Masco Corp (MAS) — Q3 2025 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2025 Third Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer. 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 and 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 will now turn the call over to Jon.

Thank you, Robin. Good morning, everyone, and thank you for joining us. I want to start today with a few reflections on my first 100 days as President and CEO of Masco. Over the last 3 months, I've had the privilege of meeting with our teams, customers, and shareholders. I've toured manufacturing sites, participated in strategy reviews, and listened to feedback related to both our strengths and opportunities to confirm what I believe to be true when I took this role. We have a strong foundation, industry-leading brands, innovative products, and incredibly talented and dedicated people. Our product portfolio is focused on the right categories, and we have industry-leading capabilities. We've shown resilience in navigating dynamic environments while continuing to deliver value for our customers, consumers, and shareholders. I've been especially impressed by the market leadership across our business units. Delta Faucet Company has demonstrated incredible agility in the face of a dynamic geopolitical and macroeconomic environment, with a very strong partnership with our largest retail customer driving significant value for them and for us. Hansgrohe continues to be a global leader with customers in over 100 countries, and Watkins Wellness is winning with strong innovation, even amid broader category headwinds. There's real momentum here and also a real opportunity. In the coming months, we will focus on unlocking those opportunities with continued strong execution, greater speed, and strategic investments in the capabilities that set us apart. I'm proud to be part of a team that delivers at a high level. I'm incredibly excited for the opportunities ahead. Now let's turn to our third quarter performance and updated outlook for 2025. Please turn to Slide 6. We continue to navigate a dynamic geopolitical and macroeconomic environment during this quarter. While the near-term market conditions remain a headwind to our business, our teams continue to focus on execution to grow market share and drive long-term shareholder value. For the quarter, our net sales decreased 3% in local currency, and excluding the Kichler divestiture, sales decreased 2%. Operating profit was $312 million, and operating profit margin was 16.3%. Earnings per share for the quarter was $0.97. Now turning to our segments. Plumbing sales increased 1% in local currency. North American plumbing sales increased 1%, driven by favorable pricing. Delta Faucet delivered strong performance again this quarter, particularly in e-commerce and trade. We recently relaunched our iconic Newport Brass brand, showcasing the brand's timeless design and enduring quality. This relaunch helps shape and expand our luxury portfolio, representing an important growth initiative for our business with an addressable market of $1.8 billion. Another important growth initiative for Delta is in the water filtration category with a market of $1.2 billion for under-counter water filtration products. Delta's new product introductions in this category continue to outperform our initial expectations, and our tankless reverse osmosis water filtration system was recently named the winner of the Good Housekeeping 2026 Kitchen Award. International plumbing sales were in line with the prior year in local currency. We saw growth across many of our European markets, while the China market was increasingly challenged. Operating profit for the segment was $204 million. Operating margin was 16.4% and included higher costs such as tariffs, commodities, and inventory-related reserves. Turning to our Decorative Architectural segment, sales decreased 12% in the quarter or 6% excluding our divestiture of Kichler. Operating profit for the segment was $128 million, and operating margin increased 100 basis points to 19.1%. Within our Paint category, overall paint sales decreased low single digits. DIY paint sales decreased mid-single digits as demand for DIY paint remained soft across the industry, impacted by low existing home turnover. In PRO Paint, sales increased low single digits. This continues the trend of multiyear growth for our PRO Paint. We remain tightly aligned with The Home Depot as we both prioritize and invest in strategic initiatives that allow us to capitalize on the sizable growth opportunity in the PRO Paint market. We also continue to develop new products at Behr that serve the needs of our customers. Most recently, we've launched Kilz original water-based primer and Behr Premium plus Ecomix, a plant-based interior paint. These launches demonstrate our commitment to introducing innovative and sustainable products with quality that our customers can trust. Turning to capital allocation. We generated strong free cash flow during the quarter and maintained a solid balance sheet. We remain committed to our capital deployment strategy and returned $188 million to shareholders this quarter through dividends and share repurchases. I'm proud of how our teams continue to work diligently to implement various mitigation actions in response to the near-term macroeconomic uncertainty, the geopolitical environment, and rising costs. We are focused on remaining agile as we continue to execute effectively in this rapidly changing environment. Turning to our expectations for the full year. We now anticipate adjusted earnings per share for 2025 to be in the range of $3.90 to $3.95 per share compared to our previous expectation of $3.90 to $4.10. Our updated range includes the impacts from our third quarter results as well as higher tariffs and our expectations for softer industry demand resulting from the ongoing macroeconomic and geopolitical uncertainty. While uncertainty remains for the near term, we are focused on positioning ourselves for growth over the mid- to long term. The structural factors for repair and remodel activity are strong, including the age of the housing stock, consumers staying in their homes longer, and near-record high home equity levels. We have the right portfolio mix, and our innovative new product introductions are outperforming our expectations. We continue to gain market share in key growth areas, including e-commerce, luxury faucets and showering, and PRO Paint, and we are building strategies to further accelerate growth opportunities. Our high-performing teams have a history of leadership in navigating dynamic environments. When that leadership is combined with the strength of our brands, innovative products, and unmatched customer service, we believe we are well-positioned to continue to deliver long-term value for our shareholders. With that, I'll turn the call over to Rick to go over third quarter results and our 2025 outlook in more detail.

Thank you, Jon, and good morning, everyone. Thank you for joining. As Robin mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other one-time items. Turning to Slide 8. Sales in the third quarter decreased 3% or 2% excluding the impact of our divestiture of Kichler and favorable currency. Our divestiture of Kichler in the third quarter of 2024 resulted in a decrease in sales by 3% year-over-year in the third quarter of 2025, while currency represented a 1% increase in sales. In local currency, North American sales decreased 6% or 2% excluding the divestiture impact. International sales were in line with the prior year in local currency. Gross margin of 34.6% in the quarter was impacted by higher tariffs and commodity costs. SG&A decreased $16 million, primarily due to our divestiture. SG&A as a percent of sales improved 20 basis points to 18.4% in the quarter. Operating profit was $312 million in the quarter, and our margin was 16.3%. Operating profit was impacted by lower volume and higher costs, primarily related to tariffs, commodities, and inventory-related reserves. Note that the temporarily elevated tariffs of 145% on China imports added approximately $15 million to the overall tariff impact in the third quarter, primarily in the Plumbing segment. These impacts were partially offset by pricing actions and cost savings initiatives. Our EPS was $0.97 per share in the quarter. Turning to Slide 9. Plumbing sales increased 2% in the third quarter or 1% excluding the favorable impact of currency. This growth was largely driven by pricing, which increased sales by 3%, partially offset by lower volume. In local currency, North American plumbing sales increased 1% in the quarter. This performance was primarily driven by Delta Faucet, which delivered growth in both the e-commerce and trade channels. In local currency, international plumbing sales were in line with the prior year. Hansgrohe continued to see growth in many of its European markets, including its key market of Germany. This growth was offset primarily due to an increasingly challenging market in China. Segment operating profit in the third quarter was $204 million, and operating margin was 16.4%. Operating profit was impacted by lower volume and higher costs such as tariffs, commodities, and inventory-related reserves, partially offset by pricing actions and cost savings initiatives. Turning to Slide 10. Decorative Architectural sales decreased 12% in the third quarter or 6% excluding the divestiture of Kichler. Performance in the quarter was driven by lower volume in our paint business as well as our builders hardware business, which also was unfavorably impacted by timing of shipments. In the quarter, total paint sales decreased low single digits due to lower volume. PRO Paint sales were up low single digits, and DIY Paint sales decreased mid-single digits. Given the persistent softness in the overall DIY paint market and the favorable inventory timing we experienced in the fourth quarter of last year, we continue to anticipate our total paint sales for the full year to decrease mid-single digits. Excluding the impact of the prior year inventory timing benefit, we would anticipate full year DIY Paint sales to decrease high single digits. In our PRO Paint business, we continue to expect sales to increase mid-single digits for the full year. Operating profit in the third quarter was $128 million, primarily impacted by lower volume, partially offset by cost savings initiatives. Operating profit margin increased 100 basis points to 19.1%. Turning to Slide 11. Our balance sheet remains strong with gross debt to EBITDA at 2x at quarter end. We ended the quarter with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 18.5% of sales at quarter end. Working capital continues to be impacted by tariff-related dynamics, including higher material costs and pricing, increasing our working capital balances. Given our strong cash generation, we returned $188 million to shareholders in the third quarter through dividends and share repurchases, including the repurchase of $124 million in stock. As it relates to capital allocation, we now expect to deploy approximately $500 million towards share repurchases or acquisitions in 2025, slightly higher than our previous expectation of at least $450 million. This increase is driven by a cash tax benefit from the recently enacted tax legislation. Now let's turn to Slide 12 and review our full year outlook. The market environment remains volatile and tariff uncertainty persists. The guidance that is being provided today includes the impact of currently enacted tariffs in effect in October, which now includes new tariffs on copper, antidumping duties on glass, and increases to global reciprocal tariffs, particularly on Vietnam, Thailand, and the European Union. As a result of these additional tariffs, we now estimate that the total annualized cost impact of all incremental tariffs enacted this year to be approximately $270 million before mitigation, up from $210 million as of our second quarter earnings call. Of the $270 million annualized cost impact, approximately $140 million continues to be related to the incremental 30% China tariffs. The remaining $130 million is driven by the global reciprocal tariffs, the 50% tariff on steel, aluminum, and copper, and the glass antidumping duties. Of this approximately $270 million total annual cost, we expect a 2025 in-year impact of approximately $150 million before mitigation, up from $140 million as of our second quarter call. Our teams continue to actively work to mitigate these additional costs through a combination of levers. These include cost reductions, continued efforts to change our sourcing footprint, and pricing where necessary. We anticipate that these mitigation actions will mostly offset the direct cost impact of the currently enacted tariffs in 2025. It is important to note that our guidance does not attempt to estimate the impact of potential future tariffs or any changes in existing tariffs. Turning to the overall market, our expectation continues to be that the U.S. and international repair and remodel markets will decrease low single digits in 2025. For Masco, we expect our sales in 2025 to decrease low single digits, impacted by the 2024 divestiture of Kichler, which will reduce sales by approximately 2% year-over-year. We anticipate currency will have a favorable impact of approximately 1%. Excluding the impact of our divestiture and currency, we now anticipate Masco's overall sales to be down low single digits versus our prior guidance of roughly flat year-over-year, given continued industry softness with lower volumes partially offset with pricing. As a reminder, fourth quarter sales will face a challenging year-over-year comparison due to the favorable inventory timing impact we experienced in our paint business in the fourth quarter of last year. We now anticipate total company operating margin to be approximately 16.5% in 2025 versus our previous guide of 17%, driven by slightly lower volume, the impact of additional tariffs, and higher costs. In our Plumbing segment, we continue to expect 2025 full year sales to be up low single digits. We now anticipate the full year Plumbing margin will be approximately 18% versus our previous guide of 18.5%. In our Decorative Architectural segment, we continue to expect 2025 sales to decrease low double digits or mid-single digits, excluding the impact of our divestiture. We also continue to anticipate the full year Decorative Architectural margin to be approximately 18%. Finally, as Jon mentioned earlier, our 2025 EPS estimate is $3.90 to $3.95 per share. This continues to assume a 211 million average diluted share count for the year and a 24.5% effective tax rate. With that, I would like to open up the call for questions.

It's Steve. I wanted to start by discussing the paint side. A competitor mentioned a price increase starting January 1. Could you share how that might affect your pricing outlook as we enter the new year for decorative architectural products? Also, it would be helpful to hear your thoughts on pricing in relation to competitor actions, considering your relationship with Home Depot.

Steve, it's Jon. Thanks for the question. We certainly have a unique relationship with Home Depot. It spans over 40 years, and is incredibly strong. As you mentioned, we do have a relationship that's essentially price-cost neutrality over time. As we look at our decorative architectural and particularly our paint input costs, we see some upward pressure, but not significant. So at this point, again, we'll continue to have private conversations with our retail partner, but I wouldn't expect to see significant pricing on paint as we move into the coming year.

Okay. That's very helpful. Appreciate that. Aatish, do you want to jump in on the tariff?

Yes. I just want to clarify on the tariffs. When all is said and done, kind of longer-term impact to Plumbing margins from tariffs, how do you see that, given that price action will mostly mitigate tariffs dollar for dollar? It's more of a longer-term question on Plumbing.

Yes, sure. Well, from a tariff perspective, as we've all realized here, it's a relatively volatile and dynamic environment. Based on the current tariffs enacted as of October, we articulated it's about a $270 million annualized impact. And we're tackling that on a number of fronts from a mitigation standpoint. First and foremost, from a sourcing standpoint, particularly sourcing out of China, where our largest exposure exists, to other markets; also reducing cost and sharing that tariff impact with our suppliers. And third is pricing, as you alluded to. Those are levers that we continue to pull. Our objective is to not only offset the dollar cost of tariffs, but ultimately, the margin implications over time. We've got to track and monitor the situation closely. Based on where we sit today, our expectation is that we'll continue to work towards mitigating. As mentioned in our comments, we've mitigated a large part of the tariffs, not all, but a large part this calendar year. Certainly, our objective as we move into 2026 is to mitigate further as well as start working to build margin. We're continuing to focus on the mitigation and working to restore our margins over time.

I wanted to ask one, I guess, kind of zooming into the plumbing margins, and I guess, the 3Q results specifically. I think you guys have previously signaled that there would be some of that impact from the 145% tariffs. And so, I guess that played out. But the question is, was there anything else that was effectively a surprise compared to your own expectations? Did any of those incremental tariffs that were coming in the summer end up sneaking into the quarter there as an impact? Or just any other cost that ended up surprising you?

Sure, Matt. It's Rick. As it pertains to our Q3 results, I would say it was impacted really by 3 drivers. One is tariffs, as you articulated. There were incremental tariffs since our Q2 call as you articulated. But that incremental $10 million of in-year impact is really going to be a Q4 event. Those were new tariffs since our Q2 call. So that factors into our updated guidance for the year, but that's really a Q4 dynamic. The second driver is softness in the industry. So we do believe the industry, both North America and international is going to be down low single digits. We're coming in from an industry perspective on the lower end of that range. That was a bit of an impact as we flow through Q3 and the calendar year outlook. The third driver was incremental costs, with regards to commodity inputs, particularly on copper, that continue to be elevated, as well as the inventory-related reserves that we had to adjust in our assumptions based on market conditions. We had a higher than typical adjustment in the quarter. Those would be the drivers behind our margin performance in the quarter.

Okay. Got it. I guess secondly, I wanted to touch on the builders' hardware business since paint and coatings is only down low single digits overall. I think I heard you say there were some unfavorable inventory timing. I'm wondering if there was maybe a pre-buy earlier in the year or just kind of more elasticity related to price increases in that category. So presumably, it would have been a fairly large move in that business to impact the segment as it did. So just any more color on exactly what's going on there.

Sure, Matt. It's Rick. Yes. As it pertains to the builders' hardware business, it was impacted by softness in sales as we saw really across the industry. But as we mentioned in our opening comments, there was a bit of a shipping timing dynamic. It was really due to a planned shipping process change in the quarter. We curtailed our shipments during the quarter in order to implement the change. So it is something that we noted, but we do not believe that it would be a significant impact for the calendar year overall.

Great. First question, I just wanted to clarify on the Plumbing margins for the third quarter. Given that some of that was already anticipated at 145%, was the difference compared to expectations perhaps more influenced by the inventory-related reserves? Or were there other factors also at play? I believe the overall more recent tariff changes you mentioned are more of a Q4 event?

Yes, sure, Mike. You're right. As it pertains to our expectations coming into the quarter, we had anticipated the elevated China tariffs. That was part of our expectation. I'm not sure it was fully contemplated all in Q3 in terms of external expectations, but certainly, we had anticipated that internally. In terms of developments since our second quarter call, there were two. One is the inventory-related adjustments that we mentioned. The second is just softer sales, particularly in certain markets like China that came in lower than we had anticipated.

Sure, Mike. Yes, your observation is directionally correct. Ultimately, we see the industry coming in a bit lower, on the lower end of our range. As expressed in EPS, we are coming in at the lower end of our range due to lower industry expectations. It's relatively across the board; it does impact the Plumbing segment, as we mentioned, particularly China, but also impacts our builders' hardware as well as our DIY Paint. So not dramatic changes, but the industry is a bit softer and really at the lower end of our expectations. As it pertains to our underlying performance, I would classify that as pretty solid, meaning that we're continuing to perform in line or, in many categories, better than the overall industry. It's just the overall industry softness that continues to be relatively weak.

Some clarifying questions on tariffs. I guess just to be clear on China. It seems like you're still at, call it, $450 million to $500 million of underlying cost of goods sold. So there's been discussions in the last couple of days about the tariffs getting reduced by maybe 10%. Is it right to think about that as a $50 million annualized impact if that came to fruition in terms of that $140 million going to something more like $90 million to $95 million? And then the second part of the question would be, if you could just break out what's like within that other $130 million, can you just specify what the global reciprocal bucket is versus the steel, aluminum, copper and the antidumping?

Sure, Mike. Your math on the first question is directionally correct. As we've articulated in the past, our annual import exposure from China is $450 million on a 30% tariff that represented about $140 million of impact. Hypothetically speaking, if there were a change in tariffs, whether it's plus or minus, you can extrapolate from there. As it pertains to your second question, we're not going to provide a detailed breakdown in terms of the composition of our exposures in the 'other bucket.' It's really a composition of reciprocal tariffs, Section 232 tariffs on steel, aluminum, copper, and glass antidumping duties. Part of it is a dynamic environment. As we continue to modify our sourcing footprint, as we move out of China into other markets, and we continue to manage and work aggressively to mitigate our tariff exposure, those underlying exposures will change and update over time. What we will do is continue to provide the investment community with an overview in terms of the financial implications split between China and everything else as we've done this quarter. From an annualized perspective, we have a $270 million annualized exposure, $140 million is China, $130 million is everything else. We'll continue to provide updates if and as things change in our quarterly reviews.

Okay. Understood. That's so helpful. My second question is just specifically on paint. I understood that you've got the comp dynamic. The fourth quarter still implies like a pretty big step down in margins in the fourth quarter versus what's been really solid like 2Q, 3Q performance despite the top line challenges. So I'm just wondering if there's anything else there in the fourth quarter aside from just comping against that load-in that would be driving that margin down so much?

Yes, nothing particularly of note. What I would say is the biggest driver on a year-over-year basis in terms of top line and margin; I know you're talking about Q4 specifically in regard to the unfavorable comparison relative to the impact of the favorable channel inventory build that we experienced in Q4 of 2024. So that is really the biggest driver from a year-over-year perspective.

Wanted to touch on plumbing price in a little bit more detail, the 3% you reported. Could you just characterize kind of where that landed relative to your expectations? I know you had larger price increases in the market. So just curious kind of what you got on a realization standpoint versus what you were expecting to get? And then as you look to the fourth quarter, does the guidance contemplate any step-up in plumbing price sequentially? Just wanted to maybe understand that Q4 dynamic as well on price in plumbing.

Sam, this is Jon. Maybe I'll start, and then Rick can jump in as well. I would say that pricing in plumbing primarily played out according to plan and what we expected. If you think big picture, obviously, there was a significant increase in tariffs versus what we thought at the beginning of the year. The team, particularly at Delta, which is the most impacted business, has done a remarkable job of mitigating tariffs. It starts with making sure that we optimize our footprint. We've been doing that over time. We have a 40% or 45% reduction versus 2018. We'll continue there, working with our suppliers on concessions, looking at our own cost structure and ensuring that we optimize that. Then ultimately, as the last resort, we will take pricing, and we did take pricing throughout this year. I would say it's executed according to plan, and we'll continue to look at what we need to do as we move into the coming year as well. In terms of Q4, I'll let Rick cover that.

Yes, Sam, in terms of sequentially, as you would expect our mitigation actions take hold over time, really from pricing, cost reduction and sourcing standpoint. You would expect that our pricing would be one of the levers to continue to gain traction over time. I'll leave it at that.

That helps. And then one more plumbing-related question here. You called out strong Delta performance in 2 channels, e-commerce and trade. I might have missed, but how did Delta perform in home center? And perhaps can you talk through kind of how you trended in home center relative to the broader category?

Yes, absolutely. So Delta, in particular, had a very strong quarter driven by e-commerce, where we saw nice growth. Our wholesale channel grew low single digits, and we saw relatively flat, maybe slightly down performance in retail. As we look to the coming year, we're excited about the plans we have coming, and we believe that we will be driving even stronger results in retail as we hit 2026, but no major bogeys from a plumbing standpoint and, again, strength in e-commerce, wholesale, and then relatively flat in retail.

There's a couple of factors impacting the back half. One of them, you talked about on the inventory side. Just wanted to get a little bit more clarity, if I could, on the lower employee-related costs that are not expected to repeat in the back half. So curious what was the third quarter impact of that and what's the expected fourth quarter impact?

John, you're referring to a comment that we made in the Q2 call, correct?

Correct. Yes.

Yes. So from an employee-related cost perspective, yes, you're correct. We did have a favorable benefit in Q2. We continue from a cost perspective to be very disciplined on cost, particularly given the current environment and managing people costs as well as other costs that continue to be a priority for us. We didn't have a repeat of the one-time item that we benefited from in Q2. Suffice it to say, we're continuing to drive efficiencies, and cost reductions throughout the business just to drive operational efficiency.

Okay. And then maybe just a follow-on to that, maybe outside of some of the tariff mitigation actions, what are some of the cost savings initiatives being taken in both segments to help lower the cost basis? And what do you expect for the impact of that on a go-forward basis?

Yes. So, John, we continue to leverage our Masco Operating System to enhance productivity and efficiency. This includes improving our plants, optimizing the supply chain, and achieving savings in procurement costs. While we discuss tariff mitigation, we are also focused on driving cost efficiencies throughout our sourcing operations. We are addressing automation, value analysis/value engineering, and this year, particularly, we are implementing more austerity measures related to headcount and discretionary spending. Essentially, it is a combination of all these factors affecting all our business segments.

You mentioned seeing some input cost inflation, more input cost inflation than you expected in Plumbing, call that metals. Can you put some numbers around what inflation rates you're seeing in your plumbing business in the third quarter and what you're expecting for the fourth quarter?

Sure, Trevor. It's Rick. Yes, we are seeing some upward pressure, particularly on copper input costs. In Q2, that was at a record high. It continues to be a headwind for us from an overall input perspective. To answer your question, it was a low single-digit inflationary impact in Q3 in Plumbing, and we expect a similar low single-digit inflation for the calendar year for the Plumbing segment.

Okay. That's helpful. And then a question on DIY Paint. Obviously, it's been weak for some time after being very robust during the pandemic. Now we've had several years of DIY Paint declines. Can you talk about where you think we are in terms of pull forward versus deferral? And do you think DIY Paint is a category that can get back to growth in fiscal '26?

Yes. Trevor, this is Jon. We really like our DIY Paint business. Obviously, the strength of Behr over time. DIY Paint correlates heavily to existing home sales. As you know, existing home sales are near 3-decade lows right now. When you sell a house, you typically paint it; when you buy a house, you typically paint it again. Without existing home sales moving at historical rates, that's really put a dent on the market. We expect the long-term fundamentals to get better for sure as existing home sales free up and start selling at more historical rates. Consumer confidence in interest rates will help with that. At the same time, we're excited about our PRO business. When you think about the upside there, we have relatively low share. We've grown nicely over time, and it's approaching nearly 50% of our business at Behr. We can continue to drive DIY while capitalizing on the PRO opportunity with our retail partner.

My first question is going back to Delta, you cited the strength that you're seeing in e-commerce and the wholesale channel there. Can you talk about what is driving that strength, the outlook, the ability to sustain that? And what that could mean for volume and price mix in the Plumbing segment next year if the macro does stay tougher?

Yes. So this is Jon. Maybe just a little color on Delta. I'm really pleased with that team and the momentum we're driving. I think it starts with the great job they do in building the Delta and Brizo brands, making them stand for something with end consumers. Innovation has been a big part of the Delta story. Our vitality rate, which is new products launched over the last 3 years, is at 25%, which we think is industry-leading, and we'll continue to drive that. We're also developing strong capabilities from an e-commerce standpoint, where we believe we're growing share significantly due to the insight we have with different retailers in that channel. The team is really firing on all cylinders. We expect that momentum to continue as we move into fiscal '26.

Sure, Sue. It's Rick. Yes, as you mentioned, we did increase our expectation for cash available for share buybacks or M&A activity from about $450 million to $500 million. A big component of that was the favorable cash tax benefit from the recently enacted tax bill. That was a favorable impact, and we are increasing our cash available for share buybacks and M&A accordingly. What I would say is as it pertains to timing, through the first 3 quarters of the year, we've returned just over $350 million to shareholders. You could envision that about $150 million remains for the fourth quarter. Regarding M&A activity, there's no change in our overall capital allocation framework and our strategy in that regard. We continue to cultivate a pipeline focused on bolt-on opportunities. Nothing to report at this time, but it's something we look at for our overall growth algorithm. If we do not have an opportunity this year, you would expect us to utilize that cash for ongoing share repurchases.

This is Maggie on for Phil. I guess, first, just maybe to ask the Plumbing pricing question a little differently. It was kind of surprising to see a similar pace, that 3% in 3Q, similar to 2Q, just given the tariff mitigation efforts and the magnitude of pricing you have out there. So are you seeing more pressure from competitive dynamics or just pricing fatigue from customers? Maybe just walk us through some of the puts and takes there?

Sure, Maggie. It's Rick. I think Sam asked a similar question from a sequential standpoint. Our pricing, as you articulated, was about 3% favorable from a Plumbing segment perspective, and that is as our pricing continues to gain traction in the market. I'm not going to get into specifics on Q4 at this point. But suffice it to say, we're gaining traction. As it pertains to overall dynamics, it's something that we're monitoring very closely. There's a number of levers we pull concerning tariff mitigation and addressing margin headwinds, which include sourcing footprint changes, cost reductions, and pricing as necessary. We will leverage pricing, but we'll do it in a targeted way, looking for a balanced approach overall. The bottom line is we continue to see pricing as a favorable impact year-over-year, but it will mostly be driven by our need to mitigate the tariff impact and assess the overall market dynamics.

Just on the timing-related issues in builders hardware, which is obviously a headwind in the third quarter. I think you mentioned that maybe it wouldn't be much of an impact for the full year. So would that imply that fourth quarter, those shipments kind of go through and therefore, the full year won't be as impacted?

Yes, directionally, that is correct. It was a Q3 adverse impact. But for the overall year, we don't expect it to be a significant impact.

Okay. Got it. And then just in plumbing, regarding China. You talked about that being a headwind. It seemed like maybe a bigger headwind than it's been in prior quarters. If you can maybe kind of walk through what you're seeing on the ground over there?

Yes, Adam, for sure. The market itself has been challenged. Obviously, you read about the housing market and what's happening in China. Local players have become much stronger as well. So between those two things, the market itself is challenging, and I think the competitive situation is challenging as well. We feel like we are holding up at least as well and probably better than our major global competitors in that market. We still like that market. It's a significant market for us, and we think over time, we'll be able to get back to growth, but it has been a bit more of a headwind in Q3 than what we had seen through the first half of the year.

Just a question regarding the inventory reserves you discussed in plumbing. Are you writing off obsolete inventory? What specifically is going on? And how much of a dollar hit is that?

Yes, Keith, it's Rick. As part of our normal process, we review our balance sheet reserves on a quarterly basis, as you would anticipate. We make adjustments quarter-to-quarter based on the assumptions in place at that time. This quarter, we felt called out, particularly given it hit our Plumbing segment and was one of the drivers of our margins. We wouldn't expect this to occur on a regular basis; it was appropriate to call out for Q3. In terms of overall magnitude, I'm not going to give you a specific dollar amount, but on a year-over-year basis regarding operational profit or operating profit margin, it represented about a quarter of the performance impact that year-over-year.

Okay. And is there a cash offset to this that comes, or is this a noncash element?

This will be noncash.

I have two follow-up questions. Regarding the DIY Paint, I see that sales have declined by 7% to 9%, and while the overall R&R market isn't performing poorly, you're connecting this trend to housing turnover. I'm interested in whether there are any strategic changes you could implement in this business to encourage better growth. Clearly, your PRO initiative in Depot is working well, but on the DIY side, is there anything different you could strategically do to enhance performance?

This is Jon. Good question. I think at the end of the day, the biggest way we can drive our business is to improve our brand. Behr paint has amazing quality, and we offer great value. We can get even tighter in our communications of why we have such a great proposition for our consumers. I think innovation is another area where we can do better. We're launching some innovative plant-based paint that's very much in trend with younger consumers, and that's exciting for us. We're with the right partner in the retail space and continue to work with them to maximize sales. I think tightening our brand messaging around quality and value will yield great benefits for us.

Okay. And then for Delta, your comments were optimistic about retail '26 growth. I'm curious if there's anything in the business or from a market share perspective that informs that or if this is more a function of lower rates and at some point, consumers will spend money. Just trying to figure that out.

Yes, great question. We have good sight lines into 2026 in terms of our plans with our major retailers. Without going into details, we feel really good about our distribution standpoint. We're excited about the innovation we have coming. We expect to have a very strong retail year in 2026 as a result of those plans.

I just had 2 quick ones on Plumbing. First, how would you characterize the performance of your best brands? You talked about the strength in Delta, I'm just wondering how Brizo and Hansgrohe are performing. Are they still outperforming the good, better? Or is there any change in that dynamic? Secondly, I guess, just a follow-up on sauna and wellness, which is a smaller part of the business, but curious how that category is performing in what's obviously been a tough market? Do you see the growth opportunity there organically or inorganically differently than you did 6 months ago or 12 months ago?

In terms of plumbing, we like the way our brands are performing. When you look at upper premium and luxury, brands like Brizo as well as Newport Brass and Axor, which is our global luxury brand, are growing the fastest in upper premium and luxury. We are seeing a bifurcation in the market, and we feel we're holding strong. Hansgrohe is growing nicely and taking share in most markets globally, although China remains a soft spot. Regarding Watkins, we are excited about the long-term opportunity. The low household penetration in hot tubs and saunas presents a tremendous opportunity for us. We're the market leader in hot tubs in North America, and we continue to push our advantage in this space. We think there is tremendous growth potential for this business in the short and long term.

We'd 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. Have a wonderful day.