Good morning, ladies and gentlemen. Welcome to Masco Corporation's Second Quarter 2022 Conference Call. My name is Bailey, 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 David Chaika, Vice President, Treasurer and Investor Relations. You may now begin.

Thank you, Bailey, and good morning. Welcome to Masco Corporation's 2022 second quarter conference call. With me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco’s Vice President and Chief Financial Officer. Our second quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. [Operator Instructions] If we can't take your question now, please call me directly at (313) 792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We describe 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'll now turn the call over to Keith.

Thank you, Dave. Good morning, everyone, and thank you for joining us today. Please turn to Slide 5. We continue to execute in this challenging environment, and I'm pleased with our performance in the first half of the year. In the second quarter, our top line increased 8%, with growth driven by pricing and to a lesser extent, volume in both segments. Our operating profit was impacted by higher supply chain costs, planned marketing expense increases and unfavorable foreign currency. Commodity and other inflation was mid-teens in the quarter, but we expect this to be a peak level, as we anniversary inflation that began last year and we are beginning to see declines in certain input costs in the spot market. Importantly, with our continued pricing actions, we have begun to recover the price cost lag that we experienced in the back half of 2021. Additionally, we continue to leverage our SG&A as SG&A as a percent of sales improved 90 basis points to 15.3%. These actions contributed to sequential margin improvement of 140 basis points to 17.6% for the quarter. Our earnings per share for the quarter was $1.14, which matched prior year's earnings. Turning to our segments. Plumbing grew 7% in local currency against a 48% comp, with 7% growth in North American plumbing and 8% growth in international plumbing. North American growth was led by our spa business that continues to capitalize on strong demand for its products. International plumbing markets remained solid, with strong growth across Europe and in China during the quarter. In our Decorative Architectural segment, sales grew 15%, as Behr continued its strong performance, with low teens growth in DIY paint and approximately 40% growth in PRO paint. DIY paint growth was mostly due to price as we continue to see DIY paint…

Thank you, Keith, and good morning, everyone. As Dave mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization and other onetime items. Turning to Slide 7. We delivered another strong quarter, with sales increasing 8% against a robust 24% comp. Net selling prices increased sales by 10% and the higher volumes increased sales by 1%. These were partially offset by an unfavorable currency impact of 3%. Sales grew 11%, excluding the impact of currency. In local currency, North American sales increased 11%. This performance was driven by strong growth in DIY and PRO paint as well, as spas, faucets and showers. The main drivers of this growth were increased net selling prices, which increased sales by 10%, and higher sales volumes, which increased sales by 1%. In local currency, international sales increased 8%, or 11% excluding divestitures. Net selling prices increased sales by 7% and higher volumes increased sales by 4%. Our gross margin of 33% was impacted by higher year-over-year commodity and logistics costs in the quarter. We anticipate that gross margin will continue to face pressure in the third quarter, with year-over-year improvement expected in the fourth quarter. Our SG&A as a percentage of sales improved 90 basis points to 15.3% due to operating leverage and continued cost discipline across our businesses. Operating profit in the second quarter was $414 million. And operating margin was 17.6%, a sequential improvement of 140 basis points. Operating profit was impacted by higher supply chain costs, marketing and currency, partially offset by higher net selling prices and incremental volume. Our EPS of $1.14 in the quarter matched the second quarter of 2021. Turning to Slide 8. Plumbing growth was 7% in local currency against a robust 48% comp in the second quarter of last year. Segment sales…

[Operator Instructions] Our first question today comes from the line of Stephen Kim from Evercore ISI. Please go ahead. Your line is now open.

I was curious if you could talk a little bit about the -- I know you gave a lot of info there. Hopefully, I got it all down right. But when you talked about in the Dec Arc segment, I believe, paint, you said you expected second half volume to decline modestly. I just wanted to see if you could give us a sense for -- was that inclusive of the PRO business? Maybe you could just review that what your volume specific outlook is within paint and maybe breaking out DIY versus PRO just so we're clear.

Sure, Steve. As you think about demand, like we said, we saw strong demand in the quarter. As we think about going forward, DIY versus PRO, you might expect we've had some strong comps in the PRO side of the business. And we're starting to face some pretty significant comps in Q3. I think our PRO comp against Q3 of last year is like 45% growth. So while we still anticipate growth in the PRO, in the back half of the year, obviously, we won't be posting the strong comps that we've posted in the last three or four quarters. As we think about our DIY business, we do think our DIY business will be up in the back half of the year. That said, driven by price, with volumes declining in the back half of the year. Will be down, yes, down probably double digits -- low double digits, Steve.

What would be down double digits? Sorry, I spoke over you.

Yes. DIY paint volumes will be down low double digits in the second half of the year.

And then when you look at the Plumbing business, can you give us a sense, just housekeeping wise, what was the FX and the acquisition divestiture impact on sales in the quarter? And when you're looking forward in that business, do you anticipate that you will be able to more than cover your cost inflation in that business? Or should we simply be looking for just recovering the cost dollar for dollar in the back half of the Plumbing business? And as we look into 2023, I know we're not giving guidance on that. However, would it be reasonable to think that with the movements we're seeing in commodities and perhaps a little stickiness in price, that we might actually see some positive carryover effect in 2023?

Stephen, this is Keith. Typically, we do recover -- what's priced in this segment. We do recover margin as well. And you're exactly right. If there is a pullback in commodities, we would expect that to be a tailwind for us.

Yes, Stephen. Maybe you get a question in the -- I think the first part of your question had to do with revenue and the impact of acquisitions and FX. And roughly speaking, these are kind of rough numbers. FX is roughly 2%, acquisition is 1%.

The next question today comes from the line of Matthew Bouley from Barclays. Please go ahead. Your line is now open.

I think you mentioned at the top, speaking around sellout, that sellout moderated in the quarter. I guess, number one, could you kind of speak to the comparison of sort of a sell-in and sell-through there -- through the quarter? And part two, really, what I'm getting at as we think about the second half guide, was that basically your view of sellout? Or is there any assumption around additional inventory destocking there?

We did catch up on our channel inventory a little bit here year-to-date through the second quarter. And I think that was planned. And we did that to help improve our service to the customer and to the consumer. In terms of the forward look, as it relates to our guide, we're really not anticipating inventory fluctuations to have much impact on that.

Second one, it sounded like on the international business in Hansgrohe, strong trends there, ex divestitures and currency. I guess looking forward, clearly, a lot of concern around energy costs in Europe and Germany specifically. I guess could you sort of speak to your assumptions around the second half in the international business, both on the energy side and sort of the knock-on effects to the European consumer there?

Well, we certainly are in no position to make an overall crystal ball, call it, a economic call in Europe. But I will tell you that we continue to see strong demand, particularly in the key markets for Hansgrohe. Central Germany, China continues to perform very well for us, France, the U.K., et cetera. So we're counting on continued good solid growth from Europe and our performance is quite strong. With regard to the overall energy, the team has done a really good job. And we've secured the majority of our energy requirements from renewable energy for this year and going into next year. We're working hard to convert and have converted the majority of our equipment from natural gas to other sources of energy in terms of powering that equipment. That said, if there was a significant shutdown or constriction of energy flow into it, that would be an issue that we have to be -- to manage, and that would be challenging. But in terms of the proactive actions that we're taking, I feel confident about the work the team has done, and they've done a good job.

Yes. So maybe just a couple of other comments in addition to Keith's comments. We are assuming higher energy input costs in the back half of the year just given what's taken place. So we feel -- we need to make sure that's baked into the guide.

The next question today comes from Mike Dahl from RBC Capital. Please go ahead. Your line is now open.

Just a couple of follow-ups here. In terms of the second half guide and the comments or the implied volumes for the second half, just relates a little to Matt's question, but can you talk about how those volume expectations compare to where you exited 2Q? I know you talked about moderation through the quarter. Are you assuming similar levels of declines as you have most recently seen? Or are you embedding greater declines in the back half of the year than what you've just experienced maybe over the past month or so?

Yes. I'd say, Mike, as we look at it, we think things have kind of stabilized herein. And we think the trends as we exited the quarter were going to be consistent with the back half of the year as best we can tell at this point.

And then my second question is around the inflation dynamics. I know you talked about kind of 15% high level, but this is the peak. Can you split that out between your segments? Because it seems fairly clear if we look at some of the plumbing inputs, to Steve's question, that there could be a relief on the horizon there. Maybe a little stickier on the paint side. But just if you could give us a little more color on the difference in inflation trends between the two segments and potential time line for relief as you see it.

Sure. Happy to do that. So as you indicated, yes, we have experienced a fair amount of inflation, obviously all year and starting actually in the -- basically the midpoint of 2021. But as you said, and we said earlier, we think we hit a high point. As we look at our cost basket across the various segments, we have seen some input costs back off their highs from earlier in the year. Obviously, copper and zinc, which go into our plumbing products, have begun to decrease. That impact, it takes about two quarters or six months to flow to an impact on financial statements. So if you consider the timing of the inflation that we experienced and now the timing of the decline in some of the commodity prices, that's not going to have much of an impact here in 2022. That will be much more of an impact in the first part of 2023. So that could provide a tailwind as we go into 2023. The other parts of the inflation basket though are beginning to moderate as well. Ocean freight was something we talked about quite extensively on prior calls. We're starting to see that begin to moderate. That said, fuel costs will probably offset a portion of that because over the road trucking continues to be high. And certain other components of our inputs, like packaging and pallets, all continue to remain high. On the paint side of our business, we are seeing paint input costs be stickier and still face some upward pressure. Specifically, we're seeing that is TiO2 in other inputs. And so we're closely monitoring that. And if we have to take additional pricing actions to offset any of this inflation, we will do so, as evidenced by the fact that we put through 10% price in the second quarter. So, we think, we are in good position. We're slightly price cost positive for the second quarter. So we're set up well. But we'll continue to monitor the situation, and we'll react accordingly with additional price if needed -- if need be.

The next question for today comes from the line of John Lovallo from UBS. Please go ahead. Your line is now open.

The first one is maybe just a point of clarification. Did you say that the DIY volumes in the quarter were actually flat, which would be a very good outcome versus your peers? And if so, what do you think were the biggest drivers of that on a relative basis?

Yes. DIY volumes for the quarter were relatively flat, yes.

I'm here.

John, did you have a second question?

Yes. I'm sorry.

You heard my answer.

You said that no. I missed it. They're relatively flat.

Sell in, remember, it was greater than sell-out in the quarter. So yes, there were -- so I hope that answers your question. I'm uncertain.

I was just curious because that is better than some of what your competitors are saying. And I was just curious if you thought what was kind of the differentiating factor there?

Yes. I think part of it, John, is if you are -- our results against the second quarter last year, second quarter last year, we had a relatively soft performance in DIY because of the Texas freeze. And so as you think about the year-over-year comparison, we are catching up on that. And so that's why we have better sell-in and sell-out in the second quarter.

[Multiple Speakers] John, it’s Keith. Revenue in Dec Arc and the growth in the second quarter, was roughly 80% price and about 20% volume. And then we look at that volume, we're relatively flat in DIY.

And then in terms of just any inflationary pressures, are you seeing any trade down for consumers in either of your segments?

Not really. It's been pretty stable. And we've worked hard to reduce the impact of movement along the assortment, from the lower price to the higher price and from PRO to DIY, for example. So there still exists some impact of mix as we see that kind of movement. But we really haven't. We haven't seen evidence of trade down when we look across the volume of our big ticket items, like spas, for example, we continue to see strong demand there, strong backlog of about 25 weeks remaining, so -- which is greater than we would typically see in a normalized environment on our -- in China, where we have really a focus on the higher-end products, that Hansgrohe receives there with a good growth in China, and that continues. Despite the market slowdown, that popped back very nicely. So we're seeing good demand there. And we are seeing good demand on the lower end of our assortment. So overall, have not seen evidence of a significant trade down, and we don't expect any as we move forward through the year.

The next question today comes from the line of Susan Maklari from Goldman Sachs. Please go ahead. Your line is now open.

My first question is building off of John's question there. As you take a step back, can you talk a bit about the overall state of the consumer? How it changed during the quarter? What's their willingness to spend is on housing? And are you seeing any signs of elasticity as the pricing continues to come through across the product categories?

Well, we did see some moderation of demand. And we are seeing some signals of slowdowns as we look at the various leading indicators, if you will, like website searches and those sorts of things that we watch closely. And there was a moderation that mid-quarter, we saw a moderation, and then it's been fairly flat since then. And it's consistent across our categories, and for the specific categories, fairly consistent across the channel. So overall, I think a consistent moderation of demand. Now there's some categories for us that have bucked that trend. We talked about PRO paint sales that was very strong. Our spot sales that we felt were very strong. And international continues to perform very well for us. But faucets and showers, hardware lighting, DIY paint, I would say we're -- we have seen a moderation of demand. As I said, that happened kind of mid-quarter and then has been flattish coming to the rest of the quarter. We expect volumes to be down modestly in the second half. Maybe a little less in Plumbing, a little bit more in Decorative. And I'll remind you that Plumbing had, I think, it was a 16% comp in Q3 and Decorative had a 15% comp. So you can factor that in as you think about the segments on a quarterly basis.

Sue, maybe one thing I would add to Keith's comments is, as we look at the consumer, the consumer continues to look healthy to us. We continue to see strong balance sheets. Home Equity continues to look good in this -- in terms of your question about elasticity, if you think about our portfolio, low-ticket repair/remodel products consumers have the flexibility to buy our price. And a lot of our products are for break, fix purposes. And so we're not seeing the consumer bend as a result of the higher prices that they're feeling in the market, at least for our products.

I guess as a follow-up, as we do think about the macro environment shifting, are there any early steps you're taking to prepare the business? Or what are the things that you're watching for to indicate that you may need to make some underlying changes in terms of perhaps cost structures or those kinds of things looking out?

At the end of the day, ultimately, it would be demand for us, and that would be the trigger for us to implement our contingency plans. And that's really a part of our ongoing business planning process. And this is something that we all have experience in dealing with, and it's part of what we do. So pullback on certainly variable costs and discretionary cost that we could execute in the SG&A front, for example, and throttling back growth investments or hires and looking at that variable cost. And depending on the Decorative, as we've proven the ability to do, we could get into the fixed cost as well. So we have contingency plans in place, and we watch leading indicators. I mentioned website traffic. We have deep access and relationships in the channel as it relates to consumer tickets, et cetera. And we watch those leading indicators. But fundamentally, we don't -- we wouldn't execute cost out on a leading indicator. We wait to see where the demand goes. And we're very keenly watching that, and as part of our standard process, meeting on a regular basis with the businesses to review their contingency planning. So this certainly is an area where we have experience in this part of our business. And that's fundamentally how we're looking at it. Having said that, the portfolio as we reconfigured it, what John mentioned with the brake fix component, with the fact that it's lower ticket, and they're high bank for the buck, coupled with the fundamental shifts that we've seen in terms of how people buy and -- products for their home and how they view their home, we feel good about the long-term aspects of our portfolio.

The next question today comes from the line of Deepa Raghavan from Wells Fargo Securities. Please go ahead. Your line is now open.

First question is on price cost. You talked -- you mentioned you are slightly price cost positive in the quarter. Is it true across both the segments? I'm interested in Plumbing comments specifically because it doesn't look like price fully offset inter-quarter headwinds from higher costs.

Yes, Deepa. We were slightly price cost positive across both segments, both Plumbing and Decorative Architectural. I think the thing that you might focus on a little bit more is we did have some operational inefficiencies in the second quarter in Plumbing. And as Keith referenced in his prepared remarks, specifically, we had some shipping and some labor inefficiencies in the second quarter that probably would have created more of a headwind for the Plumbing segment.

Just a follow-up. Can you talk through some of -- any -- some metrics that might have positively surprised you or negatively surprised you in the quarter? I mean, we -- I think I'm looking at the magnitude -- of the magnitude of change that possibly surprised you, and if that changes in the second half of the year.

We continue to perform well in Europe that we -- I wouldn't say so much that that's a surprise, but it was -- we've watched that performance developed. And that was good to see for our franchise to be able to grow like we did in Europe and China. I think that was very solid. We've talked about now for a number of quarters about how we're working very hard to drive stickiness in the PRO paint demand and as evidenced by our continued growth and share gain in that, part of our business that the team is doing an outstanding job, together with our channel partner to really take advantage of the opportunity that we had with our supply chain excellence when we had an opportunity to acquire a share of wallet of some new customers, to really show them what that Behr paint can do, and we've had positive response there. So I think our continued growth in Europe and our continued stickiness and demonstrated capability to keep our business that we're gaining in the PRO is a couple of positive aspects of the quarter for sure.

Yes. I'd say on the negative side, the operational inefficiencies that I just mentioned in the Plumbing were probably a bit more persistent than we had expected. I mean it's been a very dynamic environment, as you well know, in the last couple of quarters. And we thought we would see some improvement. And obviously, we didn't see an improvement in the second quarter that -- the improvement that we had anticipated. Quite honestly, we probably expect some of those inefficiencies to carry over into the third quarter in the Plumbing segment. So there'll continue to be a bit of a headwind for that segment as we go into the third quarter. But we do think things get better as we roll into the fourth quarter.

The next question today comes from the line of Keith Hughes from Truist. Please go ahead. Your line is now open.

Questions on international plumbing. Strong numbers in the quarter, you have highlighted it in the prepared statement. Spent a lot of fear around Europe. What could be coming? Are you getting any indications that this pace of business could fall off in the second half of the year given some of the energy pressure and various other things going on in the continent?

As I talked a little bit earlier, Keith, it's a dynamic environment, and we don't have a crystal ball. So we're focused on being free to foot and watching and being ready to make adjustments if there was some sort of significant economic changes. And it's a dynamic environment for sure. But we are not seeing that currently. And we're not seeing that reflected in a trade down. And we continue to see good robust demand through Europe. And we are taking the contingency plans and putting those in place in terms of conversion, as I mentioned, of -- from natural gas to other sources of energy. We've procured the majority of our energy through '23 from renewable sources. So the team is doing a good job to prepare for and address the current challenges in terms of seeing indications of what might happen going forward. We're working hard to be ready for what might happen. But we are not seeing any indications of a turn down in Europe at this point.

And Keith, the other thing I would add to Keith's comments, if you think about Hansgrohe, a good portion of the revenue comes from project sales. Think about hospitality or hotels going up, a lot of that takes place in a -- in countries outside of Europe. So that Asia, it's the Middle East. So there's a good fundamental baseline of demand there. We do serve projects in Europe. And even when the consumer market turns down, these projects continue. They have to be finished. And so that will provide some basis of support for Hansgrohe going forward.

The next question today comes from the line of David MacGregor from Longbow Research. Please go ahead. Your line is now open.

You talked about the gross profit margins, and the fact that they're going to be under a little more pressure in 3Q, and that we'd expect to improve a little more than 4Q. I wonder if you could just unpack that a little for us and talk about some of the puts and takes that are behind those dynamics.

Yes. Certainly. There's a couple of things that are happening there, David. One is -- we talked about the cost recovery element of our Decorative Architectural business where we recoup the dollar cost, the inflation. And so obviously, we talked about -- and we've talked historically about a 5% inflationary increase has about 100 basis points impact on our margins in the segment. And if you think about the fact that we mentioned we had mid-teens inflationary impact in the second quarter, that's a big contributor to some of the gross margin pressure that we're feeling. On top of that, I mean, I think the second thing that would be impacting it would be the slightly lower volumes that we're foreshadowing. So those two, I think, are the two big things that are impacting our gross margins in the second half.

And then just as a follow-up, I guess given the fact that the macro seems to be softening up here a little bit, I'm just wondering to what extent you've seen your channel partners tapping the brakes on replenishing inventories. And I'm just wondering if you can talk about what you're seeing right now in terms of channel inventory levels and what you're expecting in terms of fluctuations around that over the next two to three quarters.

It's really a mixed bag. In some cases, we're still a little light on where we'd like to have our channel inventories. For the most part, we've caught up in -- and I think the inventories are in pretty good shape as we work to get inventory in place to better serve the customer and to meet the requirements. A little bit of a pull down in not atypical as some of our bigger plumbing wholesale customers approach their fiscal year-end and fiscal quarter-end, that there'll be some pull back in inventory. So there's a little bit of pullback, I would say, in plumbing and wholesale. But by and large, I think it's fairly stable.

Our next question today comes from the line of Adam Baumgarten from Zelman. Please go ahead. Your line is now open.

I guess maybe starting in paint. Just given the slower DIY outlook in the second half, do you expect promotional activity to pick up in any meaningful way?

That really is a decision of our channel partner. I mean, we obviously are together on that in the discussions and the strategy around it. In some cases, based on our partnership, we'll choose to participate in that and help fund some of that. But as we sit right now, I would not expect a material change in the promotion levels. But again, that's a choice of our customer.

And then just switching gears to Plumbing, just maybe if you could give us some color around the order patterns or showroom traffic that you're seeing in the spa business.

Well, that continues to be robust. Really, our backlogs, as I mentioned, around 25 weeks and staying there. The orders have been pretty consistent, haven't seen a material movement up or down there. So I would say consistent through the quarter.

The next question today comes from Phil Ing from Jefferies. Please go ahead. Your line is now open.

I guess if demand does soften a bit, what are some of the levers that you guys are talking about in the contingency plan perhaps for next year? And then when we think about decremental margins in that softer demand environment, how should we think about that, John? And then do you anticipate pricing holding in that environment?

So Phil, as you think about our contingency plans, we're taking a couple of different flavors, right? I mean, depending on the extent of the softening of demand, some things you do in a simple belt timing. You pull back on open headcount requests. You pull back on advertising, travel and entertainment and things like that. If the decline is more persistent and deeper and longer than you expect, then you have to look at the structural aspects of the business. You have to take out headcount, reduce shifts, things like that. And so we'll see how this plays out. In terms of our decremental margins, they should be fairly consistent with our incremental margins, which are kind of in that 25%, 30% range. We may not have that perfect alignment there. The first quarter of a decline, you can't always get the cost out as quickly as volumes decline. But we're going to try to manage those up as best we can. The one thing that may be helpful as we go into -- if there is a recession, typically, input costs declines. So that could be a little bit of an offset to some of those decremental margins. So that's the way we think about it. Keith, I don't know there's anything else you'd like to add.

Yes. I talked about the fixed and variable component of the cost plans that we have in place, and it really depends on the depth of it. So I think we hit on that pretty good.

And then pricing in that environment?

Pricing in that environment, I think it depends, again, on what we're seeing in the marketplace. If -- in a rare instance, in a recession, if commodities were doing flat, we have to push through pricing. We typically -- we do have -- by segment, it varies. We typically don't give us back a lot of pricing on the Plumbing side of our business. Obviously, if there was deflation in inputs, we've got that -- the cost recovery on inflationary reverses itself in that environment. And actually, that's when you start see margins expand in our Decorative Architectural segment.

And then on Plumbing, if I heard you correctly, it sounds like China was still quite strong. Certainly, that part of the world is seeing a lot of COVID lockdowns. I've been impressed that it's held up so well. Any color on how you kind of managing through that and how you're thinking about that business in the back half?

Yes. I think you know it. That was a real solid performance for us in China, particularly given the shutdown period that was there in the quarter. And I think it really gets back to a combination of three things. We're executing very well. The team there has been a real nice bright spot for us. And so good folks there that are focused on growth no matter what is thrown at them. And the shutdown was significant. Secondly, we are focused on higher-end segment, and we believe we're the share leader in that premium segment. And that tends to have less volatility and I think more consistency. And then thirdly, when you look at where we're selling to in terms of end use, it's primarily, and as John mentioned, into project business or in hotels or in multifamily, et cetera, which has the ability to jump right back after that shutdown, more so than, say, if we were into the lower price point that depended more on retail traffic. So those three things combined have really come together to give us a very nice story in China.

The next question today comes from the line of Garik Shmois from Loop Capital. Please go ahead. Your line is now open.

Higher-level question for me. Just want to unpack the comment that DIY paint volumes are coming back down to 2019 levels. I'm just wondering if you're thinking at this point that 2019 is the baseline for that business, just given, on one hand, you've got strong demographic trends, but on the other hand, you had a big surge in DIY demand during the pandemic. So just a little bit higher level on just kind of what the right mode of baseline could be for that business.

Yes. I think that's exactly how we're thinking about it. We had tremendous DIY demand as the pandemic hit and folks put more of a focus on their home and had more time. And then we've seen some shift as the pandemic restrictions lessened, with the move towards PRO. And we're very happy with how our PRO business has been able to take advantage of that with respect to capacity and supply chain performance, but also keep that as it relates to quality and service and having a good value proposition for the PRO’s and the stickiness of that share that we gained. So when we look going forward, with the millennials coming in and forming houses, and we know that they're DIYers and they're DIYers for multiple projects based on our research, not just want and done, so to speak, so I think that's a very -- the impact of COVID as it relates to how those DIYers view their home and invest in their home and the equities that they've developed in their home and the savings accounts that we think for the next couple of years, for sure, that the DIY volume is going to have some nice tailwinds because of those structural factors. So yes, we're looking at kind of the great growth during the pandemic. We've come back now to, let's say, a 2019 level in terms of volume. And we see this as the jump-off point for further growth in DIY.

I wanted to follow up on capital allocation. I guess I'll take that question. You're focused on paying off the term loan in the second half of the year, so you'll pause on repurchases. But what does that mean for M&A moving forward? Does that take a pause as well just given me the debt payout that's coming due?

No, no. I mean we're continuing to look at M&A. We continue to have our teams cultivate potential acquisition candidates. Though you might expect in this environment where things get a little choppy, fewer candidates for sale. That said, our balance sheet is set up. I mean we are in a position to execute on strategic M&A if the right candidates were to emerge in this environment.

The next question today comes from the line of Kenneth Zener from KeyBanc. Please go ahead. Your line is now open.

Look, I don't want to get -- on paint, there's two questions I have. If you're talking about -- I think it was DIY '21 versus '19, could you just maybe say the factors at your total paint volumes? And then could you maybe just level set like how you're thinking about that same comment, first half of this year versus second half, just so we can see kind of how that seasonality and all this COVID stuff is working through, if you have that. But I think the bigger question I'm going to ask is, you guys, it’s not ying or yang situation because there's a lot of small regional competitors, in my view, that are exceeding share. So can you really kind of maybe talk about where you are today versus 2019? And your PRO initiative, it's not -- doesn't have to be coming [indiscernible]. There's a bunch of private, smaller regional companies that are exceeding that share. Can you maybe just give us a little context around that? Because, obviously, as you guys have raw material availability, you gain share because people came, and now they're staying with you. I think sometimes, the dialogue is just between two data points rather than the broader picture, please.

We're focused on our business. And on the targeted customers that we have where our value proposition works the best as part of our partnership with the Home Depot. And it's challenging, as I've consistently talked about, in terms of quarter-to-quarter market, size, determination with any kind of accuracy. But when you look at our growth rates, particularly with PRO, there's no question that we're gaining share in PRO. And we've done it now for two, three quarters in a row and demonstrated, I think, some stickiness. And with regards to competition, we have very strong competition in that segment. I think it makes us better, very respectful of them. With regards to where our volume is coming from, I really don't have an answer for that. We know we're outgrowing the market. We're gaining share. You're exactly right. There's regional competitors throughout the country. But we're really focused on how we can best serve our customer. And while we understand market sizing is difficult on a quarter-to-quarter basis, I think it's pretty clear we're gaining share and feel good about the business now. And then moving forward, the structural aspects of DIY that we talked about, the fact that we are a relatively low share in PRO, and we're demonstrating the ability to grow together with our channel partner. So that's how we do it.

The next question today comes from the line of Rafe Jadrosich from Bank of America. Please go ahead. Your line is now open.

First, as you look at your CapEx investments for 2022, are you adjusting any of your reflect the moderating demand or changing macro environment?

No. When you look at the major projects we have and where they're focused, say, European plumbing business, our spa business, this is investments that will start to begin to ramp up in 2023 and won't reach full capacity till after that. So while we're certainly aware and are keenly watching what's happening in the short term here as it relates to a potential slowdown or a pullback, and we have contingency plans in place that we talked about, and we have an experienced base and our leadership team that has operated in this environment several times. So we’re confident in that. But we're also confident in the fundamentals of our low-ticket DIY, repair and remodel and the PRO aspect of our business for the long term. And it has strong fundamentals and strong correlations to what we think are positive tailwind. So no, we're not going to pull back on these important capacity increases for us, because where they are, what business they're in, what geography they're in, and the confidence we have overall in the long term of our business. So no change in that.

And Rafe, the only thing I would add to Keith's good comments is that we have a -- we're high cash flow generating company. And the amount of dollars that we allocate to CapEx is relatively light compared to our free cash flow. So we have the free cash flow to fund these without really pulling back on any other investments that we need to make across the business.

And in most cases where we look at this capital, they're step-wise where we can begin to capacitize, say, the new factory with various amounts of equipment and staffing. So it's not an all-or-nothing thing as it relates to the total investment. But we have no plans right now to pull back on our capacity -- CapEx rather.

And then the guidance implies an improvement in the Plumbing margins, I think in the second half of the year versus the first half. Can you just maybe help us understand how much of that is lower inflation from -- on the metal side versus additional price realization or additional price hikes that you've announced in the first half of the year?

Yes, Rafe. If I think about it, the improvement -- the back half of the year in Plumbing is going to be -- Q3 margins, my guess would be very similar to Q2, and Q4 will improve significantly compared to Q4 of last year. So I think the fundamental difference is the improvement in performance in the fourth quarter, relative to the fourth quarter of last year. The pricing -- the improvement in commodity position really will not be much of an impact in the back half of the year. And that's really going to be a 2023 event just given the length of our supply chains and the fact it takes about two quarters for that benefit to flow through and hit our P&L.

Our final question today comes from the line of Mike Rehaut from JPMorgan. Please go ahead. Your line is now open.

Doug Ward on for Mike. I was just wondering if you guys could give more color on the supply chain currently. I know you guys have mentioned earlier that you believe inflation has peaked. So I'm just wondering, in terms of the supply chain moving forward and maybe comparing it to earlier in the year and parts of last year, where you guys see yourself in terms of that battle.

I think we -- when we think about it in terms of pricing, we have -- we're seeing, as John mentioned in an earlier question, we are seeing some pullback day in brass and the copper and zinc and that sort of thing. But we're also seeing some pressure in other spots of the business, TiO2, specialty chemicals and our paint business. So we are still very attuned to the relationship to the commodity inbound pricing and the pricing that we need to have for our customers. And we're staying keenly aware of that. Where the supply chain has -- frankly, is a little tougher than we expected this quarter when we were sitting here a quarter ago thinking about it is in terms of labor costs and freight costs. But importantly, beyond the cost of it, it's really the availability of those two aspects of our input. And when you have freight that is less predictable, the delivery times, as I think we're all seeing even our personal lives where the delivery types of inbound product is not as reliable, the fill rates, the lead times are more challenged, that puts a challenge to the rhythm of manufacturing and to the rhythm of our supply chain. And we did see that in Plumbing this past quarter. So I think that's really what I would highlight that has changed.

Thank you. This concludes today's Masco Corporation second quarter 202 conference call. Thank you all for your participation. You may now disconnect your lines.