馬斯科 (MAS) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Masco Corporation 2007 second quarter conference call. As a reminder, today's conference is being recorded and simultaneously Webcast. If you have not received the press release and supplemental information, they are available on Masco's website under the Investor Relations section, at www.masco.com. This discussion includes statements that reflect the Company's view about its future performance. These statements constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These views involve risks and uncertainties that are difficult to predict, and accordingly the Company's results may differ materially from the results discussed in such forward-looking statements. For an explanation of various factors that may affect our performance, refer to our most recent annual report on Form 10-K, particularly the risk factor section, and to any subsequent quarterly reports on Form 10-Q, all of which are on file with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The financial and statistical data referred to on this call is included in the investor package distributed prior to the conference call and posted on the investor packet -- the Company's website. In addition, we refer in this call to non-GAAP financial measures as defined by the SEC Regulation G. Accordingly, a reconciliation of the differences between such measures and most directly comparable financial measures calculated in accordance with GAAP is included in the investor package. The Company believes that such non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not an alternative for the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company filings with the Securities and Exchange Commission and is available on Masco's website.

After a brief discussion by management, the call will be open for analyst questions. If we are unable to get to your question during this call, please call the Masco Corporation Investor Relations office at 313-792-5500. I would now like to turn the call over to Mr. Timothy Wadhams, Chief Executive Officer of Masco. Mr. Wadhams, please go ahead.

Thank you, Steve. And thank you for joining us today. This morning we released our second quarter results. While sales and earnings results in the second quarter of 2007 were below the second quarter of 2006, reflecting a difficult housing and consumer retail environment, results were better than we anticipated when we updated our full-year 2007 earnings guidance in May. Earnings benefited from new products, market share gains, profit improvement programs, and selling price increases, which partially offset previous commodity cost increases and lower sales volume. Net sales from continuing operations declined 6% to $3.1 billion. North American sales declined 10%, while international sales increased 14% compared with the second quarter of 2006. In local currencies, international sales increased 6% compared with the second quarter of 2006. Income from continuing operations was $186 million or $0.50 per share for the second quarter of 2007, compared with $215 million or $0.53 per share for the second quarter of 2006.

As part of the Company's profit improvement programs, we have focused on the rationalization of our business, including sourcing initiatives, business consolidations, plant closures, head count reductions and other programs. During the second quarters of 2007 and 2006, the Company incurred costs and charges related to profit improvement programs of $23 million pretax or $0.04 per share after tax, and $26 million pretax or $0.05 a share after tax respectively. The Company also had noncash impairment charges related to financial investments of $10 million pretax, $0.02 per share after tax, and $78 million pretax, $0.13 per share after tax in the second quarters of 2007 and 2006 respectively. Results benefited from net gains of $0.01 per share and $0.02 per share related to financial investments for the second quarters of 2007 and 2006 respectively.

In the second quarter of 2007, gross margins were 28.8% compared with 29.1% in the second quarter of 2006. Operating profit margins were 11.6% in the second quarter of 2007 compared with 13.1% in the second quarter of 2006. Operating profit margins in the second quarters of both years include the negative effect of increased commodity cost and costs and charges related to profit improvement programs in both quarters, as well as reduced sales volume in 2007. SG&A expense as a percent of sales including general corporate expense was 17.2% in the second quarter of 2007 compared with 15.7% in the second quarter of last year. Year-to-date, SG&A expense as a percent of sales were 17.2% versus 16% a year ago. As a percent of sales, SG&A expenses increased in the second quarter of 2007 due to sales volume declines, increased advertising costs, severance costs and increased stock-based compensation expense.

During the second quarter of this year, retail sales of paints and stains and plumbing products were particularly strong. International sales were also positive, particularly for plumbing products due to stronger European economies, market share gains and the favorable effect of currency translation. Sales changes by segment in the second quarter of 2007 compared with the second quarter of 2006 were Cabinets and Related Product sales declined 15%, Plumbing Products sales increased 5%, Installation and Other Services sales declined 14%, Decorative Architectural Product sales increased 5%, and Other Specialty Product sales declined 11%. Key retailer sales from continuing operations increased 2% in the second quarter of this year compared with a decline of 2% in the first quarter of this year, and an increase of 1% in the second quarter of 2006. Faucets and paints and stains at retail performed well in the second quarter of 2007.

The Company's tax rate was 35.9% in the second quarter of 2007, compared with 38 -- 34.8% in the second quarter of 2006. The Company anticipates the tax rate on income from continuing operations in 2007 will approximate 35% to 36%. We continue to make progress on working capital management. Working capital at June 30th, 2007, defined as accounts receivable plus inventories less accounts payable, was 17.9% of the last 12-month sales, compared with 18.1% a year earlier. For the 12-months ended June 30th, 2007 and June 30th of 2006, return on invested capital as reported was 8.1% and 12.9% respectively. For the 12-months ended June 30th, 2007 and 2006, return on invested capital as reconciled was 10.5% and 13.4% respectively. While the Company remains committed to the continued improvement in its return on invested capital, recent business trends have resulted in a reduction of operating profit over the last several quarters, which negatively impacts ROIC. The Company continues to believe that it will achieve an ROIC goal of approximately 18% by 2010.

At the end of the quarter, Masco had a strong balance sheet with over $900 million in cash and marketable securities and $2 billion in unused bank lines. The Company has $300 million of debt maturing August 15th, 2007. Masco repurchased 13 million shares of its common stock in the second quarter. During the first half of 2007, Masco has repurchased 22 million shares of its common stock for cash of $640 million, and paid $175 million in dividends, returning in aggregate $815 million to shareholders. The Company expects to continue to return a minimum of $1 billion to shareholders on average annually over the next several years through share repurchases and dividends as part of its ongoing commitment to value creation.

Turning to our outlook for the rest of the year, economic conditions remain uncertain in the Company's market. Housing starts have declined dramatically during the past 12 months due to previous excessive speculative buying, rapidly rising home prices in recent years reducing affordability, and less attractive mortgage terms. The subprime mortgage issues that have plagued the new home construction market in recent months have made it more difficult to obtain a mortgage, adding to an already difficult market for new homes. As a result, the Company has reduced its housing start estimate for 2007 to approximately 1.4 million, or the low-end of its previous forecasted range of 1.4 million to 1.5 million starts. In addition, we continue to see a moderation in consumer spending for certain big-ticket home improvement items, such as cabinets. Our current estimate is that 2007 full-year sales will decline mid-single digits, compared with 2006. This compares with our previous estimate of a decline of low to mid single-digits.

The Company believes that the negative impact on its results attributable to lowering its 2007 estimate for housing starts to 1.4 million will be largely offset by a combination of the stronger-than-expected first half results, the continued favorable effect of currency translation, share repurchases, recent acquisitions, market share gains and the profit improvement programs we are pursuing. Accordingly, at this time, assuming no further escalation in commodity costs, Masco estimates that 2007 full-year earnings from continuing operations will approximate $1.60 to $1.70 per share, up from its guidance given in May of approximately $1.50 to $1.70 per share. This guidance includes costs of approximately $70 million pretax, $0.12 per share after tax, which is an increase of $0.02 per share from the Company's previous guidance related to plant startup, severance, systems implementations and other initiatives.

As previously stated, Masco expects to continue to return a minimum of $1 billion annually to shareholders on average, through share repurchases and dividends as part of its ongoing commitment to value-creation. The Company has returned $4.8 billion to shareholders over the past four calendar years, including the repurchase of 126 million shares and dividends. Through June 30th, 2007, Masco has repurchased 148 million shares since 2003, returning well over $5 billion in aggregate to shareholders through share repurchases and dividends. Earlier this year, the Board of Directors increased the quarterly dividend to $0.23 per share, making 2007 the 49th consecutive year in which dividends have been increased. Today, the Masco Board of Directors authorized the repurchase of up to 50 million shares of its common stock. This authorization replaces the Company's existing program, under which approximately 36 million of the 50 million shares previously authorized had been repurchased.

As most of you are aware, we have had a lot of changes in our executive management team recently, and really over the past couple of years. We are pleased that we have been able to transition largely with people from within the organization. We have, and will continue to place a lot of emphasis on an active succession plan. In addition, those of us who are moving into new roles have had significant involvement in developing our strategic plan, which I don't anticipate will change in any fundamental way. We will continue to work to rationalize our business model, focus on organic growth and invest to support our 6% to 8% annual sales objective, supplement organic growth with bolt-on acquisitions, continue to focus on cash flow and improving returns, specifically return on invested capital, and as part of that process we expect to continue to return a significant amount of cash to shareholders.

We are just now going into our planning process for 2008. We will continue to provide solutions for our customers by emphasizing product innovation and leveraging our competitive strengths and retail service, distribution and leading brands. We will also continue to leverage our installation capabilities, which are unique to Masco and provide us significant differentiation. Obviously, the home improvement and new home construction markets are currently very difficult. Nevertheless, we are optimistic about the long-term prospects for both of these markets, and excited about Masco's future opportunities. We expect to see, or talk to many of you over the next few months through our investor relations activities, so that you can meet our team in their new roles. We also anticipate having an investor conference early next year to share with you the future plans and actions we will emphasize in support of our strategy. At this point, I would like to open the discussion for your questions. And joining me are Richard Manoogian, our Executive Chairman, and Alan Barry, President and Chief Operating Officer.

(OPERATOR INSTRUCTIONS) Budd Bugatch, Raymond James.

Congratulations, Tim.

Thank you.

On your new role. Just a question if you'd maybe give us a little bit of flavor as to, A, how the quarter progressed during the quarter, particularly, I guess, at contractor services? And, B, if you could make any comments on July, that would be great.

Sure. Yes, July at this point, obviously, we have got one day left. But as of our recent view yesterday, we looked like we're going to be down low single-digits in terms of sales. And in terms of projections -- progress during the quarter, the second quarter, particularly with contracting services, as we said at the end of the first quarter, we thought things had sort of bottomed out. We hadn't seen any recovery. And that's pretty consistent with what we experienced in the second quarter. Generally speaking, there wasn't any appreciable change in terms of trends during that quarter, and it was pretty steady in terms of their operation on a monthly basis.

Okay. And just as a follow-up on that, seems to me that the margins there got better, not year-over-year, but quarter-over-quarter, first quarter -- second quarter to first, and year-over-year on architectural D&A, even though sales were better, margins were not. Maybe you could comment on those two areas, and I will then cede to others.

Sure. In terms of Decorative Architectural, what I would point out there is we had a very strong first quarter, as you may have remembered. Second quarter was down a little bit versus last year. But that basically, Budd, is all explained by promotional expenses that we incurred in the second quarter of this year. If you look at the margins for the first half in total in Decorative, they were basically flat year-over-year again, on a first-half basis at about 21.7%, 21.8%. So the real change was really the incurrence of promotional expenses in the second quarter. And I think last year, we may have had some of those in the first quarter, if my memory is correct. So again, that would explain that change. And you're right about MCS. We did see a nice lift in margins in the second quarter versus the first quarter.

Our sales, I think, were up about $60 million, if my memory is correct, again, first quarter to second quarter. And a lot of that was a result of some of the acquisitions that we have had, a few that were very small last year that anniversaried, as well as the two we mentioned at the end of the first quarter this year. Those acquisitions didn't add a lot. They obviously will be accretive on a long-term basis. But because of some purchase price accounting issues and the need to accelerate some recognition of some of the purchase price allocation, they didn't contribute a lot of profit in the quarter. So when you look at the sales increase of about $60 million, most of which came from acquisitions, and the profit increase of about 300 basis points, I think that really reflects the actions that Donny and his team have been able to take to reduce head counts, consolidate branches and some of the other cost reduction activities. So we're really, really pleased to see that improvement in margins in that sector.

Okay, thank you very much.

Mike Rehaut, JPMorgan.

The first question just to I guess follow-up on the -- I guess in general, just a margin question. If you could just hit on, again, the installation services. You started to give some of the puts and takes there with some of the cost rationalization efforts. But what do we expect from that segment in terms of some of the purchase accounting, takes over the next couple of quarters, or on a quarterly basis, and how should we think about margin in that segment as they start to move around a little bit? Is a high, single-digit-type numbers sustainable right now, post the cost savings?

Yes, I think for the rest of the year, Mike, that would be certainly consistent with what our expectation would be. So we would expect to be able to sustain that level that we achieved in the second quarter. And again, I think that, as I indicated earlier, was reflective of a lot of good work that the folks have done down there to rationalize the business, given the significant downturn that we have in new home construction.

Okay. And cabinets also had a nice improvement as well, sequentially. I was wondering -- it was particularly impressive given the continued pressure on the top line. So if you could just review some of the efforts you have done there, and perhaps also share where you think a margin might be sustainable for the back half of the year?

I'm not sure we want to predict a margin in that group necessarily at this point, because of seasonality and some other things. But I think the thing I would say there, you're right, we did see sequentially compared to the first quarter, a nice lift in margin. A couple of points that I would make, and then Alan might have a couple comments. One is that we had a negative impact in terms of Europe. We talked about our ready-to-assemble business, and we took the goodwill impairment charge in the fourth quarter of last year. Those margins continue to be down year-over-year, and basically, European margins cost us about 40 basis points in the entire segment margin. On the other hand, you're very much correct in terms of North America. Our guys have done a really nice job there of head count reductions and some rationalization within that group. So we're encouraged by what has happened there. There is no question, and they have done a very nice job. Again, like MCS, in terms of adjusting to the environment that we're in.

Okay, so the 40 basis points was a negative impact in 1Q, but has ceased -- ?

No, that would have been in 2Q, Mike.

Okay.

If you look at European margins in the second quarter, I think they're down a couple hundred basis points versus last year. And part of that was reflected in the cabinet segment. And the point I was trying to make is that the decline in European margins in cabinets cost us about 40 basis points in the overall margin for that segment.

Great. And then just last question and I will hand it off. Decorative Architectural, I think as Budd mentioned also, continues to be very, very strong and great performance there. I was wondering if you could just review what the drivers have been in terms of the sales growth, perhaps what some of the share gains you can highlight or new product initiatives? And also on the margin side, you just don't see 20%-plus operating margins in building products in general, and what is your outlook in terms of being able to sustain those margins, given that some of your customers have had long histories of getting back some of that piece of the pie?

Well, I would say the counter to that, Mike, is that we have had a really long history of achieving and sustaining those margins. If you go back and look at the performance in that segment, and again, we have got other things in there besides paints and stains. We do have some builders hardware in that segment. But if you go back over time, with the exception of the impact, I think in late '05 from the hurricanes and the change in the refineries and some of the petroleum based cost increases that we incurred, we have been running at the levels that you see now for several years. And we would certainly expect to be able to continue to perform at that level. We -- I'll let Alan help here a little bit. But we -- when you look at the performance this year, we have had significant gains in market share in that business, at Home Depot, particularly related to paints and stains. We have introduced some new products. We have got a Nanotechnology product that I think you're familiar with that has come out over time and some new offerings under the Kilz brand. So we really have done a very good job in that segment in terms of both promoting the product, displaying the product. One of the things that really helps us in that segment is the retail service support that we provide to our customer. I think you're aware that we have got 400 people in the field working with the associates at Home Depot as it relates to Behr, making sure the color centers are operating properly, the inventories are properly displayed and reflected. And so there is a lot of investment we make in terms of really supporting that offering.

And -- .

Alan, I don't know if you have anything you want to add to that.

Well, the only comments that I would add to that would be that from a cost-viewpoint, we continue to try and find ways to drive cost out of our operations. We have opened a research and development center in India, so we continue to look for other ways to moderate the cost effect of it. Additionally in the second quarter, we did step up some of our advertising costs, and you saw a slight denigration on the margin side. Most of that was due to a step up in our advertising and promotional efforts in that quarter.

Okay, and so most of the shares you would say are still coming from Home Depot, rather than -- you also mentioned the Kilz and I think that is going through Wal-Mart?

Yes, yes. And those are doing well, as well.

Okay. Great.

I think we have continued to see growth pretty much in that paints and stains area, pretty much through our program.

Great. Thank you.

Stephen Kim, Citigroup.

This is [Mark Montanan] on behalf of Stephen. Regarding the commodity cost pressures I guess affecting one half -- or first half results, could you provide a little clarity on which commodities in particular you're most affected by?

Yes, that would include in the Cabinet Group particleboard, primarily in Europe. It would also include in North America and in Europe costs related to zinc and copper for brass. We have had glass increases in Europe that affect our window operation. We have had steel increases in Europe that effect our heating group. And I think, Alan, that pretty much covers the spectrum. I would say the most significant impact we're currently experiencing is in the plumbing category.

Okay, great. Thank you. And then I've heard some talk about China's elimination on a lot of the products exposed to this value-added tax rebate on July 1st. I was wondering if you were exposed at all to this? And if so, could you quantify possibly its financial impact and whether -- ?

Yes, we can give you a rough estimate assuming that we can't work with our vendors to absorb part of that, which would certainly be one of our efforts. We're currently importing about $800 million of product related to China. And that has been a program, a sourcing program that we have undertaken over the last five or six years. We started, as many of you know, about four or five years ago when we were doing about $200 million. That has really been a big part of our cost reduction program. But if you apply the 2% to the $800 million, you would be looking at $16 million a year. So on a half-year basis -- and as you indicated, that was effective July 1st, you're really talking, if we had to absorb all of that, about $8 million or about $0.01, and that would be in our guidance at this point in time.

Okay, great. Thank you very much.

Dan Oppenheim, Banc of America.

This is [Mike Wood] for Dan. Can you talk a bit about the price increases that you got by channel with the retail segment and new construction? And was that passed through in the context of the higher commodity costs, and are you looking to do that again soon in the future?

Well we're always trying to put prices in that can help us offset some of the challenges we have had with commodities. We don't like to get specific by customer or by product, but what we have said is that we came into this year with an approximate $200 million negative carry, if you will, related to commodity costs that we have incurred versus pricing we have been able to achieve. We estimate this year that cost increases for commodities would be $50 million to $100 million, probably closer to the $100 million than the $50 million. And we have also given some information in terms of price increases that we would expect to be able to achieve. And we think we're on target this year to get about $100 million to $150 million in terms of price increases. That would still leave us with an approximate negative relative to the $200 million that we have really had in place over the course of the last year or so. And as I indicated earlier when we talked about some of the commodities, we talked about particleboard related to European cabinets, and we've talked a little bit about the significant issue related to brass. And so I think you could probably assume that those would be the areas that we would be the most active in, in terms of pursuing price increases to offset some of the commodity implications.

Thanks. And just one last question. Can you also just give us a sense of the domestic sales trends in Plumbing Products and Decorative Architectural Products?

Yes, Decorative Architectural has been strong in both the first and second quarter as you can see in the segment numbers. And in the Plumbing side in North America, in the first quarter, we indicated we were down low single-digits versus the prior year. We did see a pick up in the second quarter, where we're basically flat with the prior year in terms of North American Plumbing. And so we're encouraged by that. Obviously, our perception is that the entire segment is down, not our segment, but plumbing in general is down. So the fact that we were flat, we think is indicative of some of the success we have had, particularly at the retail level during the last quarter.

Great. Thank you.

Kenneth Zener, Merrill Lynch.

I'm just wondering if you could kind of expand on the stabilization comments you made for at least new housing, as you saw in your construction contractor business. The reason I ask is the builders I think have their own motivation to maintain high production levels to kind of flush their land, [stick and brick] investments. Can you comment on how you see this above demand production now kind of playing out relative to prior recovery trends?

Ken, this is Richard Manoogian. One thing that I think people forget is that the large public builders that most people follow only represent 25% of the entire market for new construction. And our experience thus far in our contractor services is that our sales to the public builders is down significantly, approaching a 40% decline over the past 12 or 18 months. On the other hand, our sales decline with the smaller builders, particularly those doing 500 or 1,000 homes, is down less than 20%. So I think what has been happening is that the small builders have been gaining share, partly because of the fact that the large builders are suffering more because they overbuilt, had more excess inventory to get rid of, and currently are probably cutting back production faster than the smaller builders. So one of the things that I think investors have to focus on for people like ourselves who provide building products, is that we provide the entire industry. We sell tens of thousands of builders, we sell over half of the all the builders -- all the homes in the country, we do work in. And therefore the fact that the large public builders are suffering dramatically, while a negative would only represent 25% of our business, and the other 75%, although suffering, are suffering less dramatically than public builders.

Rich, I think that is an excellent point to make. And if I could just follow-up on that. Because you're serving the smaller builders who are generating more volume right now in terms of your business -- .

Or declining less.

Or declining less, correct. Can you comment on how you handle payment structure? Because I think people are concerned about bankruptcy, certainly on larger builders. So could you kind of describe how you see the health of those builders, what they're telling you in terms of their body language about the market and what they're pulling back, as well as how you handle, let's say accounts receivable in case a levered builder does go bankrupt.

Yes, and we follow that very closely. We monitor payments and those that are behind us. And I think, frankly, we have been a little surprised that we haven't seen more problems on the smaller builders side in terms of difficulty. But remember that when we do work, we expect to be paid on a fairly timely basis. And as soon as a builder doesn't pay us, if they're in trouble, we quickly put a lien on the work that we have done. So our experience to date, and as best we can tell in the foreseeable future, has been we have had very little payment issues in terms of defaults on the part of customers.

Yes, Ken, we stay on top of receivables very aggressively, both at the business unit level and from a corporate perspective through our group and controller review process. And that is an area that over the course of the last two, three years, we have had very, very little impact in terms of bad debt related expense.

Great, and I guess the remodeling, because 60% of your business is remodeling, 40% new, seems like your revenue decline implies actually a pretty -- also a pretty big hit to what you expect for remodeling. Could you discuss how you think remodeling will play out as a countercyclical effect this cycle, given people's -- the lack of equity withdrawals, et cetera, et cetera?

As you probably know, in past cycles, remodeling typically has been countercyclical to new construction. And in all the cycles I have been through going back to the '50s or '60s, there was only one cycle prior to this one where remodeling didn't improve -- repair and remodeling didn't improve when home building declined. And that was back in a time period when we had double-digit interest rates, so everything suffered. So I think what we're seeing is a very unusual situation now, where people, whether it's because they're taking less equity out of their home, whether they pulled forward some remodeling projects, whether they're concerned about the value of their homes declining and holding off doing some remodeling work, we're seeing a decline in the remodeling side, as well as new construction, although certainly a lot less dramatic decline than the new construction. Having said that, if -- based on past cycles, I think it's only a matter of time until we start seeing an improvement in the repair/remodeling side of the business. And I would guess that would be certainly sometime in '08, even if housing doesn't recover sooner. So I think that industry will get back to its traditional growth rate of 4% to 6% sometime in the next year or two, regardless of what happens to the housing industry.

We think the long-term fundamentals there, Ken, are very positive in terms of demographics, household formation, the age of the housing stock. And as Richard indicated, people want to invest in their home. Obviously, this is a difficult time with prices going down, and there is probably -- that probably supports some of the logic for not making an investment in an asset that is reducing in value. But longer-term, that should straighten out. I would point out, too, we were up 2% this quarter in terms of key retail sales. So I think that gives you a little bit of a flavor for -- and, again, faucets and paints and stains were strong there. Cabinets continue to be an area where we think people are deferring purchases over the last couple of quarters, as we've indicated previously.

And part of that growth, as Tim mentioned earlier, is coming from market share gains and new product development. So once the industry levels off moderately, we think the fact that we can continue to gain share, come in with new programs, promotions, products, will enable us to grow even if the industry is growing at a slower rate.

Thank you.

Steve, I think we have got time for maybe one more question or so.

Nishu Sood, Deutsche Bank.

The first I wanted to ask was about the cost savings initiative, the restructuring expenses. You gave us an update on the cost that you will incur, I think from $0.10 to $0.12, I think is what you said. What about in terms of the benefits that you expect from that? And maybe if you could give us an update on what dollar figures savings you're expecting in '07 from that?

Nishu, we have not quantified that. A lot of those expenses relate to two new plants that we are bringing up, that are in sort of the preproduction, or phase-up, if you will, of production. And as we have indicated, those numbers are about $40 million. We have also got some severance costs in there, and some ERP system implementation. Obviously, the ERP system implementation, we think is an investment that will pay us handsomely down the road in terms of more efficiency and that type of thing. But I think you won't really see any savings show up until probably late this year, early next year from some of these initiatives. But, again, a big piece of that $70 million relates to the new plants that we're bringing on stream.

I guess I was thinking of, going back to the last investor day that you had. You talked about, maybe, if I remember correctly, about $200 million in savings from the initiatives that you were undertaking, the cost savings initiatives. And I think you had said something to the effect of $60 million in '06, around $75 million in '07. So I guess that -- ?

We would be on target for those savings, and that program, you're right. That was a program where we estimated about $240 million in savings, and we did have some cost. And I don't have that right in front of me at this point. But we have been very successful in the sourcing program. Unfortunately, a lot of that is masked by the high commodity costs that we have right now, and -- but we have been successful there.

And the new costs we're incurring are programs over and above that old program, that we think will give us incremental savings going forward.

But you haven't quantified that?

No, we have not.

Okay. Just a -- ?

But I think you could see, if you look at general and corporate expense was down a little bit. That had, I think, $4 million or $5 million of severance cost in it during the quarter. So we're making progress, and we can give you a little bit of a flavor on that down the road here.

Okay. And just a second question on the Plumbing Products in Europe, sales have been pretty impressive there over the past couple of quarters. I was just wondering if you could give us some additional detail on that? What channels is that in, or what types of products? Is there anything particular that you can give to help us understand that better?

Well it's really Hansgrohe, which is probably one of our -- if not the best, one of our strongest performing businesses. They have just done a phenomenal job over the course of the last two or three years in expanding into what used to be the old Eastern European block, putting up facilities in different locations. They have got a really nice model, and doing a lot with product development. They have moved more into new products in faucet areas. They were basically very strong traditionally in shower heads. But they have expanded that. And again, they do an excellent job on design, innovation, new product development, as well as a really good model in terms of expansion opportunities.

I would just add to that, that what we have been focusing on over in Europe is getting with the right customer base. And we have done a very good job of getting with the right wholesalers, who are in fact growing share. So we're well positioned, both with the wholesalers and the retailers that are in a growing mode. So that clearly has helped us, as well.

So is Hansgrohe the kind of main reason that you have seen some pretty impressive growth in Europe over the past couple quarters?

It's not the only reason.

One of the better ones.

Yes.

But not the only one.

Okay, thanks a lot.

Okay. Just a couple of quick comments to wrap up. I would like to thank all of you for joining us today. To recap the second quarter of 2007, net sales declined 6%, we returned $454 million to shareholders, and we continue to operate from a position of strength on a number of fronts. For example, we estimate that approximately 90% of our sales are from products enjoying a leadership position in their respective market niches. More than 50% of all new homes built contain Masco products or services provided by a Masco Company. And we continue to invest in new products, services, and market expansions. While our first-half results have been better than we anticipated earlier this year, the near-term outlook for our markets continues to be uncertain. We will continue to do what we can to mitigate the impact of the downturn, while positioning ourselves to take advantage when the market recovers. Having said that, we're extremely proud of the efforts and dedication of our employees around the globe. We have a great team. And in this tough environment, their commitment to our customers and shareholders is demonstrated day in and day out. We believe that their commitment, combined with our leadership products and brands, position Masco to deliver future value for our shareholders. Thank you again for joining us today, and we'll see you next quarter.

This does conclude today's conference. Thank you for your participation. You may now disconnect.