Masco Corp (MAS) — Q2 2015 Earnings Call Transcript

Thank you, Carol, and good morning to everyone. Welcome to Masco Corporation's 2015 second quarter conference call. Joining me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco's Vice President, Treasurer and Chief Financial Officer. Our second quarter earnings release and the presentation slides that we will refer to during the call are available on the Investor Relations portion of our website. Following our prepared remarks, the call will be open for analysts' questions. As a reminder, we would appreciate it if you could limit yourself to one question with one follow-up. If we are unable to take your question during the call, please feel free to call me directly at (313) 792-5500. Statements in today's presentation will include our views about Masco's 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 have filed with the Securities and Exchange Commission. I’d like to remind you that the results we will review today exclude our Installation Services segment, reflecting our spin-off of TopBuild Corp. the business comprising that segment on June 30th. Today's presentation also includes non-GAAP financial measures. Any references to operating profit, earnings per share, or cash flow on today's call will be as adjusted unless otherwise noted, with a reconciliation of these adjusted measurements to GAAP in our quarterly press release and presentation slides, which can be found in the Investor Relations section of our website.

Thank you, Irene, and good morning, everyone, and thank you for joining us today. Turning to slide four. I am very pleased to review both our second quarter results, as well as our recent accomplishments, which demonstrate the strength of our business’ execution and the strategies we have in place to drive shareholder value. Once again, all of our segments contributed to topline growth, resulting in North American sales increasing 7% and international sales increasing 5% in local currency. We delivered this growth, while expanding our operating margin to 14.5%, our strongest operating margin in over a decade. Our exceptional operating leverage in the quarter was the result of our disciplined cost management. Additionally, our margin was aided by Cabinetry’s accelerated turnaround, favorable commodity prices, and the timing of promotional expenses. Our results were supplemented by the achievement of some key milestones we set out for ourselves in 2015. Notably, our Cabinetry business accelerated the pace of its turnaround plan and surpassed its 2015 annual operating profit target in the second quarter. The demand for higher ticket repair-remodel items continues to improve, and we've aligned our Cabinets business to capitalize on this trend. Our KraftMaid brand continued to gain share at retail, while our dealer exclusive KraftMaid Vantage product line drove sales in the dealer channel, clearly resonating with designers and dealer principals. We have also restored Merillat's industry-leading lead-times to position the brand for anticipated higher growth from new construction in the back half of this year. We are extremely proud of the results the team has delivered, and we now expect that our Cabinets segment will achieve operating profit of approximately $25 million for 2015. In our Plumbing segment, Delta faucet and our Watkins spa business both broke sales records in the quarter, demonstrating the strength of their brands and the effectiveness of their growth strategies. Delta’s focus on key influences in the wholesale channel, as well as the successes of their innovation pipeline, continue to enable this above-market growth. Hansgrohe, despite currency headwinds, continues to leverage their global leadership as they further expand into emerging markets and drive sales and profit growth. In Decorative Architectural segment, Behr Paint grew core sales with their innovative new product BEHR MARQUEE, their ongoing expansion into the Pro segment, and their award-winning customer satisfaction level. This growth is a testament to Behr’s brand and innovation leadership in the DIY industry. In our Other Specialty Products segment, Milgard Windows, the leading window brand in the Western United States, had a tremendous quarter. They continued to capitalize on improving market dynamics, including new home construction growth, repair and remodel growth, and increased demand for their higher-end offerings, including their recently introduced Athens stores. From a capital allocation perspective, during the quarter, we continued to execute on our commitment to shareholders by repurchasing approximately 3.8 million shares of stock. Year-to-date, we have repurchased approximately 7.8 million shares, returning over $270 million to shareholders through share repurchases and dividends. Reflecting confidence in our future outlook, we were pleased to announce this morning our intent to increase our annual dividend by $0.02 per share to $0.38 per share, beginning with the fourth quarter of this year. And finally, we completed the tax-free spin-off of TopBuild Corporation, a pivotal point in Masco’s history. We look forward to TopBuild’s continued success as a standalone publicly-traded company. Now, I'll turn the call over to John, who will go over our operational and financial performance in detail.

Thanks, Keith, and good morning, everyone. Please turn to slide six. As Irene mentioned, most of my comments will focus on adjusted performance, excluding the impact of rationalization and other one-time charges. We continued our positive momentum coming out of the first quarter. I'm pleased to report the second quarter was our 15th consecutive quarter of year-over-year sales and profit growth. Excluding the impact of foreign currency, sales increased 7%, and we experienced sales growth in all four segments. On a reported basis, sales grew 3%, with foreign currency translation negatively impacting our sales in the second quarter by $77 million, principally due to a weaker euro compared to the U.S. dollar. Sales in North America were up 7% for the quarter. We continue to experience growing demand for our new home construction and repair and remodeling products, including our big-ticket kitchen and window products. With the spin-off of TopBuild complete, repair and remodeling now represents approximately 82% of our total sales. International sales increased 5% in local currency in the quarter, driven by the continued strength of our international plumbing and window business. International sales now represent approximately 23% of our total sales. We delivered strong bottom-line performance as operating income increased 22% in the quarter to $280 million, with operating margin expanding 230 basis points to 14.5%. In the quarter, foreign currency translation negatively impacted operating profit by $19 million, and we incurred approximately $5 million of interest carry costs from our March 2015 debt issuance. Our EPS was $0.38, an improvement of $0.10 or 36% compared to Q2 of last year. Turning to slide seven, you see that our Plumbing segment sales were flat for the second quarter. The strength in the U.S. dollar once again damped the continued strong performance in our Plumbing segment. Excluding the $63 million impact of foreign currency translation, sales increased 7%, driven by growth in faucets, spas, and new program wins with key trade and retail partners. As Keith mentioned earlier, both Delta and Watkins enjoyed record sales quarters in Q2 and contributed to our North American sales growth of 8%. We experienced strong growth in the trade channel in the quarter as both our Delta and Brizo brands drive consumer demand for our innovative new products, and we continue to take share in this category. The growth at Watkins, our leading spa business, was due to the strength of our Caldera and Hot Springs brands, as well as our acquisition of Endless Pools. Watkins achieved this record quarter, excluding the impact of this acquisition. Our European businesses outperformed, delivering 4% sales growth in local currency. Hansgrohe continues to drive trade channel growth through the strength of its brand, design, and innovation. As we said in our Q1 earnings call, operating margins in the second quarter improved to the recent historical levels. Foreign currency translation negatively impacted plumbing segment’s operating profit by $12 million in the second quarter. Please turn to slide eight. In our decorative architectural segment, second quarter sales increased 4%, driven by the performance of our new Behr Marquee interior product and growth in our Behr Pro business. Excluding the impact of foreign currency translation due to a stronger U.S. dollar versus the Canadian dollar, segment sales increased 6%. Foreign currency translation negatively impacted this segment’s operating profit by $7 million in the second quarter. Operating profit increased 18% in the second quarter due to increased volume, a favorable price-commodity mix, and effective cost management. This segment also benefited from lower promotional expenses of $6 million in the quarter related to the 4th of July sales event at the Home Depot, which began in July this year as opposed to June last year. As a result of this and other investments, we will incur an incremental $25 million in promotion, program costs, such as our successful Behr Pro initiative and program resets, including new program wins at Liberty Hardware and advertising expenses in this segment’s third quarter as compared to the third quarter of last year. This investment demonstrates our strong commitment to grow this business. Turning to slide nine, you can see our cabinets segment sales increased 6% in the quarter due to improved performance in the KraftMaid brand in the home center and dealer channels, partially offset by lower sales to the direct-to-builder channel because we continue to exit lower margin business. The segment returned to profitability in the second quarter. The bottom line improved $23 million over the prior year, driven primarily by improved mix as our higher price point KraftMaid brand continues to experience strong growth, improved pricing dynamics in the direct-to-builder channel, the reduction of the prior year’s incremental spending on ERP inefficiencies, and the benefits associated with other cost savings initiatives. The cabinet team is focused on driving profitability in 2015 as we continue to introduce new products in retail and dealers and improve the execution in our Merillat business. We now believe we will deliver operating profit of approximately $25 million in 2015. Turning to slide 10, our other specialty products segment sales increased 8%, and excluding the impact of foreign currency translation, sales grew 10%. We are particularly pleased with this result given the difficult comparison to last year’s second quarter when the segment’s growth was 11%. Our North American window business delivered low double-digit sales growth in Q2, driven by volume increases and the continued benefit of our favorable mix shift toward our premium window and door product line. Excluding the impact of a stronger U.S. dollar, our European window sales increased 7%. In the quarter, we also completed the acquisition of Evolution Manufacturing, our higher price point vinyl window manufacturer in the U.K. This acquisition will enable us to penetrate the greater London market. The segment’s operating profit growth in the quarter can be attributed to increased volumes, favorable mix, and effective cost management. Turning to slide 11, we ended the quarter with about $1.5 billion of balance sheet liquidity. This amount reflects the $200 million dividend we received from TopBuild Corp. on June 30th. Our focus on working capital management delivered strong performance in the quarter, with working capital as a percent of sales remaining relatively flat versus the prior year at 14%. We continue to take action to attract shareholder value. During the second quarter, we repurchased 3.8 million shares, representing approximately 1% of our common stock. Reflecting our Board’s confidence in our future outlook, we announced the intent to raise our annual dividend by $0.02 from $0.36 to $0.38 per common share, starting with our quarterly dividend paid in the fourth quarter of 2015. We remain well positioned to retire $300 million to $500 million of debt in 2016. Now, I will turn the call back over to Keith.

Thank you, John. We’ve delivered a solid first half of the year and met key objectives we set for ourselves. We’ve demonstrated our ability to capitalize on improving market dynamics and our ability to leverage our industry-leading positions. With the spin-off of TopBuild complete, we move into the second half of 2015, well positioned to continue to drive value. We expect that repair and remodel growth will continue to improve at a steady pace. All new home construction will accelerate in the back half of the year. We’re confident in our ability to win in this macroeconomic environment with our focused portfolio, our commitment to operational excellence, and our discipline around capital allocation. I’d like to thank our teams for an outstanding quarter. Your efforts drove great results. With that, John and I will open the call up for questions.

Thanks for taking my questions and congrats on the progress this quarter. I wanted to start out on the paint segment. And John, I think you mentioned there is $25 million of incremental spend in 3Q. So just rough math seems to suggest that that's talking about dropping down to something like a 14% operating margin. Is that the right way to think about it? And then how should we think about the fourth quarter? Is any of that actually a pull forward from the fourth quarter?

To answer your question directly, we continue to believe that this is going to be a high teens margins business. What is driving a lot of the spend is that we had a 4th of July event this year that was a 5-day event instead of the usual 10-day event. We benefited from all the sales related to that promotion in the quarter, but not the expenses. We don't anticipate the total expenses we incurred last year will differ from those this year. We still incurred expenses and the window of time was shorter, which is what is driving that expense. Therefore, even with the $25 million of incremental expense we discussed, I still believe you'll see high teens margins from this segment in Q3.

Got it. Okay. And then shifting gears to the cabinets, obviously strong performance there. I think you credited mix, but I wanted to also dig in because obviously at the Investor Day, we heard a lot about some of the initiatives and with the new leadership there. So how much of that, would you say, is being driven by some of those tasks that Joe Gross came in, and from day one, he seemed to think there was a large bucket that was still low-hanging fruit. How much are you already benefiting from that in the quarter, and what should we expect going forward?

We’re clearly seeing a benefit of Joe’s leadership and that entire team. I'm extremely pleased with the progress they're making, and they are laying the groundwork for this business to be even better. When we think about the outlook for the remainder of the years, as John and I both mentioned, we believe this segment will contribute $25 million of operating income this year. We’re going to continue to drive the business beyond that.

Okay. Thank you.

Good morning.

Good morning, Susan.

First, just coming back to the cabinet for a minute, the $25 million profit for the year is not that far from sort of where we had been going prior to this quarter. So it seems like even with the POP, you are really not changing your back half expectations a lot. Can you just help us understand how we should be thinking about that and maybe how sustainable some of these things that you’ve seen?

When we look at the demand pattern, we are seeing new construction accelerate in the second half of the year, which is favorable for us. We have the leading new construction brand in Merillat on the cabinet side, which is positive in terms of overall volume. However, it does come with a somewhat leaner mix for us, so we are experiencing some headwinds related to that mix in the latter half. Nevertheless, we feel good about the underlying demand in this segment. Our KraftMaid brand continues to gain market share at retail, and we are very optimistic about that. Overall, we believe we will achieve $25 million in operating income for the year.

And Susan, to add to Keith’s comments, we are assessing this segment which we discussed during our Investor Day, and we estimate that we delivered about $10 million of operating profit for the entire year. Considering the strong performance in the second quarter and the positive outlook Keith mentioned for the second half, we believe that our new target of $25 million represents a significant increase from our prior expectations.

Okay. And then in terms of the share repurchase, you noted that you increased the dividend. Is there any thought about perhaps accelerating the share repurchase activity or increasing that authorization at all?

We can’t, Susan. The authorization was just put forward in September of last year. At that time, we’ve been very consistent in saying that we repurchased between $400 million and $500 million worth of shares each year. And so at this point we are not changing that guidance at all. We expect to in 2015 repurchase somewhere in that $400 million to $500 million range.

Okay. Thank you.

Thanks. I also wanted to dig into cabinets, terrific performance there. And I wanted to understand, this improvement has happened a lot more quickly than you laid out at your Investor Day and certainly, I think than a lot of people were expecting. So, first of all, starting on the revenues, you mentioned even with some trimming down of low margin business in the builder channel, there was enough pricing improvement and dealer KraftMaid sales to drive a pretty decent sales performance. So if we were to break those down, how did those weigh on the sales number, what was the main driver in driving the good sales performance there, how much pricing, how much volume and how much of an offset might there have been from shedding some of the lower margin business?

It was a mixture, Nishu. When considering the KraftMaid brand, we have seen considerable success in the retail channel, leading to favorable sales and good margins with KraftMaid, and we are certainly benefiting from that volume. We also recently launched the KraftMaid Vantage program, a dealer-exclusive product line that has surpassed our expectations. It meets the needs of designers, owners, and dealer principals effectively. The advantages of KraftMaid in terms of overall unit volume, mix benefits, and pricing have been crucial in our turnaround. For the pricing and builder direct side with the Merillat brand, it's more of a balanced approach where we are achieving good results from price increases while becoming more selective in the builder direct business. We have also significantly reduced costs, eliminating the penalties and inefficiencies from our previous ERP system while improving raw material yield rates, machine efficiencies, and labor efficiencies. These various factors have contributed to our improvements on both the demand and cost management fronts. I couldn’t be happier with Joe and the team.

Got it. Got it. Great. And actually, I also wanted to ask about the cost side. That was very helpful color. At the Investor Day, Joe had talked about seeing a bucket of $50 million roughly of cost that could come out of this business and obviously, you talked about the margin potential of the business. Any updated thoughts on that? Seems like that has gone better than expected? Any updated thoughts on the kind of cost takeout potential out of this business longer-term?

Our focus is still on this year. We are going to continue to drive this business and make it all that it can be our target. We’ve moved up from $10 million to $25 million in the year, and certainly we see the potential for this business to be better beyond that. But for now, Nishu, we're really focused and Joe is focused on driving this business this year.

Great. Thanks.

Thank you. Just looking forward, particularly in commodity, raw materials, do you see anything coming? Is it going to be a change from what we’ve seen from the first half of this year?

In terms of the input costs for plumbing, copper has experienced some volatility recently, mainly showing a downward trend. However, new legislation concerning brass and flow rates in California is shifting our product mix. We are developing new products to meet these requirements and we are optimistic about that. As international sales grow, purchasing of brass and copper in U.S. dollars could have a minor negative effect moving forward, but we don’t expect it to be significant. Overall, I’m confident in our position. Additionally, we are very pleased with the progress in the trade channel, particularly with our Delta and Brizo brands, as we are seeing strong sales through this channel.

And slightly same question for the same business moving forward.

We have observed positive trends in that segment. As we mentioned, we are dedicated to investing in it because it offers strong returns. These investments in that area not only increase our revenue but also strengthen our brand positioning and enhance customer loyalty, creating a virtuous cycle. We are enthusiastic about this commitment. Our plan is to invest broadly in that segment, including new program wins in Liberty Hardware as well as advertising and promotion. We are nearing the conclusion of expenses related to the color centers. Overall, we anticipate an additional $25 million in spending when comparing the third quarter of this year to the same period last year. In the long term and for this year, we expect this segment to maintain a margin around 18%.

Okay. Thank you.

Hey. Good morning and congratulations on the quarter.

Thanks, Will.

Thanks, Will.

Just a question on regional trends. We heard about just like most folks, demand being impacted in main places like Texas, partly because of falling rain. Are there any regional trends, which you could call out in your business or dampening of sales, driven by some of the weather activity we saw in the second quarter?

We did see a little bit of a headwind, as you might expect, in our exterior paint business in Oklahoma and Texas with all the rain that they had. But when you look broadly across the country on a take repair or remodeling, really from a new home construction perspective, good growth around that southern smile in the United States particularly in Florida and Carolinas. So a little bit of regionality, but really the demand patterns when you look across repair and remodeling and new construction have been pretty steady. When you look across our channels at retail, trade, and direct to builder, we are really seeing some nice steady growth, and in particular our trade and dealer business is strong, both in the cabinet business as well as plumbing. So we like the way the portfolio is mixed across both the demand drivers regionally and geographically. We are seeing some good growth in Central Europe. Southern Europe is starting to raise its head up a little bit and pick up real solid growth in the U.K. And in China, Hansgrohe continues to win with their brand and innovation and their strong dealer network over there. So it’s a pretty steady story both channel-wise and regionally.

Thanks for that. And just one follow-up on the cabinets business. Do you feel like you picked up any share in the second quarter? Or is the demand pace that you saw in the second quarter probably going to be a good proxy for what we might see in the second half?

We picked up share in retail. We feel confident saying that. The KraftMaid brand continues to resonate with the designers and the influencers, and it’s a great product and it’s working well for us. On the dealer side, as we’ve talked about in the past, it’s really a touch quarter-over-quarter basis to peg the market size there, but we feel we are holding our own and gaining slightly on the dealer channel.

Thanks again. And congrats once again.

Hey, good morning. You guys smoked the quarters. It’s got to be a great feeling. I wanted to ask you on paint. You had a pretty tough comp coming in, and you actually put up a really good topline there. Is this due to end market growth or is this due to product innovation? And you’re putting $25 million into 3Q. And my guess is that will turbocharge demand. How should we be thinking about the demand cycle given the trends? Is this end market growth, product innovation, or just a byproduct of you guys pounding with the category?

Yeah. I will start off and repeat the part of your question and turn part of it over to Keith as well. You are right; we did come into the quarter with a relatively tough comp. I think we have 5% in the second quarter of last year. So you are right, so good performance by the Behr team, we’re really proud of what they've done. I would say part of your question definitely is innovation is helping drive the growth at Behr. The Behr Marquee is resonating well with the consumers. But then I will say our Pro initiative is continuing to gain traction over time. Obviously, it’s been building over the last year or two from a relatively small number, but we are seeing consistent growth as we penetrate the pro channel. Keith?

Our core is doing very well as well, Bob. The new color centers, while the installation has just completed in June for those color centers that have been in for a full quarter, we are seeing a nice lift. The product is resonating and we are really looking for it, as we move into the third quarter to leverage and overlay nice ad spend onto that new merchandising and the new products altogether. So we think it’s a nice 1-2-3 punch to drive us into the quarter and finish the year. In terms of how much of our success here is share versus end market growth, that’s as you know difficult again to peg the size of these markets, and it’s tough to parse that out, but we feel very good about both the underlying economics around the repair, remodeling and particularly this size ticket with paint. And we also feel very good about how we’re delivering from a merchandising, product, customer satisfaction, and customer experience standpoint.

Let me ask that differently. Do you think gallon growth will track low-single digit or more mid-single digit?

I think more low.

Got it. And on your cabinets business, I would say this is a pretty V-shaped turnaround real fast. Hats off to you guys because I am sure that took some intense work. You’re putting up a 5% margin, 5.6% massive year-over-year improvement. I am not looking for a spike in exact here. You went from $10 million to $25 million of operating income. But maybe just leveraging off some of your prior commentary, at mid cycle what kind of margin do you think you can deliver in this business and what are the steps you need to get there? Thanks very much. And good luck.

I would say high single, low double-digit margins.

Any view on timeframe to realize that kind of profitability?

Well, it’s tough to nail it down to a timeframe. I hate to do that here. I would tell you that I think this business, we’re going to continue to drive it through the year to that $25 million and then there is upside for that.

Yes, Bob, I think the second half of this year will tell us more about the trajectory of this business.

Keith, I understand you don’t provide detailed updates throughout the quarter, but could you share more generally about how the quarter progressed, specifically looking at trends in North America and Europe? Additionally, regarding the paint segment, a competitor recently did a significant rollout at Lowe's while you were also launching your color center. Can you explain what impact that competitor's launch had on your business, and how the introduction of the color center has affected your performance, as well as how you are assessing that impact?

In terms of the in-quarter trend, when you peel back some of the inventory fluctuations that are natural, whether you're talking about system load for a promotion or just some natural fluctuations that can happen in the channel, you pull out FX. It really was remarkably steady over the quarter in terms of a month-by-month look. So, I would characterize to your first question in terms of the in-quarter trend as being remarkably steady.

Nothingly different between North America and Europe either.

Okay.

Yeah. Same story over in Europe, pretty level and we like that. This type of demand increase and this type of macroeconomics bode well for us. We have the capacity in place from a brick-and-mortar standpoint with our significant capital investment to support this kind of growth. With this kind of steady nature of it, our people systems respond very well to that in terms of retaining and training our staff. We can maintain our customer satisfaction levels and quality levels and do it in a way that it is a reasonable amount of overtime, avoiding fixed spikes in premium freight and logistics hits. So we like this types of steady good momentum on the growth side. Don’t really want to comment about what’s happening, what competitor’s moves we’re focused in terms of those impacts. We’re focused on being the best channel partner. We can be for The Home Depot and being the best paint supplier we can be for the consumer, and it’s working. The color centers were just really finalized and put in June. So it’s too early to tell, but for those centers that have been in for a while, particularly the ones that have been in for some time up in Canada, we are seeing all of our research that we’ve conducted with The Home Depot. We’re seeing it pay off. It’s a better mousetrap, a better merchandising solution that takes into account how the buyer has changed over time, and we’re excited about it.

Thank you for that. John, could you share your thoughts on the expected cash flows for 2015 and how you plan to prioritize different areas? Also, while it's early to discuss 2016, does 2015 feel normalized, or do you anticipate any notable differences impacting cash flow and usage as we approach 2016?

No, no. Stephen, in terms of cash flow, the only thing that’s going to be unique this year is obviously why the $200 million dividend from TopBuild that we got in the second quarter from them. But beyond that, it should be relatively normalized cash flows in terms of, I think you brought the questions on capital allocations. Our priorities really haven’t changed much from what we discussed at our Investor Day. Obviously, we continue to invest in the business is our first priority, and as Keith referenced we have a relatively low investment requirement for that. Beyond that, we talk about paying down a little bit of debt next year, also balancing that with acquisitions and shareholder-friendly requirements. Obviously, we just announced the dividend increase, about a 6% dividend increase effective about the fourth quarter. So that will be a slight use of cash, but it shouldn’t be significant just given our share repurchase activities. The overall cash outflow impact isn’t changing significantly or so. We feel really good about our cash flows. In terms of ‘16, again I don’t think we’re going to change all that much for 2016. I think we’ll continue to focus on investing in the business, share repurchases, and acquisitions to continue to grow the business. So I think a very consistent message you’ll hear from us over the course of the next two to three years.

All right. Thank you. I appreciate it.

Good morning.

Good morning.

One more question on the cabinet business. Curious if you look at two factors, one for the market and secondly, your share. In terms of the market, do you feel that the repair remodel market is the same or accelerated? And then secondly, you comment on the KraftMaid is continuing to gain share. We just love to understand how this year performance now is different than before? What's driving that, and is there any change in promotional efforts or traction in that business?

On the market side, Eric, we feel good about R&R. There is a basket of indicators that are all positive when you look at employment levels, consumer confidence, household formations, and importantly, improving values of existing homes, which is a key driver for this segment. So, you couple those indicators with what we believe to be pent-up demand where people have put off these types of purchases, and they can now connect with that in terms of return on investment in their homes. We think there is good steady R&R growth that we’re looking at. In terms of our share, clearly, we’re doing well in the home centers. We’ve been steady in our promotional strategies as you recall a couple quarters ago, we talked about fine-tuning that. We've gotten to a very nice place where it’s productive for us in terms of driving demand, but it's also very profitable and sustainable. So, I wouldn’t characterize our promotion activity as really much different from prior quarters. I mean, it is continuing to work. You supplement that with some of our targeted new product introductions both into dealer and retail channels; it’s all contributed.

I appreciate the repair remodel market dynamics have been favorable in terms of home values and those factors. But it’s probably cabinets has kind of lagged other categories in participating. Are you suggesting or seeing that the cabinet market is now performing along with other categories, or perhaps you see that all along? Can you just give a little bit more color on that?

I think we're seeing it improving. I know we’re seeing it improving. The pent-up demand is starting to release, we believe together with all those other macros. So whether or not this large ticket is the way up to the rest of the market, tough for me to say but we certainly are seeing it improving. We are seeing it across the board, which gives me confidence. We’re seeing it in our window business where we are having nice success with our higher-end range there. We are certainly seeing it in plumbing as we drive our assortment and we pay better attention to the showroom channel. So, we are seeing good uplift there in terms of ticket. You look at Watkins, I mean, you don't get much more discretionary than expenses far, and we are really doing well; record quarter in that business. So when you look at it, I look at it from a number of different angles to try to get a feel for in particular big-ticket on the cabinet side is starting to unleash a little bit; I said yeah, it is, and we like it.

Great. Thank you.