馬斯科 (MAS) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2011 first quarter earnings conference call. As a reminder, today's conference will be recorded and simultaneously webcast. If you have not received a press release and supplemental information, they are available on Masco's website, along with today's slide presentation under Investor Relations section at www.masco.com.

Before we begin management's presentation the Company wants to direct your attention to the current slide and the note at the end of the earnings release, which are cautionary reminders about statements that reflect the Company's views about its future performance and about non-GAAP financial measures.

After a brief discussion by management the call will be opened for analyst questions. If we are unable to get to your question during this call please call Masco Corporation Investor Relations office at 313-792-5500.

I would now like to turn the conference over to Mr. Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead, sir.

Thank you, David. Thank you for joining us today for Masco's first quarter 2011 earnings call. I'm joined today by Donny DeMarie, our Executive Vice President and Chief Operating Officer, and John Sznewajs, our CFO.

And if you would please flip to slide number three. Sales in the quarter were down 4%. Excluding rationalization charges, gains from financial investments, and normalizing our tax rate at 36%, our loss for the quarter would have been $0.05 of share, and that compares to $0.03 of income on the same basis in the first quarter of 2010. On an as reported basis we lost $0.13 in the quarter, compared to a $0.02 loss in first quarter of 2010. We did a nice job of managing working capital. I'll talk a little bit more about that later on, and we ended the quarter with $1.5 billion of cash.

If you flip to slide number 4. Gross profit and operating income, reconciled for charges, our gross margin would have been down 140 basis points to 25.3%, and on that same basis, again, reconciling for rationalization charges, our operating profit would have decreased from 5% last year to 3% this year. I mentioned that sales were down 4%. That equates to about $80 million of sales decline. Of that decline, about $53 million relates to cabinet products that we previously announced that we were exiting. So if the you exclude that, we would have been down a little less than 1.5%, rounding down to 1%. As we mentioned in the press release, if we exclude the exited cabinet products, both February and March would have been relatively flat in terms of sales with last year, again, across the entire Company.

Our international sales performed well. We were up 5% in terms of local currencies. Had pretty good margins on those sales, just a little bit less than 10%. Last year we were a little over 10%. And our sales to our key retail customers were down high single digit. A big portion of that, well, almost all of that relates to cabinets, and a big portion of that relates to the products that we announced that we were exiting. Without the product exit, we would have been down just slightly low single digits in terms of sales to key retailers. On an $80 million sales, would have anticipated based on contribution margin about a $25 million drop in profitability. We're down again on an adjusted basis about $39 million year-over-year and the additional $15 million or so is represented by about $10 million of price commodity relationship that is unfavorable in this quarter versus last year's first quarter, and we also had some new product and program launch related costs in the quarter as well as negative product mix. So that pretty much explains the detrimental margin which approximated 50% in the quarter.

If you flip to slide number 5, again, taking a quick look at our earnings per share as we mentioned reconciling for rationalization charges, and also taking out the positive impact on of the gains on the financial investment, we would have lost about $0.05 in the quarter, compared to the $0.03 of income last year.

If you flip to slide number 6, in terms of our cabinet business, we were down about 24% in the quarter, compared to last year. If we exclude the cabinet-related products that we're exiting, we would have been off about 13%. We had a detrimental margin of 26%, which pretty much approximates our contribution margin. We did have slightly less favorable price commodity relationship in the quarter. As we mentioned in the past, or last quarter, we've got some particle board challenges in Europe. We also had under-absorption of fixed costs but also had some cost reductions that offset a good portion of that.

If you flip to slide number 7, we continue to be on track with the cabinet integration. We believe in the fourth quarter -- or excuse me, in the first quarter, that on a sequential basis compared to the fourth quarter, that we were able to increase our share positions. Again, if we compare the first quarter of '11 versus the first quarter of 2010, probably down still a little bit in terms of share. But on a sequential basis, coming from the fourth quarter into the first quarter, we had some nice gains in the home center channel, driven largely by promotions. We continue to do well in the builder channel. And in the dealer channel, we feel like we more than held our own in the first quarter. We continue to add dealers under our dealer advantage program. We now have almost 350 dealers that have added a Masco brand, another Masco brand, if you will, and about 125 of those dealers are new.

We've also done some very good work from a process improvement standpoint, reducing our boarding time, on-boarding time for new dealers from weeks to days. So we feel very good about that. And we continue to get some good traction, particularly with builders, with our countertop precision model. We continue to believe that breakeven for this segment is about $1.6 billion in terms of revenue. And we talked about that in the past and we've also talked about the fixed cost reduction of approximately $180 million.

If you flip to slide number 8, plumbing products, had another solid quarter. We were up 7% in the quarter. Margins were flat, relatively flat with last year, just slightly down. Generally speaking, we would have anticipated a little higher incremental margin on these sales. Our contribution margin approximates 30%. But we did (inaudible) price commodity relationships in this particular segment. I mentioned about $10 million, roughly, overall. About $4 million of that would have related to plumbing. And less favorable product mix in terms of the profitability in this segment.

If you flip to slide number 9, again, another solid quarter for our plumbing business. Continues to be driven by the work we're doing around our brands, innovation, design, global expansion. We believe we had a good quarter from a share perspective in terms of North America, both at wholesale and retail. And I would point out that our two flagship brands, Hansgrohe and Delta, had very strong quarters with sales up mid to low teens in terms of those two businesses. We continue to emphasize innovation. Our Touch20 technology is being applied to lav faucets for the bathroom and those were launched in April, and we anticipate some very favorable response to that product launch.

We also had some nice recognition in the quarter. Delta has been nominated as a finalist for an Effie Award, which is one of the most prestigious awards relative to advertising. And we talked a little bit about the improvements we've made there in terms of unaided brand awareness. They've done a very good job of positioning and promoting the brand and Hansgrohe again received the product design award from the Federal Republic of Germany. So again, those are important recognitions and we're very proud of both of those businesses.

If you flip to slide number 10, installation and other services, we were off in this segment 7% in terms of sales. We did have modest improvement in terms of profitability in the quarter, compared to last year's quarter, notwithstanding the fact that we were down $19 million in sales. We continue to benefit from a very good job of cost management in this segment, and a little bit of help from mix as well, just in terms of comparison to the first quarter of last year.

If you flip to slide number 11, we continue to improve our position from an insulation/installation standpoint. We mentioned before that we thought that we may have cut a little bit too deep. We've added some salespeople. We talked about expand relationship with Owens Corning last quarter. The result of that is we're seeing a lot of positive bidding activity. We think we've got a very good chance in terms of improvement from a share perspective going forward. This continues to be a competitive environment. Our feeling is a lot of our competitors are struggling at this point, so we think we've got some really good opportunities from a share perspective and believe that from the fourth quarter, again, looking sequentially, that we were able to gain share in the first quarter of 2011. Still probably a little bit below where we were in the first quarter of 2010, but making some good progress.

We think with the ERP system, the leadership changes that we've talked about, some of the other organizational changes that we're heading in the right direction relative to the installation segment and anticipate improving performance going forward. From a breakeven standpoint, we estimate breakeven at 700,000 to 750,000 starts, as we've mentioned in the past. Probably a little closer to the 750,000.

If you flip to slide number 12, please, decorative architectural products. Sales in this segment were off 4%, and essentially all of that decline is explained by programs that we launched at Wal-Mart, both in paint, which we announced last year, as well as builder's hardware. Our paint, without that Wal-Mart sales loss, would have been up slightly in the quarter. Detrimental margin continues to be in excess of our contribution margin, and we're down about $17 million in terms of profit versus last year on a $14 million sales decline, obviously with still very strong margins in this segment. And I would suggest that that $17 million, think about that maybe in three buckets. About a third of that would relate to volume decline, a little less than a third relates to unfavorable price commodity relationships, and the remainder would be program cost related to new opportunities that we're pursuing.

Having said that, we continue to face raw material supply challenges, relative to paint. We think we're managing through that very well at this point in time, but it is a situation where supply of both resins and TiO2 continues to be tight.

If you flip to slide number 13, as I mentioned, we've expended some money and continue to pursue top line opportunities in both paint and hardware. We've talked about the Direct to Pro program and as part of that, we launched KILZ Pro-X earlier this year, and we should have all of the Home Depot stores set by the end of the second quarter. I think we're a little over halfway there. So we're excited about the opportunities there. We also had some very good recognition in terms of both the Behr and the KILZ brand. Behr as we mentioned previously achieved number one rankings in a recent independent consumer study. KILZ also fared very well in that study, I might add. And in a recent Harris poll, KILZ was ranked highest among paint brands for the second year in a row. Behr did very well in that particular poll as well. And both of those brands do very well in terms of performance, quality assessments and that type of thing. We also believe that in the quarter based on track line that Behr continued to increase share across all do-it-yourself coatings-related categories.

If you flip to slide number 14, Other Specialty Products, (inaudible) 2%, just up a little bit, continue to benefit from share gains as well as new product introductions, geographic expansion. We did have an increase in the loss in this segment, notwithstanding the fact that sales were up slightly. That reflects some unfavorable price commodity relationship, a minor amount there, relatively insignificant. New product launch and geographic expansion costs and some unfavorable mix. We continue to do well with -- in terms of share for both Milgard in the Western United States. They continue to do very well. The UK window group in the United Kingdom continues to gain share, and as I mentioned, we've done some things with the Milgard brand in terms of expanding into both Western Canada as well as Texas.

If you flip to slide 16, I mentioned earlier that we had some nice improvement in terms of working capital, and as you can see, when we take inventories, plus receivables less payables, we were able to -- and compare that to last 12-month sales, we were down about 80 basis points. So I continue to see some very good performance across all of our businesses, really appreciate the effort from our folks across the Company, not only in managing working capital, but in continuing to address some of the challenges in the marketplace and certainly the continued implementation of the Masco Business System. So a lot of positives relative to balance sheet management and as I mentioned earlier, we ended the quarter with $1.5 billion of cash.

Wanted to make a couple comments before we go to the Q&A to wrap up. Obviously, economic signals at this point in time are relatively mixed. And most economists have reduced their expectations for 2011. And we currently see a less robust year than we might have anticipated just a couple of months ago. And currently anticipate that starts will probably be up somewhere around 10% for the full year.

I would remind folks that we tend to operate on a lag basis and with most of -- about 90 day lag basis I would point out --and with most of those starts probably generated in the second half, we won't see a lot of positive impact necessarily this year.

The Blue Chip consensus I think is for 630,000 starts, that came down here recently, and a 10% improvement pretty much equates to a number in that ballpark. Having said that, as we have been, we'll continue to focus on those things that we have control over. We'll continue to drive the Masco Business System across the enterprise, continue to focus on innovation. We've done a very good job there. And continue to manage our cost structure to fit the circumstance that we're in. While it's way, way too early to talk any specifics, I'm excited about some of the opportunities that are developing across our businesses in a variety of product lines. We'll have more to say about that later this year. But we are looking at some very good opportunities again in a variety of products that when the time comes we'll share some more specifics about that.

We continue to make some progress on the installation and cabinet side. Last time we were together, mid-April or excuse me, mid-February, we talked about our anticipation that we could improve the operating performance there fairly significantly this year and reduce losses from last year, adjusted losses by $60 million to $80 million. Our sense is right now that we still anticipate some significant improvement in both of these segments, but given the decline in housing starts, we anticipate those numbers are probably going to be somewhere in the $40 million to $60 million range. But again, still some very good improvement.

We also believe that on a full year basis, that we will be successful in terms of offsetting commodity costs and other inflation. Again, that's on a full year basis. We had a little bit of a negative impact in the first quarter, as I mentioned, roughly $10 million. But based on work that we've already done, and other items that we've got a couple things yet to do but feel confident about our ability to be successful there, but our feeling is that we should be in very good shape. We talked about headwinds on our last conference call of $30 million to $40 million. But our feeling right now is that we have those covered.

Obviously, commodities tend to be a fluid situation. There could be some additional increases going forward that we'll have to deal with. And we will, but we have been very successful working with suppliers, working on productivity, cost reductions, and implementing price increases. So we feel very good about where we are at this point in time, and I would say for modeling purposes, if you were to use our overall contribution margin of 30% on whatever you think revenue changes might be, that's probably a pretty good proxy. From a long-term standpoint, continue to feel very comfortable, very confident about the fundamentals for our markets.

Obviously, things are a little slower than we would have hoped or liked this year, but we still feel l that over the long term, those fundamentals are positive for both repair, remodel, new home construction and feel very confident that when we get back to top line sales in that $10 million to $12 million range, that we'll be able to generate double-digit return on sales and also drive value and returns that are consistent with shareholder desire.

And with that, we'll open up the lines for Q&A.

Thank you. The question-and-answer session is conducted electronically.

(Operator Instructions).

Sam Darkatsh, Raymond James.

Couple quick questions. First off, your installation revenues now seem to be running closer to what -- if you lag starts on a 3 month basis, it's getting closer to that, which suggests that maybe the demand situation for you guys is improving or -- I'm trying to get a sense of how much -- you call it sequential market share improvements, but how much of that is market share versus maybe improved pricing or better take per home.

It seems much more tighter relationship with starts than it had been in 2010.

Yes, no, I think that's true, Sam. Basically, if you look at -- our sales were down in the segment 7%. I think lag starts are down about 3%. And so we have closed that gap.

I would tell you that revenue per job, which we talked about last year, compared first quarter of last year to first quarter of this year, is also down about 3%. And that, for the most part, reflects less diversified products. As we've mentioned in the past, builders continue to de-content, less fireplaces, things of that nature, so we are down a little bit. But I think your observation is correct.

We have narrowed that gap and do feel that going into the first quarter that we were able, again on a sequential basis, we're probably still down a little bit from last year's first quarter but again, closing the gap and did make some progress fourth quarter to first quarter.

Second question, you haven't talked about this in a little while or at least quantified it. What do you peg your EPS sensitivity on an annual basis to housing starts? Every 100,000 starts is now about $0.10 or so or what do you peg the sensitivity?

Well, 100,000 starts, I think would generate, Sam, about $300 million off top line, roughly. And that would convert at probably roughly probably a reasonable proxy, that's about $100 million. So that would probably be about, what, $0.15, $0.16, John?

About right.

Probably be about $0.15, $0.16, Sam.

Last question, then I'll defer to others. You mentioned capturing or covering the $30 million to $40 million. Could you help me understand what covering means? Does that mean that the $30 million to $40 million will not occur or is that what you -- you're still pegging the $30 million to $40 million in inflation?

No, what we mean by that, Sam, is that when we talked about the $30 million to $40 million in terms of headwind, that was a situation where although we anticipated being able to cover it, haven't necessarily initiated actions or got our ducks in a row, if you will, to approach that. At this point in time, even though there's a bit of work left to do, i.e., finalizing some discussions, that type of thing. We feel very good that we've been able to -- that I have a high confidence level that we'll be able to work our way through that $30 million to $40 million. And again, that's just a small portion of the impact for the full year. When you look at total inflation and total commodity cost increases, those are significant numbers, obviously, but the $30 million to $40 million was what we had left that still needed to be thoughtfully addressed. I guess would be the best way to put it.

Peter Lisnic, Robert W. Baird.

Good morning, this is Josh Chan filling in for Pete. Hi. I was wondering what your I guess strategic implication would be for your installation segment, given your reduced outlook in new construction? It seems like you're focused on gaining share but the outlook has worsened a little bit.

I think that's true, Josh. The outlook is a little bit less robust than we would have anticipated. Having said that, we're of the opinion that some of our competitors are having a more difficult time at this point in time than -- well, than certainly we are. And that's providing, we think, some opportunity for us and as we indicated earlier, we've done some things from an organizational structure standpoint. We've done some things from an incentive standpoint. We've got the ERP system implementation that will be finalized here in the next couple of months. So we feel pretty good about where we are from just a managerial standpoint, if you will.

And we've seen a significant increase in bidding activity. We've been able to be successful there. We've also are developing some opportunities with some of the larger builders at this point in time, too early to talk about, but we think we've got some very good opportunities to do some things, given our scale. And the depth of our branch locations. So we feel pretty good about the opportunity. Obviously, the environment is tougher. But having said that, I think our guys have demonstrated that they can do a pretty good job of cost management and we'll continue to get after that.

We have seen some improved retrofit sales as well. And we do a little bit of commercial work. That's been challenged here over the last few quarters, but we're seeing a little bit more just in terms of bidding activity there as well. So notwithstanding the fact the market's tough, I think we're cautiously optimistic that some of the changes that we've made, some of the additional salespeople should put us in a positive position to take advantage of the opportunity that's out there.

And then switching to I guess the price cost relationship in paint, I believe some of your peers are actually saying that the year-over-year headwind would actually be worse before it gets better. Do you have a more optimistic outlook on the cost side than that or could you talk about -- ?

No, no, we do not, Josh. We do not have a more optimistic outlook. We continue to manage through tight supply relationships, relative to resins, and also TiO2. We believe that in talking with our major customers, that we should be in good shape relative to the product that we'll need, the raw material that we'll need for our operations. Don't anticipate any constraints there. But cost, could continue to rise going forward. There's no question about that. So we'll have to address that at such time as we see those kinds of developments. But we do feel that we're in pretty good shape from the ability to fulfill our needs.

And then just I guess more clarity with you talking about flat, not having a price cost headwind for the year, does that mean paint would also be flat or will -- ?

We're taking a look at that, Josh, on an overall Company standpoint. Last year from a Company perspective, I think we had negative price commodity in the approximately $60 million range. And as we mentioned, a lot of that was in plumbing and paint, related to metals and inputs for paint. In the first quarter, that number was $10 million. That's down from I think $20 million in the fourth quarter. And about $4 million of that probably hits paint, about $4 million of that hits plumbing, roughly. So yes, what we're really talking about is being able to offset what we know at this point in time. Now, again, it's a fluid situation. Things could change. Energy costs have obviously gone up pretty dramatically but based on what we know right now we think we're in pretty good shape.

Nishu Sood, Deutsche Bank.

Thanks, good morning, guys.

Good morning, Nishu.

First question I wanted to ask was in the plumbing division. The Hansgrohe segment has been a pretty strong sales driver, probably for the last year or 2, and this quarter it sounds like Delta also contributed. So I wanted to get some color on that. And as well, you talked about the global expansion model and that obviously Hansgrohe and the design success of the high end and exporting that different parts of the country, I'm sorry, different parts of the world that, that makes sense. You mentioned that you were going to be transitioning that to Delta as well. So I was wondering if I could get some color on that too.

Sure. Yes, Nishu. This is Donny. Be happy to take that. We had really strong performance in the quarter from both Hansgrohe and Delta, and Delta continues to do very well in both the retail and the showroom segments of the business. They have great new innovative products. They've done a lot related to the brand. Our touch technology is really resonating with the consumer. We've done a lot of hard work on our supply chain to reposition some of our lower SKUs more competitively, and that's really paid off both in top line and in bottom line. So we feel really good about the work we've done at Delta.

Hansgrohe is doing well and has been doing well for a long time. They really are focused at the high end of the market and design and style and really the solid German engineering, the product and it's really resonated well in the emerging markets. Hansgrohe has been expanding internationally now for the last 15 years and really have a very unique system for prioritizing markets, market entry and really going at it from an organic basis to get into markets, penetrate the existing channels and understand the consumer, have the right product assortment. And we really have focused heavily on international development for our North American businesses for about the last 2 years.

Delta and Hansgrohe have been working very closely together at identifying target markets. We think based on consumer segmentation those 2 brands play very well with Hansgrohe really on the design, high end side, Delta in that mid market technology play. And they've been doing some neat things. A lot of the gains we're seeing here in the quarter is related to the Hansgrohe global expansion, Delta more about what's going on in North America, but we have really laid the seeds for a strong Delta, Hansgrohe partnership outside of North America. So we feel really good about that.

The other thing I would say too, Nishu, is that we did about the Delta and Hansgrohe brands in the first quarter. But I think it would be erroneous to not assume that Delta hasn't done very well over the course of the last couple of years in terms of top line growth. We've talked a lot about the innovation that they've brought out. They've done a really nice job of repositioning the brand. As we mentioned in the past, I think if you go back, unaided brand awareness was up 9 points in a 2-year period of time, which is basically unheard of. So we've gotten good contributions from both of the flagship brands, if you will, and along with some of the other brands in that segment over the course of the last couple of years.

In the other specialty products division, Milgard, the expansion into Western Canada and I think you mentioned some other parts of the -- and Texas as well. Now, Milgard I believe has had some attempts at expansion before to other parts of the country, so -- and transitioning window products from region to region is always tough because of building codes and builder preferences and brand awareness and stuff like that. So how do those experiences in the past translate to what you're trying now and maybe just some thoughts on that?

Yes, I think what you're referring to, we did attempt to expand into Virginia several years ago. That didn't work out real well for us. We do have an operation in Chicago that is continuing to get traction from a top line perspective. I think the thing that's a little bit different about Western Canada and Texas is that the climate and the types of products. Milgard has very strong presence in Washington, Oregon, California, Nevada, Arizona, and so the types of products that we sell into those different markets are a little more compatible I think. Again, this is my take, a little more compatible with what the requirements are in Western Canada, as well as what we think the opportunity is in Texas. I don't know, Donny, if you've got any color.

That's right on, TIm. When you think of what the product that we have in the Pacific Northwest and coming out of Tacoma, Western Canada just is a natural extension for us. It's a nice shipping radius from our manufacturing facilities, and the product in Western Canada is very similar to the product that we sell into the Pacific Northwest.

Into the Texas market, Texas tends to historically been more of a low end aluminum market. That has transitioned into a vinyl market, very similar to the products that we sell into Arizona, Nevada, New Mexico, so we feel really good about our expansion into Texas. We have some customer service locations there as well as some sales reps, and we have some dealers set up, and we're currently shipping product out of Arizona and feel really good about that.

We also have been able to work with Milgard and Behr to come up with some colors on our vinyl windows to where we have some dark color extrusion that doesn't absorb any heat which stops the actual extrusion from creating any -- from bowing or really any size variation related to some of the heat that we get related to the sun in those climates. So we think we have a differentiated product that we can bring into Texas with the Milgard value proposition and Pacific Northwest going into Canada is just a natural extension for us.

Finally, just quickly on your restructuring charges are already, I think, a little more than half of what you had forecast for the year. Does that mean they'll be mainly front loaded or will they be higher than originally expected?

No, Nishu -- no, we set the (technical difficulty) at about $32 million in the first quarter. Most of that's related to the wind down of our facility in Waverly, Ohio, our ready to assemble cabinet business. We have always expected to wind down here in the second quarter, so we knew they were going to be front end loaded. Probably should have communicated that up front when we first gave the number in the middle of February, we kind of knew how these were going to roll out but nothing new or nothing expanded at this point.

Chris Wiggins, Oppenheimer.

Could I just revisit one of the earlier questions on the installation strategy. And I'm just curious, do you have -- in your internal discussions is there ever kind of a breaking point that's discussed where you say, maybe it makes you change your strategic thought?

And I appreciate the long-term view but I'm just wondering if there's something internally ever discussed to say maybe it's time to start thinking of a different direction?

Well, I think that -- that starts to get into, Chris, a portfolio management kind of question in terms of that business. And as we have communicated before, when you start thinking about the alternatives that exist, one is walking away from the business. We don't think that makes any sense.

One might be to try to sell it, or maybe spin it out or do something else. Third alternative with a situation like that is to hold and try to improve. And our sense has been that there is a much more significant value creation opportunity by continuing to manage the business as best we can, try to take as much share as possible, and that over the longer term, given the investment we've got, the scale we've got, the capabilities we've got, we think that will generate a more significant return for shareholders over the long run and one that we think will be very attractive.

Now, obviously we're enduring some short-term pain to get there and we continue to manage that as aggressively as we possibly can. But our feeling is that we still have a relatively unique capability that from a marketplace standpoint brings a lot of differentiation, and we're continuing to do everything we can to improve that business. But certainly believe that continuing to manage it, continuing to hold it over the long term makes a lot of sense from a shareholder perspective and gives us a nice value creation opportunity going forward.

And could you speak directionally on the promotional activity across the Company, this quarter versus last quarter, and how you expect that to trend for going forward?

Yes, Yes, just promotional activity right now for us is probably a little bit higher than typical and that would be -- if you think about it from a cabinet perspective, that would relate to cabs at the big box category, where we have been very active in terms of promotion. We had a promotion that initiated in early March that winds up later this week, so that's been a timing issue, if you will. We typically have a couple of promotional endeavors there annually, so that happens to be more of a timing kind of issue.

In terms of plumbing, we do have some new product launches. We talked about the application of the touch two technology to lab faucets for the bathroom. We're launching product. We've got window product that we've launched. We've launched the R.E.D. line at Arrow, and other specialty. So those would be a couple areas where promotional activities have kicked in. We've recently in the paint category, again, seasonally, we've got some things that have kicked in.

So I would say that if I were thinking about where we are right now, we're probably with new product launches, which would include windows, as well as the R.E.D. line and other specialty with what we're doing to launch the Pro-X program, and seasonally, there's probably a little bit more activity now. I wouldn't call it necessarily extraordinary, but again, I think that you'll see us continue to promote. I don't anticipate this year will be an unusual year compared to prior years and those things tend to go up and down a little bit based on the facts and circumstances that you're dealing with. But I don't know, Donny, if there's anything you want to add to that.

I would say, Tim, outside of cabinets to me it feels about the same. Cabinets has been a market that has been really driven by heavy promotion for some period of time, so really if you're looking at '11 versus '10, we certainly are being a little bit more aggressive on the cabinet side. Our competitors have been very aggressive really through the past 2 years on the promotional side. So outside of that, the regular -- the rest of the segment's really pretty much normal activity related to new product launches.

That's very helpful. Thank you. And last question, if I could. And I realize obviously it's early in the year. But with your outlook has kind of tempered a bit, could you just provide an update on your comfort level with your debt covenants, and particularly I guess the interest coverage with I think notches up a little bit in the fourth quarter?

Yes, Chris. Our interest coverage covenant we don't think should be an issue despite the fact that we have a to use your term we have a tempered outlook. And we looked at that pretty closely, and based on our internal forecast for our earnings level, we feel pretty comfortable with where we're at on both covenants throughout the balance of this year. .

Michael Rehaut, JPMorgan.

Hi Guys. This is actually Will Wong on for Mike. I had a quick question about the cabinets. In terms of adding more dealers, you guys said you added over 300 dealers or 300 dealers have added a Masco brand since April 2010, and I know you guys spoke before about sort of the additional revenue impact in a couple of years, like maybe 2 or 3 years. But what do you see in terms of additional revenue impact just for the next quarter or two or just for the full year of 2011?

We would say that the opportunity, Will, is, we think, somewhere between $50 million and $60 million, and what we mean by that is that if these dealers were to have the same level of activity that they had in the past year, that's what we would equate that opportunity to. That doesn't necessarily mean that, that will be the top line impact this year, but on an annual basis, that's what we believe the opportunity is.

And then just one more question too about rationalization charges. You talked about $65 million of rationalization charges for the full year, and that was front loaded with $32 million this quarter. But just given the current economic environment, if things go a little bit -- or if things don't get better as planned, do you expect any more rationalization charges on top of that $65 million?

At this point, Will, I would say it's really too early to speculate on that. Obviously, if things deteriorate, the outlook tends to be kind of gloomy going forward into 2012, there's certainly -- we're constantly looking at all of our -- across the enterprise at the cost structure. We've got process improvements. We've got productivity initiatives, supply chain initiatives, a lot of different things going on.

At this point, don't necessarily see a big item that would generate a restructuring charge that would be of a significant magnitude. We talked about the West Jordan cabinet facility late last year, early first quarter. That was a pretty big nut in terms of a charge. But at this point, I wouldn't necessarily see anything. But again, I wouldn't rule that out. There could be opportunities for us to do some things to enhance the cost structure, whether they might be combination of a couple businesses or whatever that we haven't thought of at this point that may come up down the road. But so I wouldn't rule anything out. But at this time, I think the $65 million is a pretty good estimate for this year.

Ivan Marcuse, Northcoast Research.

My first question is on the plumbing, going back to Delta, is there -- at one point, is there any plans to expand the product where you have to add capacity to grow it internationally? Or is it something where your existing capacity should suffice for now and that you'll just ship from existing plants?

I don't think that we would be looking at any kind of an expansion that would require any brick and mortar, Ivan, at this point. We should be able to either source and/or manufacture what we're thinking about and ship at this point.

And then moving over to the specialty real quick, and the costs. Will those costs that you incurred this year or this quarter, will that continue to impact the second quarter, or does that sort of the expansion go in the first quarter and shouldn't see those costs again in the second quarter?

I would guess there's probably going to be a little bit more cost. As Donny mentioned, we're adding some dealers and typically there's an on-boarding process that goes with that. You may have some displays and some other things that you have to set. So I would guess that there will be some costs going forward over the next couple of quarters.

And then real quick, on Well Home, is that continuing to be expanded or is that sort of the brakes been put on and what kind of costs did that incur during this first quarter?

We had a quarter that was comparable to last year's first quarter. We were -- that cost us about $4 million in the quarter and, again, that's in the -- that was not incremental. That's consistent with last year's first quarter. And no, we are not expanding that business at this point in time. I think we have 17 locations and as we mentioned, we brought those up last year. I think probably through about the second quarter, if my memory's correct, and have not done any further expansion at this point in time.

Is there any expectation that you will or is it just sort of a -- ?

Too early to tell at this point, Ivan, and again, I would say that that's probably less likely than more likely.

And then my last question was in Europe with the particle board, how much did that cost in the quarter from a commodity standpoint? And do you expect those costs to continue throughout the year?

Yes, that's been running us, John, I think, what, about $4 million a quarter for the last couple of quarters.

$4 million or $5 million a quarter.

Negative, Yes. I would anticipate that we're probably looking at another quarter or so. The guys are working on some alternatives but at this point it's still an issue.

What's driving that challenge in Europe?

Limited supply, and I think was there a fire in a plant over there, do I remember that?

Yes, there was a plant, capacity was taken out over there. But to Tim's point, Ivan, just limited supply base over there.

David Goldberg, UBS.

Good morning. It's actually Susan for David. Just wanted to talk a little bit in terms of your cash flow, looking forward, we've sort of been through the worst in terms of the demand side of things. You've gotten the balance sheet in shape, with the revolver, all those kinds of things. Any thoughts on starting to get to maybe more share repurchases, increasing the dividend, those kinds of things?

No, not at this point, Susan. As I think you're aware, we have about $800 million of a debt maturity due in August or --

July.

July of 2012.

And so from our standpoint, as we said to investors in the past, that initial -- we retired about $50 million of what was $850 million of original issuance. And when you take that with the $300 million that we retired in March of 2010, that's $1.150 billion. What we indicated to investors is that we believe on a net basis that we'll retire about $300 million of that $1.150 billion debt. That requires some refinancing, if you will, obviously, of the remaining portion. And that obviously is something that has to be developed over the course of the next year or so.

Having said that, from our standpoint, continuing to be somewhat conservative from a balance sheet perspective, making sure we've got a strong cash balance in case we don't refi that debt for whatever reason and we certainly would anticipate being successful there. I don't think that it makes sense for us to be thinking at this point about increases in the dividend or share repurchases. Obviously, as we get into the recovery, we see some expansion in terms of our business, we certainly have had a very strong history of cash generation.

That five year period, '03 through '07, we averaged about $1 billion of free cash flow a year and that's with $1.5 billion of CapEx and another $300 million of investment in displays during that same five-year period. We were able to reduce our shares outstanding by about 30%. And so just to give folks a little reminder I guess in terms of the capacity and capability that we have to generate cash, but I think it's probably a little bit too early in the cycle l to be thinking about share repo and/or dividend increase at this point in time.

And just as a follow-up, I noticed that you left your CapEx forecast for the year about the same, at that $190 million level. Given the fact that your outlook is a bit more tempered, maybe, how confident are you in that? Is there more risk that maybe that comes down a little bit more or changes?

Yes, Susan.

As we look at the CapEx forecast of $190 million, there is a little opportunity that could come down a little bit. If you take a look at our CapEx that we spent over the last couple years, it's far below what our historical rate has been, which is about 2% of sales. We are expanding a couple of ours facilities, Hansgrohe overseas is expanding a couple of their facilities to meet the demand they're facing in the emerging markets. So while there might be a slight opportunity for that number to come down, I wouldn't say it's going to be dramatic.

Dennis McGill, Zelman & Associates.

First question just has to do with the overall revenue trends. You guys talked about March being a flattish comp on a core basis and we had the buildup on the tax credit last year and we had good retail trends last March as well. So I would take that to be pretty favorable, but then you kind of talked about just being conservative from some of the macro trends. Could you maybe elaborate on that, maybe talk about how April looks as well, realizing that comp continues into this month?

To your point, Dennis, we did have very strong March and April last year. We started out I think January, February of 2010, we're down slightly and we were up I believe just a little bit in excess of 7% in both March and April of last year. And as we indicated this year, our February and March results were -- if you exclude cabinet products that we're exiting, we're basically flat with last year. So obviously a pretty nice trend.

Unfortunately, going into April, based on what we know right now, it looks like April sales will be off, and I'm going to guess probably mid single digit, at least the way things look right now. Again, we've had some -- we don't like to talk about weather but a lot of people have been talking about weather. Weather's been horrible in most areas, and I think that's probably had some impact, although it was pretty tough in March as well. So based on what we know right now, April looks like it's going to come in probably mid single digit down from last year. A strong last year in April.

Second question, this is maybe a little bit long, but all these things are related. When we think about some of the offsets to the strength that you're seeing in some of your core brands and I focus on the 3 segments, can you help us with quantifying the lost volume from Wal-Mart business, the trends that you're seeing from cabinet dealer, existing cabinet dealers, as to whether they're expanding their relationship with you. Or if you're seeing any turnover among existing dealers that might offset the new dealers?

And then within the plumbing business you talked about mid-teens growth within Delta and Hansgrohe, but I think that would imply the rest of the business is down somewhere in the mid single digit type range. Can you help us how we should think about some of those offsets that might mitigate the strength you're seeing with new products or other brands?

I think on the Wal-Mart question, Dennis, my sense is they prefer that we not talk about the amount of business. As I did mention, relative to Wal-Mart, we had both some builder's hardware as well as paint declines in the first quarter. And as I mentioned, if we excluded the implications to paint, we would have been up a little bit in terms of paint. But our sense is they prefer that we not quantify that paint program.

In terms of cab dealers, we did mention that we have been able to add 25 dealers, and we have been able to add a Masco brand at almost 350 dealers, so obviously some of those are existing. And our sense is that we have not lost any dealers. I think that was part of your question. We had a little bit of static on the line, and so I think I'm reading into it a little bit. So we haven't lost any dealers. I think I mentioned that our estimate of what we've been able to impact from an added brand standpoint equates to on an annual basis, and again, not necessarily going to affect 2010 top line, but about $55 million in terms of sales.

And your question, your last question was on plumbing with Delta and Hansgrohe up low to mid-teens. Does that suggest that the remaining plumbing business is down? And I would say that's not necessarily the case. We continue to do well with hot tubs, which obviously continues to be a surprise to us. But I think is really reflective of a very strong market position an excellent job of bringing out an opening price point product, and just a very well-run business and the fact that we've seen some guys go out of business, if you will, in terms of competitors. So I would say that's been a bright spot as well.

Most of the rest of the business, as you know, we do some supply things and some valves and that type of thing, I would say were modestly better. Probably the only area where we saw any significant decline would have been in Canada in the plumbing segment. We were down in Canada. We enjoyed a really, really strong 2010 in Canada, as we mentioned last year, so we saw a little bit of a fall-off there. And again, their economy's slowing down a bit. So from that standpoint, I think that certainly is explainable.

But for the most part, I think we feel like we're holding our own from a share standpoint in plumbing. I can't tell you of any, off the top of my head, any category that we're concerned about from a margin or a share perspective. So we feel pretty good about what's going on across that entire segment.

I was referring to are you seeing any revenue per dealer changes? Are you seeing existing dealers maintain the pace of the market as you're going through the integration?

I would say that absent the comments we've made in the past about any issues around the common architecture program, I think that our dealers are pretty much holding their own, based on what we understand, Yes, just in terms of trends. Okay. Thank you very much, and thank all of you for your participation today. We appreciate it. Thank you.

That does conclude today's conference. Thank you for your participation.