the pro, and that pro painter is a great opportunity for us. So we are spending a lot of time and effort taking friction out of the system for the pro. Over the last few years, we have done things like make it possible for the pro to order online, to pick up at the store, order online, have it delivered to the job site, talk about the benefits of our paint. We think we have got the best quality and the best value in the category. So we think there is a lot more room to run, particularly on the pro side of the business.
On the pro business, has the contractor focus changed at all? Because I know there's different types of pros. As you think about attacking the pro business, is there a different type of pro that you're now starting to try to court? I mean, just maybe talk about how that's-
Yeah. What's exciting about pro, I mean, it's the largest single segment Masco competes in. So it's over $10 billion in sales. We historically have focused on the pro who paints, which is more of an apartment manager that also paints once someone moves out. And it's a big chunk of the business, something we do very well. Residential repainters are the largest segment of pro painters, and it's an area that we don't have a big share in today. It takes differential focus. It requires building relationships at a local level, and that's something that we're focused on. It's going to be a long-term initiative, but we think there's opportunity there.
Okay. Then, I guess on the DIY business, obviously there was a lot of I think I painted two rooms in my house. I mean, everybody kind of painted during DIY. But as you think, the business has kind of suffered from that kind of lag effect over the last couple years. I mean, where do you think you are in kind of evening out kind of that cumulative kind of gallon pull forward, if you will?
Yeah, certainly during COVID, we saw a huge spike. It's been more challenging. When you break down DIY paint, it has an extremely high correlation to existing home turnover, and it's not surprising if you think about it. When you sell a house, you tend to paint it. When you buy a house, you tend to paint it again to put your own colors on the walls. With existing home sales kind of bouncing along at trough levels, it's been really challenging for the last few years. So, we expect that to improve at some point. Again, we're not going to predict when the inflection happens, but when it does, we think that there will be a lot of demand out there for DIY paint. We're a leader in the space. We've got great value, great quality.
We need to do a better job of really making sure consumers understand that, and we're focused on that as well.
Okay. Then I guess maybe last question, just on the capital allocation. How would you kind of characterize the M&A pipeline today in terms of maybe actionability? If there isn't that kind of M&A acquisition, I mean, does everything just kind of flow back to buybacks? Is that kind of the capital allocation opportunity?
Yeah, so historically, Masco's been very disciplined when it comes to M&A. We'll continue to be very disciplined. Bolt-on acquisitions remains our focus. We want to make sure we have the right to play, the right to win with whatever we do from an acquisition standpoint. I can tell you, our board plays a very active role in making sure that we have a high bar for acquisitions. We'll do them when we find the right one and it's the right value equation for our shareholders. In the absence of that, we've been aggressive in redeploying free cash flow to shareholders in the form of share buybacks. We had an accelerated buyback program even this year, as we felt like our share prices were undervalued.
We'll continue to do that to make sure that we share cash back with our shareholders if we don't have a good M&A opportunity.
Great. Well, I think we're out of time, so please join me in thanking the Masco team for being here today.
Thank you.