Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2023 Conference Call. My name is Jerry 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 Renee Benedict, director of FP&A and Investor Relations. You may begin.

Thank you, Jerry and good morning. Welcome to Masco Corporation's 2023 third quarter conference call. With me today are Keith Allman, president and CEO of Masco and David Chaika, Masco's Vice President, treasurer and Investor Relations. Our third quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at 313-792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our form 10-K and our form 10-Q that we filed with the Securities and Exchange Commission. Our statements will also include non-GAAP financial metrics. our references to operating profits 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, Renee. Good morning, everyone, and thank you for joining us this morning. Before we get into our results, I want to take this opportunity to welcome Masco's new CFO, Rick Westenberg, who joined the team on October 16th. Rick is an accomplished executive with more than 25 years of experience, including nearly 15 years leading global finance organizations. We're excited to have Rick on board and look forward to him participating in our fourth quarter earnings call in February. I would like also to take this time to thank Dave Chaika for serving as interim CFO over the last several months. Dave quickly stepped into the position and successfully led our finance team during this transition and we greatly appreciate his support. With that, let's turn to our third quarter results. Please go to slide 5. In the third quarter, we demonstrated our ability to execute and the earnings power of our business model despite a challenging environment, which saw a top-line decreased 10%. Volume was down 12%, partially offset by pricing actions and favorable currency impacts of 1% each. While sales were down $225 million, our continued focus on driving cost savings initiatives and a favorable price-cost relationship resulted in an operating profit decline of only $2 million in the quarter. This strong execution resulted in operating profit margin expansion of 170 basis points to 17.6% and a decremental margin of only 1%. Our earnings per share for the quarter grew 1% to $1 per share. Turning to our segments. plumbing sales declined 11% and local currency with North American and International Plumbing, each declining 11%. In North American Plumbing, overall demand remained soft with the wholesale and e-commerce channels performing moderately stronger than the retail channel. In International Plumbing, demand trends weakened in our key markets…

Thank you, Keith, and good morning, everyone. As Renee mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization and other one-time items. Turning to slide 7. Sales in the quarter decreased 10% and excluding currency decreased 11%. North American and international sales both decreased 11% in local currency. Our continued focus on operational efficiency helped drive gross margin expansion of 430 basis points to 35.8%. Our SG&A as a percent of sales was 18.2%. Despite our decline in sales, operating profit in the third quarter is $348 million, down only slightly year-over-year. Operating margin expanded 170 basis points to 17.6%. The strong operating profit in margin performance was due to pricing actions, lower freight and commodity costs, and cost saving initiatives, offset by lower volumes, resulting in EPS growth of 1%, the $1 per share. Lastly, in the third quarter, we received an insurance settlement in our decorative Architectural Products segment, related to the severe weather event that occurred in Texas in 2021. This weather event significantly impacted our suppliers' ability to produce the raw materials necessary for us to manufacture certain paints and other coating products. This settlement has been excluded from our results as a non-GAAP adjustment. Turning to slide 8. Plumbing sales in the quarter decreased 10% and excluding currency decreased 11%. Lower volume decreased sales by 14%, partially offset by net selling prices, which increased sales by 3%. North American plumbing sales decreased 11% in local currency. International plumbing sales decreased 11% in local currency as demand continued to soften in many European markets and China. Segment operating profit in the third quarter was $225 million, up $5 million year-over-year, and operating margin expanded 230 basis points to 18.9%. Operating profit improvement was driven by pricing actions, lower freight and commodity…

Thank you. [Operator Instructions] Our first question comes from the line of Michael Rehaut of JPMorgan. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Mike.

Good morning, Mike.

I wanted to start with the increased guidance and driven by the higher margin outlook, and really zero in a little bit on kind of the drivers of each and specifically trying to think about cost saving initiatives, as well as raw material trends and how we should think about any of these benefits as perhaps they've begun to accrue as you've moved throughout 2023. And if there's any way to think about carryover benefits on either the cost saves or the raw materials trends as we look into 2024.

So, we clearly have Mike, margin momentum going into 2024 and that will continue. the main drivers of our margin, our variable cost productivity a little bit on the fixed cost side. We've talked about a small plumbing plant that we've closed, but really, it's about continuous improvement in that culture of execution that we've demonstrated in the past and continue to do that. So, we've got good productivity initiatives that we're driving. we've had some pull-through of now full-year benefit of price increases that we've executed mid-year last year that's now affecting us full year this year and we're getting full benefit of that by and large here in the third quarter. And we expect that to continue and of course, if commodities stay where they are or maybe even change to the lower side going into ‘24, that would be a benefit for us as well leading into 2024. So, I think the margin story for us in summary is that we've got good momentum here coming through in this quarter and there will be some benefits for us as we look into ‘24.

Okay. Appreciate it. I guess secondly, we had a competitor last night talk about in early thoughts around 2024 and kind of shared expectations for the market to be down slightly based on current trends. I was wondering if that's something that at this point again, given how you’ve seen the trajectory play out so far in 2023 and given still kind of depressed, existing home sale turnover. If that kind of matches directionally at least the way you're thinking about things at this point and how you overall kind of characterize the demand backdrop, I know, as you've kind of noted 2023 has played out as you've largely expected. but clearly, some of the headwinds appear to be you know at least in place as we're entering ‘24 at this point.

Yes. Mike, as I said, we'll be providing a lot more detailed view on 2024 on our fourth quarter call in February, in terms of sharing some of our initial thoughts and perspective on what ‘24 looks like as we sit here today. I would say that our assessment of the market based on what we're seeing now in terms of our order patterns and our view agrees with most industry experts and economists, I'd say, in that, it looks to us like ‘24 is going to be a flattish year for R&R. We have rates being stubborn and holding up. Consumers are still getting a little pinched by that existing home sales are at what I think is about a 20-year low. I would say, generally speaking, for our view of 2024 and R&R, that it's going to be flattish. And in that flattish environment, we fully expect to outperform the market and grow and expand margins. We have leading brands around the globe with Delta and hansgrohe. We have demonstrated and have strong share gain momentum with our innovation pipeline, our new products and our leading channel positions, particularly in wholesale and our premium position in China, which is holding up better than some of the lower-priced segments in China. So, we've demonstrated our ability to grow, and retain share in propane. That will continue, because we're focused on that. And you see that we are continuing to invest behind that initiative. So, I think that top-line story together with our demonstrated margin momentum, we're focused on margin execution. And with our strong drop-down in incremental volume, market outperformance and a flattish environment will drive margin enhancement. Of course, we're continuing to lean out our operations and keep a key focus on total cost productivity, which is the hallmark of our execution culture. So, in ‘24, I think we're, as we said here today, in agreement with the general assessment of a flattish market, and we intend to outperform in that market. I think importantly, longer term, we believe that there is a significant rebound in R&R spending when things normalize due to strong fundamentals. We've talked about the age of housing stock, strong home prices, strong equity levels and what we believe to be pent-up demand for R&R spending. So, it's a volatile time and I think based on our demonstrated execution, we're ready to go into ‘24 and feel good about it. And we're going to continue to invest in our brand service innovation to drive above market growth and win in the recovery.

Great. That was -- I appreciate the answer and the thoughts, Keith. Thanks very much.

Our next question comes from the line of Joe Ahlersmeyer of Deutsche Bank. Please go ahead.

Hey, everybody. good morning and thanks for taking the question.

Yes. Good morning, Joe.

I was wondering, I know you don't disclose price for your Dec Arch segment, but I was wondering if you could give at least directionally if price added to the top line in the quarter and margin in the quarter. It didn't look like it was maybe, the first quarter, where you didn't call it out.

Yes, Joe. We're not going to get into specific discussion on price. So, price overall for Masco was around 1%, a little more in plumbing, roughly flattish in decorative. As we've talked about many times, we tend to be price-cost neutral in decorative over time. We have seen some sustained raw material deflation. Likely, price could be a little bit of a headwind here in fourth quarter, but maintain profit dollars.

Right. That makes sense. So, there's a follow -up. As you're talking about getting back to 18%, that includes, I suppose, the deflation plus giving back the price, because that's the mechanical margin benefit on the way down, right?

Yes. I think when we talk about getting back to the 2019 margin levels of 18%, it's more about driving cost savings initiatives, more about driving growth. If there is deflation and the inverse relationship to -- if you do end up giving back price, that could help. But I think we really were focused on improving margins from a cost proactivity and driving growth side of things.

Understood. All right. Thanks a lot.

Thank you. Our next question comes from the line of Sam Reid of Wells Fargo. Please go ahead.

Awesome. Thanks so much guys for taking my questions here. I wanted to maybe dig a little bit on propane. It's been a great growth engine for you guys. I understand there's been a little bit of give back this year. Can you give us an update though on what the next leg of growth is from here and maybe touch on some of your initiatives specifically? I’m thinking job site delivery and maybe, where you are in terms of building out your propane sales force?

Yes. thanks for the question, Sam. Propane's been a great story for us and a lot of hard work and focus for really a decade now. It was -- it wasn't too long ago when this was just a small piece of our business and we've grown it now to be quite material. and the story has really been around staying focused on that segment of the market that we think we have a value proposition that really works. And it's that contractor, who also paints and does other things and is already in the aisle shopping at the Home Depot and when you couple that with the quality of our paint and our brands, and our innovation that we put in the can, it's in our cost competitiveness. It's a very strong story for that contractor. We think that's about half the propane business in total. And when we look at where we are today in terms of our overall volume, I think the important story to start with is we are just getting started. We have a relatively small share of that focused part of the market that we're going for. So, there's some nice white space to go after. The success that we've had today and the success that continues to resonate with the propane are based on today's net promoter scores that we look at very closely. So, we're holding onto this share, because it's not a one-time benefit. It's a benefit that has value to these focused contractors that continues, and it's about service. It's about reducing the friction and making it an easy process and an easy experience for the propaner to go through. So, we are -- there's no big silver bullet that we're looking to spend a significant amount of money and that we think is going to or hope is going to drive the benefit. It's doing more of the same and staying focused on service. So yes, that includes buying online and picking up and store ordering that includes expanding our delivery options, which of course, includes job site delivery. We still have significant room to expand our pro sales outside sales force, both at Behr and at Home Depot. We continue to enhance our loyalty programs. The list goes on. So, it's fundamentally about the blocking and tackling, and delivering in the service proposition to a targeted contractor. Prop really ranks. in terms of where we are in the build out, it's early innings. I mean when you look at the share that we have today and the share potential that we think we have, we're just getting rolling.

That's helpful. And maybe one more on paint, touching more on backlogs here. So, just do you have a sense as to where those backlogs sit for your propane customers? And then maybe, another one just on project sizes. Are you finding that project sizes maybe are mixing a little bit smaller, but that's still keeping pros relatively busy? Thanks.

Hey, Sam. on the backlog, we'd say that the propaners in general work through really significant backlogs over the past couple of years. It's probably more at a normalized level, still decent demand, but at a much more normalized backlog level. In terms of project size, that's a difficult stat to get a handle on anecdotally, maybe a little bit. but you really can't, don't have hard data to back that up at this point, probably a little early for that.

We haven't really seen a significant change in our ticket size.

Got you. That's helpful. Thanks so much, guys. I'll pass it on.

Our next question comes from the line of Matthew Bouley of Barclays. Please go ahead.

Good morning, guys. Thanks for taking the questions. Just one on the international market. It sounds like you kept guidance unchanged. But there was some weakening in those markets. And I guess if I heard you correctly, that was already in line with your expectations. My question is, do you think those international markets have found a trough here, or would there be risk to those markets weakening a bit further? And since you gave some color on R&R into ‘24, I'm just curious if you have any thoughts on how those international markets may play out into early next year. Thank you.

Yes, Matt. it's always tough to tell if you're on the bottom or you're coming up, where we are in terms of stability. It's a volatile time period for sure. We have seen softening in international, in central Europe. Germany's economy is under a little bit of pressure. Of course, we've talked about China and we understand what's happening there. We do expect the softening to continue. I should say, we do expect it to be soft in Q4. hansgrohe is very resilient. We are gaining share significantly in Europe. So, to combat those choppy market conditions, the team has just gone to work and really penetrated not only in Europe, but also doing a fine job holding up in China and continuing to grow in some of our higher growth markets. In terms of where we see ‘24, I'm not going to get into the specifics of calling it down on the region, but a region-based [ph] that we are beginning to see some favorable signs in terms of more steady demand coming out of Europe and that that gives me a lot of positivity.

Yes, Matt. I’d just add. you're right. We did anticipate the international markets declining. So that the deceleration that we saw here in 3Q is roughly aligned with our expectations and yes, the keys point, there are signs of stabilization. I'd say it's a little too early to call it certainly or a trend, but definitely, our signs of stabilization.

Got it. Okay. Thanks for that guys. and then second one on the retail channel, it sounded like it might have been a little weaker and plumbing relative to wholesale, clearly on the paint side. You might have seen DIY decelerating a bit. I'm curious what that means for a promotional activity. What are you kind of seeing at the retail level? in terms of trying to address some of that kind of deceleration out there and how might that impact your margin outlook. Thanks, guys.

Right. As where we sit today, it's been fairly consistent with what it's been in the past. And I would say that not only applies to our plumbing business, but also to paint, meaning that we do have periodic sales around some holidays. We have some new low price in spots, but by and large, it really has not, we have not seen any significant change in the promotional environment. And that's a choice. Obviously, we are strategic partners with our customers, but really that is their choice. And then sometimes, we participate in the funding and others we don't. So that's really up to them. And to this day, at this time, we really haven't seen much of a change at all in the promotional environment.

Great. Thanks, Keith. Thanks, Dave. Good luck, guys.

Thank you.

Thanks, Matt.

Our next question comes from the line of John Lovallo of UBS. Please go ahead.

Good morning, guys. Thank you for taking my questions. The first one is, you know, what did you see in terms of plumbing mix, was geographic mix still a headwind internationally? And then in terms of plumbing pricing, I think it was 4% through the first half. I think it was 3% in the third quarter. Are you expecting further tapering as we move into the fourth quarter?

Yes, John. let me take the pricing. Yes, we do expect further tapering in the fourth quarter as we analyze the majority of our price increases. We did take some selective price actions in plumbing earlier this year that we'll continue through, but the majority of our larger increases are analyzed now as we head into the fourth quarter. So, it'll be a little bit of a benefit that smaller than what we saw in 3Q. On the mix side, not a real material impact, but we have seen some mix impact, mainly geographic mix in our international business. So, we're a premium player in China. We like that position. We think that's a more resilient position, more consistent position to be in, and it feeds into the strength of our hansgrohe and AXOR brands. And when China is under pressure, a little bit more than the overall international market in general, that gives us a little bit of geographic mix, but it's not particularly material in the quarter in order to expect it to be throughout the year, a little bit more will be profitable.

Understood. And then paint and coatings revenue was down high single digits and total segment sales were down 10%. How much was the hardware business down and what are you seeing there and what were sort of the drivers of the declines there?

Yes. our lighting and hardware businesses were down double digits, a little bit more than the segment, John. They tend to be a little more DIY-oriented type products. So, they pull back a little bit more than our paint and coating products in aggregate. So, we did see more softening -- sort of consistent softening, but we did see softer here in the 3Q on the lighting and hardware businesses.

Got it. Thank you, guys.

Thanks, John.

Our next question comes from the line of Adam Baumgarten of Zelman. Please go ahead.

Hey. good morning, guys. just maybe kind of backing into the fourth quarter margin guidance, pretty big step down sequentially, I think, kind of bigger than maybe typically or seasonal. Just kind of anything to note there in terms of headwinds on the margin side?

No, nothing beyond really what we've talked about. We may see a little bit more of international mix in our plumbing segment that could provide a little bit more headwind. Dave, maybe you can add color on to that. But we've -- the fourth quarters typically are slowest from a seasonality perspective. We do have costs that come in the fourth quarter, such as threw up on various accounts, compensation accounts and that sort of thing, that can have some headwinds. We've got a little bit of -- we bring up and start to more aggressively ramp up our new factories. We have a new paint facility outside; Columbus in Ohio and we have a new plumbing plant in Serbia. So, there'll be a little more expenses there in headwinds. But I think it's -- when you think about our margin and where we're going to be driving this in ‘24, I think it's best to think about the full-year ‘23 margins and then that strong incremental that I've talked about earlier on the call as it relates to share growth.

Adam, I think you've had a good summary in general. It remains an uncertain market. So, there is some caution probably in the fourth quarter on the margin side. So, we do anticipate continued pressure from lower volumes, potentially a little bit of negative mix and plumbing, as well as we'll have plants started up costs in both -- in plumbing and decorative with our European Boston shower facility coming online, as well as our Heath Ohio paint manufacturer and distribution center coming online.

Okay, got it. That's helpful. And then just maybe, if you could touch on POS trends at retail throughout the quarter and maybe, into October, if you're willing to share that.

Yes. we don't really like to break it down within the quarter as there's a lot of variability in terms of load in from new products and other comps, and that sort of thing. And it certainly varies, with respect to POS, I'd say we're seeing some fairly good trends.

Okay. Thanks. That’s all I have.

Our next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Susan.

Good morning, Su.

My first question is maybe, taking a step back, there's been obviously a lot of focus on the consumer in the last month or two, and thinking about housing and their ability to spend as rates move higher. How would you characterize the consumer today as you kind of look across the business? And any thoughts on shifts that are there, either positive or negative, and what that could suggest for next year as we think about the potential for maybe rates to change, either up or down, and where things could kind of come together with that?

I'd characterize it by saying it's a mixed bag, Susan. When we look in Europe, we did see a pullback in the consumer, and there's some noise there with various legislation that's been, it's now clarified to a degree anyway, more than it was last time we talked as it relates to driving for non-fossil fuel heating systems in central Europe and Germany. and that taking away some of the consumer's willingness to spend on, say, battery model projects and that sort of thing as they're concerned with putting in greener heating systems per what they thought was pending legislation. It looks like that's going to now be protracted out to 2028. So, we expect that consumer to start to come back. So, in Europe, the consumer was kind of a little later to the game in the pullback, if you will and is now coming back in Europe. In the U.S., holding up fairly well for us. as expected, I should say, so we're not seeing any accelerated slowdown whatsoever. Again, I think there's a lot of volatility and uncertainty, and it's the full impact of inflation, I think is yet to be seen in the consumer. but by and large, the consumer is still holding in pretty good for us and our products. And I think that's driven by the bang for the buck, if you will, that the consumer sees in painting a room, and in changing our faucets and light fixtures, where it's a relatively inexpensive investment in your home. I think with work from home, where that's not fully going to go back to everybody working in the office, and that puts more wear and tear on the paint, and it's not that expensive to do it and you can do a DIY if you want. So, I think that combination has helped us.

Okay.

Susan, I would add to it, I mean, consumers clearly have been resilient. [indiscernible] consumers now since there have been significant increase in rates and inflation over the past couple of years. That said, they have demonstrated they are resilient when you look at home medically levels, they're feeling very good about their home. So, we do think that when things do stabilize that, that consumer will be very interested in remodeling their homes and as Keith alluded to, we do think there will be a nice pent-up demand that we fully intend to capitalize on.

Okay. That's helpful color. And then thinking about capital allocation, I know that you closed the acquisition this quarter. As you think about priorities for cash and especially, maybe on the buyback side, any thoughts on how that could come together over the next couple of quarters?

Yes, Susan. Our typical philosophy is to allocate all of our free cash flow after dividends to share repurchases or acquisitions. So, with our significant cash flow and our pausing of share repos in the third quarter, we do tend to be fairly aggressive here in the fourth quarter. And then we talked about allocating $225 million likely towards share repurchases. If you look at ‘24, I think if you follow that basic formula of excess free cash flow, free cash flow after dividends allocated to share repurchases or acquisitions, you'd be right in the ballpark on how we're thinking about share repos for next year.

Okay. That's helpful. Thank you. Good luck with everything.

Thanks.

Our next question comes from the line of Garik Shmois of Loop Capital. Please go ahead.

Hi. Thanks for taking my question. Question on DIY paint, just if you move to down low teens year-on-year versus down a little single digits, I think in the second quarter. Just curious that was a sizeable change on year-on-year basis, just curious how trends performed sequentially there.

Yes. On DIY paint, we did see softening in 2Q actually, and continued softening here in 3Q. I think you have to look at the low-level existing home sales, which are a 13-year low. We haven't seen this level of existing home sales since 2010 at the end of the housing crisis. So, we think that is affecting DIY paint sales. So that market is softer here in 3Q, roughly in line with our revised expectation coming out of 2Q.

Garik, I would say that the fundamentals are still supportive of DIY paint, particularly when you think about millennials going into the housing market. And the basic research that we've done is that these -- that the millennials are DIY-ers, and not only for a single project, but they're returned DIY-ers. And paint, as we've shown with regards to, if there is such thing as a fun DIY project, that's how it's viewed. And our positioning with that is favorable for us.

Understood. Thanks for that. The follow-up question is just on commodity costs. I think you mentioned you started. You're starting to finally see some relief here. Maybe, if you could walk through some of the baskets that are particularly beneficial right now in the fourth quarter, if there's any early look at the ‘24 on the raw material side. that would be great.

Well, container costs have come down off their peak levels. That certainly has helped with freight. Some of our metals, such as zinc is off the ‘22 high. Copper, I think, is at about 350 a pound now. ‘22 high was closer to four bucks. So that's come off. Now, we haven't really seen that roll through the P&L, because of the time in the water and then the flow through of our inventory. But that would be a ‘24 tailwind for us. All in all, in plumbing, let's call it low single-digit deflation for the year. In paint, certain input costs have moderated. We've seen resins moderated a little bit. We're starting to see a little bit of deflation in the third quarter, but still inflation based on a full year. It's not, we believe -- not going to be enough to cover the inflation we saw in the first half. So, let's call it approximately flat all in for the total company for the full year. And then the reduced commodity costs that we're seeing in the back end of the year here would be benefits for us in ‘24.

Great. Thanks, again. best of luck.

Our next question comes from the line of Stephen Kim of Evercore. Please go ahead.

Yes. thanks very much, guys. I appreciate all the color. I guess, my question is related to your targeted 18% plus operating margins. You're pretty close in both segments. But in Dec Arch, I'm curious as to whether or not there's a sub -segment, particularly either hardware or lighting, where you're further away from your target than you are in paint, basically is that true and is maybe painting or, sorry, lighting or hardware a little further away. And then also within plumbing, is there a sub-segment, or a couple of areas worth calling out within your plumbing portfolio, where again, maybe you're a little further away from your targeted levels?

Yes. When you look across, Stephen, our segments and within segments, not everything is the same margin. So, there is a distribution of margins. And when you think about hardware, hardware is lower margin than paint. And that is an area, where we're looking to improve. And I will tell you that 18% is the target that we're shooting for now, but we think we have a significant room to continue to drive that even higher. And as I mentioned in my prepared remarks, we'll be talking about, where we see some long-term margin targets on our call next quarter. Within plumbing, we have a broad plumbing platform and we've talked before about how there's a continuum of margin in that platform from some of the beautiful chrome-plated jewelry in the kitchen and bath in plumbing to some of the less decorative components, say, of a plastic shower pan that we would install in our bathing business. So, there is variability in margin and I think the key takeaway I'd like to share with you is that we've demonstrated the ability to execute and drive margin, be it with our focus on where we play and with our masco operating system to drive efficiencies. So, we'll be tackling the whole business. But yes, there's variability, of course, across our segments.

So, within plumbing, there's not a particular, let's say, way of talking about it, that sub -- segment or segments out, maybe by country or sort of price point or something like that, where you're a little bit further away from your goal within that segment.

Well, there's not a whole lot of variability when we look geographically and we look at margin variability on a product-type basis. We look at margin variability based on the raw component makeup of the products. We look at margin variability across channels. So that's all part of our operating system that we used to drive improvements. but we're not going to break it out specifically by those components as we talk here.

Okay, that's fine. Regarding overall, your improved margin, you talk about cost savings and some of those, I think you highlighted, there's a little bit of raws that are starting to come to you as a benefit. And then you have freight, which you called out as well. But you've also talked about other productivity initiatives and so forth. So, I'm curious as we look into, let's say, the fourth quarter, if you were to sort of segregate out things like freight and price over raws, how much is, would you say, related to productivity, like things that are more sort of permanent cost-saving efforts that you've made, I mean, would you put that in the 10 to 20 basis-point range overall? Or, I mean, is it -- just if you can help us understand what some of those initiatives have been adding, or are expected to add here maybe in the fourth quarter, or if you want to talk the full year or whatever?

Hey, Steve. we have made very nice improvements on the productivity line. Recall we had some inefficiencies in the back half of ‘22, particularly in plumbing that we've done a very nice job getting on top of. I'd say in terms of bucketing the biggest drivers clearly getting our price cost relationship back to where it should be throughout this year. So, we've had very nice cost recovery this year since we did lag it a bit last year. So that's the biggest bucket. The productivity is a nice tailwind to help with that, but the biggest bucket is the price cost recovery.

Okay. thanks very much, guys.

Thanks, Steve.

Our next question comes from the line of Truman Patterson of Wolfe Research. Please go ahead.

Hey. good morning, everyone. Thanks for taking my questions. Keith, just wanted to follow up. You mentioned that brass deflation for the year should kind of run in the down low single-digit percentage. Should we assume that was likely inflationary in kind of the first quarter and perhaps the fourth quarter is trending down maybe in the mid-single-digit percentage or better range as we said today?

Yes, Truman. that's about right.

Yes, Truman. I'd add too. Just the copper and zinc are down, but they have been bouncing around too. They've gone down these levels. They've gone back up close to the ‘22 averages. So, it would run with that consistently through ‘24 at this point, but it does look like it'll be a little bit of a benefit.

Okay, okay. got you. And then as we look at your margin performance in both segments on a year-over-year basis. is there any way you could frame how much your investments in both businesses stepped up in the third quarter or was it relatively light versus your expectations kind of given the margin performances? I'm just trying to understand if you know perhaps some of these costs are really fully hitting in the fourth quarter that might have been expected in 3Q.

Yes. I'd say investments were roughly in line with what we anticipated in 3Q, maybe a little bit light. We do plan to continue to invest in our business as Keith talked about. It will impact a little bit on the fourth quarter, but roughly in line with probably what we saw in 3Q. I'd say the margin improvement is much more of our -- as we've talked about the productivity improvements, as well as getting the price-cost relationship back to where it should be.

okay, perfect. Thank you, guys.

Thanks, Truman.

Our last question comes from the line of Phil Ng of Jefferies. Please go ahead.

Hey, guys. thanks for squeezing me in. I guess for you, Dave, you kind of mentioned price cost was a huge driver for margins this year, particularly plumbing. Your products have obviously resonated with consumers and shown good pricing power and your competitor has actually alluded to taking price next year in plumbing. Do you have any pricing actions geared for 2024? And when we look at the pace of price cost spread widening this year, do you see that spread widening, the pace of that spread widening even faster perhaps next year?

Again, we'll get into our detail for ‘24 on the next call. We've taken some targeted price in plumbing this year here in the third quarter and our demonstrated ability as you mentioned with our pricing power is to stay in front of it -- to keep price cost in our sites and go after price through our channels when we need it. We tend to keep it and hold on to it longer in plumbing than we do in decorative, given our relationship with our significant customer in coatings. So, our pricing power is pretty strong. It's too early to say if we're going to take price next year. we'll have to see what that means in terms of our innovation pipeline and our new products that come out and where commodities ultimately end up. So, too early to call whether or not we're going to do any price in plumbing in ‘24. but certainly if needed, we've got the capability and the pricing power with our brands to be able to do that.

Okay. Keith, just to clarify, you meant 3Q price increase in plumbing. That was last year, right? Not so much.

Right. We've taken some targeted -- that's correct. Sorry about that. We've taken some targeted price here earlier in the year as well.

Okay. makes sense. And then on the DIY side of things for paint, any color on where volumes are shaking out right now has a fourth quarter in terms of your guidance relative to pre-COVID levels. And Keith, you kind of mentioned that you see good momentum going forward long-term on DIY, just given the millennial cohort. Do you see that kind of flipping in 2024 in terms of trends in DIY versus wholesale? The pro channel has definitely held up much better than DIY this year in the retail channel.

Yes. the DIY market during COVID was a bit of a roller coaster, where it took a significant improvement, if you recall, when folks were reticent to have pros in their homes. And then when that kind of fear of COVID relaxed a little bit and people were more comfortable with pros coming in, pro took off and DIY went down. And that, I think, is -- it speaks to our diversification and our strength in pro for that customer that we can handle that variation and be there to catch that and grow share. But it has been an up and down market. I will tell you where we sit now in DIY, that absolute volumes are lower than our pre-pandemic, call it 2019 levels in DIY. with respect to, if I think, as I said, we'll get into more detail about next year on our fourth quarter call. I'm not so sure that the millennial cohort will be enough to really drive significant growth overall in the DIY segment, but we'll talk about where we see DIY more in detail in the next call.

Okay. Thank you. Appreciate the color.

We would like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Thank you.