馬斯科 (MAS) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Masco Corporation's first-quarter 2015 results conference call. My name is Laurel, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes.

(Operator Instructions)

I'll now turn the call over to the Director of Investor Relations, Irene Tasi. Irene, you may begin.

Thank you, Laurel, and good morning to everyone. Welcome to Masco Corporation's first-quarter 2015 earnings conference call. Joining me today are Keith Allman, President and CEO of Masco, and John Sznewajs, Masco's Vice President, Treasurer, and Chief Financial Officer. Our first-quarter release and the presentation slides that we will refer to during the call are available on Investor Relations portion of our website.

Following our prepared remarks, the call will be open for analyst questions. As a reminder, we would appreciate it if you could limit yourself to one question with one follow-up. If we are unable to take your question during the call, please feel free to contact me directly at 313-792-5500.

I would like to remind you that statements in today's presentation will include our views about Masco's future performance, which constitutes forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our form 10 and our form 10-Q that we filed with the Securities and Exchange Commission.

Today's presentation also includes non-GAAP financial measures. Any references to operating profits, earnings per share, or cash flow on today's call will be as adjusted unless otherwise noted with the reconciliation of these adjusted measurements to GAAP in our quarterly press release and presentation slides.

These can be found in the Investor Relations section of our website, www.masco.com. With that, I will now turn the call over to our President and Chief Executive Officer, Keith Allman.

Thank you, Irene. Good morning, everyone, and thank you for joining us today. Turning to Slide 4, we had a great start to 2015, with Q1 representing our 14th consecutive quarter of year-over-year sales and profit growth. All of our segments contributed to top-line growth in local currency, resulting in our North American sales increasing 5% and our International sales increasing 10% in local currency.

We delivered this growth while expanding our operating margin to 9%, our strongest first-quarter operating margin since 2007. Our focus on execution and cost containment continues to pay off as we improved our operating profit by $24 million while decreasing SG&A by $6 million, or 90 basis points. As a global Company, foreign-exchange cost us $0.02 of EPS in the quarter. Despite this headwind, our adjusted EPS grew 43% to $0.20 per common share.

This strong performance was augmented by several value creating initiatives we accomplished in the quarter. We returned approximately $135 million to shareholders through our increased dividends and the repurchase of approximately 4 million shares of stock.

We announced an acquisition of Endless Pool by Watkins, our premier spa business. This acquisition allows Watkins to expand its offering into the aquatic fitness category, opening new channels of distribution and access to a new customer base. This acquisition is reflective of the type of bolt-on opportunities we will continue to pursue.

Additionally, the spinoff of our installation services business, TopBuild, remains on track for the middle of the year. Before turning the call over to John, I would like to highlight how our strategies and execution are driving results.

In our plumbing segment, our long-standing commitment to innovation and design continues to propel our market-leading brands to new levels. Delta and Hansgrohe, once again, broke records in the quarter and both experienced the highest sales quarters in their history.

Behr's long-standing reputation as an industry leader in paint was reaffirmed. J.D. Power and Associates ranked Behr number one in customer satisfaction for interior paints.

You may recall that earlier this year Behr was also rated number one in quality by a leading independent testing organization for its interior and exterior paints, as well as stains. These awards establish Behr as the number one-ranked paint based on quality and customer satisfaction and only add to Behr's awareness and brand equity.

Milgard Windows, history of innovation, continues to drive sales with Essence Windows and new multi panel glass doors improving our business mix. Our installation services business continues to benefit from a strategic expansion into commercial construction, as well as targeted growth with custom builders.

Finally, Joe Gross was named president of our cabinetry business in mid February. He and his team are already delivering on their turnaround plan with improved top- and bottom-line results. With that, I'll turn the call over to John who will go over our operational and financial performance in detail.

Thanks, Keith, and good morning, everyone. Please turn to Slide 6. As Irene mentioned, most of my comments will focus on adjusted performance, excluding the impact of rationalization and other one-time charges.

We started 2015 with positive momentum from last year. As Keith mentioned, the first quarter was our 14th consecutive quarter of year-over-year sales and profit growth. Excluding the impact of foreign currency, sales increased 7%, and we experienced sales growth in all five segments. On a reported basis, sales grew 3%.

Foreign currency translation negatively impacted our sales in the first quarter by $77 million, principally due to a weaker Euro compared to the US dollar. Sales in North America were up 5% for the quarter. As the US economy improves, we are experiencing growing demand for our new home construction and repair/remodeling products, including big-ticket repair/remodeling products. As a reminder, repair/remodel activity accounts for approximately 70% of our total sales.

International sales increased 10% in local currency in the quarter, driven by the continued strength of our International plumbing business. Gross margins expanded approximately 20 basis points compared to Q1 of last year to 28.2%.

Our focus on cost control continues to pay off. As Keith mentioned SG&A as a spend declined by $6 million in the quarter despite a $53 million increase in revenue. As result, SG&A as a percent of sales decreased 90 basis points to 19.2%. Our cost control enhanced our operating leverage as we generated a 45% incremental margin in the quarter.

We delivered strong bottom-line performance as operating income increased 15% in the quarter to $181 million with operating margins expanding 100 basis points to 9%, our highest first-quarter margin since 2007. And our EPS was $0.20, an improvement of $0.06, or 43%, compared to the first quarter of last year.

Foreign currency negatively impacted operating profit in the quarter by $10 million, or approximately $0.02 per share. Turning to Slide 7, our plumbing segment sales decreased 1% due to the unfavorable impact of foreign currency. The strength of the US dollar matched the terrific performance in Q1 across our plumbing segment.

Excluding the $71 million impact of foreign currency translation, sales increased 8%, driven by growth in faucets, spas, and new program wins with trade and retail partners. As Keith mentioned earlier, both Delta and Hansgrohe enjoyed their best quarter for any period in their history.

We experienced strong growth in the trade channel in the quarter as Delta and Brizo brands drive consumer demand for our innovative new products, and we continue to take share in this category. Our European businesses continued to outperform, delivering 10% sales growth in local currency despite a strong mid-single digit comp from the first quarter of last year.

Hansgrohe's record quarter in local currency was driven by emerging market growth, as well as the strength of Hansgrohe's brand, design, and innovation, all of which were on display at the recent ISH trade show in Frankfurt. Operating profit decreased 7% driven primarily by unfavorable currency of $10 million and negative mix of $5 million, as we further penetrate emerging markets.

As we mentioned on our Q4 earnings calls, sales, marketing, and trade show expenses, due primarily to our participation in the biennial trade show in Frankfurt, impacted results by approximately $8 million. This was partially offset by a favorable price commodity relationship, nearly all of which was incurred in our European businesses, and increased volumes. We look at these costs in Q1 as investments for future growth, and we believe this year plumbing segment margins will approximate the 15% to 16% that we experienced in 2014.

Turning to Slide 8, in the decorative architectural segment, first-quarter sales increased 2%, driven by the performance of our new Behr Marquee interior product and growth in our Behr Pro business. As Keith mentioned, we are pleased that Behr was ranked number one in the J.D. Power's 2015 paint satisfaction study in the interior paint category. This recognition, together with being ranked number one in interior paint, exterior paint, and exterior stains by a leading independent consumer testing organization, establishes Behr as a quality leader in the architectural coatings industry.

Liberty Hardware contributed to the top- and bottom-line growth through the continued share gains from successful new product introductions and program wins in the retail channel. Operating profit increased 9% in the first quarter, due to increased volumes, effective cost management, and the deferral of approximately $2 million in advertising and promotional expenses related to the coatings business from the first quarter to later this year. All of this was partially offset by some incremental expense at Liberty.

As we mentioned in our Q4 call, we expect to incur approximately $20 million of incremental investments in 2015 related to program wins at Liberty Hardware and the investment in Behr's new color solution centers in The Home Depot. These new color solution centers should be in all stores by Memorial Day in time for the kick off of the painting season.

Segment sales were impacted by the $3 million of these expenses in Q1, slightly lower than the $5 million we initially expected, as result of timing of some of these initiatives. We still expect to incur approximately $20 million of incremental investment related to these programs and initiatives in 2015, with Q2 impacted by approximately $8 million, Q3 by $6 million, and Q4 by $3 million in addition to the $3 million we experienced in Q1.

Turning to Slide 9 our cabinet segment sales increased 5% in the quarter due to improved performance of the KraftMaid brand in the home centers and with dealers. The bottom line improved $7 million over the prior year, driven primarily by improved mix as our higher price-point KraftMaid experienced strong growth, the reduction of prior-years incremental spend, and the benefits associated with other cost-savings initiatives.

Turning to installation on Slide 10, our sales increased 7% in the quarter as a result of improved end-market activity with the strongest growth coming from residential new home construction and commercial channels. The growth in the residential new home construction was driven by strong single-family performance with both production and custom builders.

In addition, TopBuild was recently awarded Energy Star Partner of the Year by the EPA for the 11th time for its home energy rating service. This reflects TopBuild's commitment to improving energy efficiency of homes in the US and a recognition of TopBuild's expertise in building science.

Our efforts to drive productivity and increase volume helped offset raw material price increases and a wage inflation, as operating profit increased $12 million and delivered 2.2% operating margins. We are pleased that Q1 is this segment's first profitable first quarter since 2007. And as Keith mentioned, we are happy to report that we are on track to execute the spinoff in the middle of the year.

Turning to Slide 11, our Other Specialty product segment sales increased 7%, driven by low double-digit sales growth in our North American window business. This growth was driven by volume increases and the continued benefit of a favorable mix shift toward our premium window and door product lines. Excluding the negative impact of a stronger US dollar, our European windows sales increased 5%. The segment's operating profit growth in the quarter can be attributed to increased volumes and a favorable price-commodity relationship, which was partially offset by approximate $2 million of costs related to ERP investment at Milgard and our timing of advertising and display expense.

And turning to Slide 12, we ended the quarter with about $1.8 billion of liquidity. As a reminder, this number reflects the $500 million 10-year bond we issued in March to pre-fund our upcoming June 15 $500 million maturity. The interest carried cost is approximately $5 million, nearly all of which will impact the second quarter. And we continue to have strong performance in working capital. Working capital as a percent of sales came in at 12.7%, a 60 basis point improvement from the first quarter of last year.

Finally, turning to slide 13, we continue to take initiatives on [our shareholder] value, as one of these initiatives was to increase our share repurchase activity. As Keith mentioned earlier, during the first quarter, we repurchased more than 4 million shares or approximately 1.2% of our common stock. It is our expectation that we will allocate in total between $400 million and $500 million to share repurchases in 2015. And we are well-positioned to retire between $300 million and $500 million of debt in 2016.

That concludes my remarks. So with that, I'll turn the call back over to Keith.

Thank you, John. We are really pleased with our strong start to the year and our continued ability to execute against a backdrop of strengthening demand for our industry-leading products and services. We started the year well. We have good momentum as we move further into 2015, and we remain confident in our outlook for the year. We look forward to sharing more of the Masco story and our growth plans with you next week at our Investor Day.

So with that, I would like to turn the call back over to Laurel for Q&A.

Thank you.

(Operator Instructions)

Stephen East, Evercore ISI.

Thank you. Good morning, guys. Thanks for the detail on plumbing in Europe. I guess, if you could talk a little bit more about what you all are doing with the emerging markets in Europe. Just trying to understand where you're going with the business and what percentage of Europe is plumbing for you all?

We have, as you know, Stephen, a very strong global brand in Hansgrohe. And our plan for that brand is to continue to invest in it, and we have a substantial amount of upside as we look across emerging markets both in Europe and outside of Europe. So in general, our expectation is to continue to invest behind that.

We see good returns in that. The business has good margins, and we feel really good about emerging markets. You mentioned Europe in particular. Of course, we continue to have challenges like everyone does in the Ukraine and in Russia.

But we are committed to the European market. And we like the results that we're seeing. And we will have more detailed information at the Investor Day as we outline more specific growth plans and milestones.

Stephen, just to give you a little bit of color. International sales represent approximately 40% of the segment sales.

Okay. And within, embedded within that, I know you gave us the top line FX impact. The op margin impact, would you mind giving? And then my second question revolved around Behr.

It was a fairly easy comp, so I'm wondering did the Lowe's paint rollout disrupt the market? What do you think is going on there? and then, are you starting to see any raw material tailwind from oil cost coming down and the derivative products off that?

So Stephen, just to answer your first question, the operating profit impact of foreign currency was approximately $10 million in the plumbing segment in the quarter. (multiple speakers) that happens to also be the impact for the Company in total.

Okay, thanks.

You want to do related to the paint, Keith? Yes, on the paint side, as we mentioned in our remarks, we have good strong momentum rolling with a lot of our awards rolling our way. And we're investing behind that. We have a new color center that we are launching, and that will be rolled in the end of March.

We really feel good about that. We have an advertising campaign that's coming in consistent with that, and we've also got new products that we are rolling out, where we've rebranded KILZ PRO-X to Behr Pro. And I think that's going to be very productive for us. We're rolling out textured DeckOver, and when you put that all together, we feel confident in where paint is going.

Tim [Voyes], Baird.

Hey, good morning, everybody. Nice job.

Thanks, Tim.

I just had a couple question on the -- I was wondering if you could, I think in the past you've given us an EBITD bridge year over year, and I'm just wondering if -- maybe I missed that, but if you could go through what the price commodity was, productivity, those types of things?

Tim, we're not giving out that information any longer. But suffice it to say, if you think about the volumes, we have pretty good volume growth in the quarter, obviously offset by fair amount of currency headwinds and a little bit of pricing in their, as well. So I think I've got -- I thought some of the segment detail that I provided was probably more useful than giving you the Company overall. Take a look at the transcript and if you have more questions, we can perhaps circle up after the call.

Okay, no, I just wanted to make sure I didn't miss it. And then, just as you guys stand right now, I know it is early, but any change to how you are thinking about the full year with one quarter under your belt? And then just a housekeeping question, how should we think of the FX headwind to revenue for the full year?

No change in our outlook for the year. We are excited about it. We continue to be positive about how we see 2015 shaping up. When you look at the fundamentals and the indicators from a macroeconomic standpoint, they're shaping up well.

Consumer confidence is good. Household formations seem to have spiked. Existing home sales are well-positioned, and credit is easing up. So from a macro perspective we continue to be very positive. When you look specifically at the demand drivers, in terms of new construction, we talked last call about how we felt that blue chip was maybe a little aggressive at [$1.150 million]. They've since come down.

We think they're still little bit high. We are looking at about a [$1.1 million] is how we are thinking out at it in terms of start, so that's a good healthy 10% growth for us. And we are seeing indications of that growth, importantly, in the markets. Carolinas are very robust; Florida's robust; Dallas is doing well.

So this is fairly typical of what we see where pockets start to have that kind of heat, so on the new-construction side, we feel good about it. On the R&R demand drivers, when you look at, in addition to the macroeconomic indicators, you look at how our businesses that are more skewed R&R are performing, you see good signs. Plumbing is a strong R&R business for us, and that's doing very well.

Milgard Windows is principally an R&R play, and that is doing externally well. And in Cabinets we are seeing KraftMaid, which is in the high-end more or less in that space doing well and starting to grow, which is indicative of a move towards that bigger ticket. Our channel partners, as they announced a month or so ago, have very strong comps.

So from a macroeconomic standpoint, a new construction demand driver, and R&R demand driver, we feel very good about the year and continue to be positive. I think, importantly, we have the supply-chain and our Company set up to handle it without a significant capital expense and the inefficiencies that can sometimes come with that. So we are positive for the year.

And as it relates to your housekeeping question on FX, FX will continue to be a headwind, particularly for the second and third quarters because of the way the currency developed last year. If you think about the fourth quarter, think about $32 million headwind in currency in the fourth quarter of last year.

So the comp will ease as we get into the back half of the year, particularly the fourth quarter. So if you take a look at where currency rates are today versus they were over the last year, order of magnitude of $300 million so headwind facing [same] from currency this year.

Great. Appreciate the color, thank you.

Mike Dahl, Credit Suisse.

Hi, thank you. Wanted to go back to the plumbing discussion and actually focus on the margins. I think you had said you expect full-year margins in the 15% to 16% range. Clearly a lot of headwinds in the first quarter, but also seems to imply that any benefits that you are getting on the commodity side are likely to be offset by maybe currency in some of the spend in the near-term.

Just wondering how you'd think about that? And going forward is this -- I think you've talked about margins that could be a little bit higher in a normal environment than this, so is there any change there? Or is this just more of a temporary issue?

Mike, there's no change to our mid-, long-term expectations for margin in this segment, mid [teens]. And specifically in the quarter, we incurred about $8 million of expense related to advertising, marketing, and trade show expense, which happens every other year at ISH. We believe this is really good spend for us to make.

This is a productive segment or us. We have strong brands with good growth potential, so this is a good place to put our investment. And for those of you that were at the ISH show in Frankfurt, you were able to see the power of the Hansgrohe brand.

I don't think it is saying too much to say that we were most definitely the best position in the entire fair. And that's a fair that happens European-wide every other year. So we feel real good about the investment in it. And we really don't see a change to our margin expectations in this space.

Okay, great. And then shifting gears to the Cabinet side. Just with leadership change or the new leadership coming in. Can you talk about just what some of the specific initiatives that [Joe] has been passed with are as far as day one, first few months, and then longer-term? What's he really coming in to do differently than you guys had been doing?

Joe Gross is the right leader for this business at this time. We brought him in because of his experience, and he is steeped in turn arounds. He spent a good portion of his career in private equity working for service. And he's run and turned around and helped us in significant businesses here in our portfolio.

In terms of the specific initiatives and his plan of attack on what we're doing with this business, we've talked about. Our objective is to drive this business to profitability in 2015, and we are going to do that. And in terms of specifics, we will talk about that next week, and you will get a chance to meet Joe.

Okay, thank you.

Robert Wetenhall, RBC Capital Markets.

Hi, this is actually Matt Boles on for Bob. Thank you for taking my questions. So just on paint, on the raw material side, I'm wondering if you can update us on what you're seeing now in terms of the paint feedstocks and what you are expecting in 2015?

We really have seen modest deflation in paint, so far. We expect to see a little bit of favorability on the paint side coming in in the next quarter. How long that's going to last remains to be seen. If you look at expanding it to our entire commodity basket, there really is a mixed bag.

We are seeing copper in our plumbing segment come off its lows. Again, how long and how high copper pricing will go remains to be seen. We are seeing some slight inflation in hardwoods in our cabinet side. And of course, a month or so ago there was an announcement of a 10% price increase in our installation.

We're are seeing a little bit of favorability on logistics costs as the price of diesel starts to come down. As we talked earlier, we really see no significant change in our margin expectations, particularly in our big segments around paint and plumbing.

Got it, thanks. And then back to Cabinets. Just given the recent consolidation in the space, I'm wondering if you could touch on maybe the competitive dynamics you are seeing, and particularly in the dealer channel?

We really don't see a big change in terms of the competitive environment. We've competed against Norcraft for years, and we're going to continue to do that. We have strong competitors out in the space. We respect them for sure.

We are focused on our business, and Joe and the team driving the turnaround and getting our cabinet business back to profitability. But don't see any real fundamental changes in the competitive environment.

Great, thank you.

Eric Bosshard, Cleveland Research.

Thank you. Two questions. First of all, in the paint segment, the margin performance is obviously quite good, but from a revenue perspective, it sounds like the hardware and the paint both showed growth. I'm curious in how you think that growth compares to the market in the first quarter? And how we should expect that growth to behave as we move through the year?

Yes, Eric, it's John. If you look at some of the others that have reported, we are consistent with some. One company is a little bit higher than us, but they had a load-in going in the stores. So we think, if anything, we're holding up by picking up just a little bit of share in the marketplace today.

Okay, and then a similar question on the cabinet side. The cabinet growth, I think a little bit better then prior trend. As you look forward in that business and even get a little bit of forward-look with measurements and traffic in that segment. But curious what you are seeing and expecting in terms of the revenue growth opportunity there, and also the market share opportunity there, how that experience is playing out?

We are seeing some good traction particularly in our KraftMaid brand at both retail and the dealer segment. Market share is very difficult in this fragmented market to report, particularly when your talking about a quarter-over-quarter variance. But we like our demand trend, and we think we are winning with KraftMaid, both in retail and in dealer.

We remain challenged in the dealer segment for Merillat as we recover from some of our execution issues that we had last year, frankly. We have our deliveries and lead times back, and we are starting to win back the trust of that segment. We have the leading brands in KraftMaid and Merillat in the R&R and the builder segment respectively. So we are going to continue to drive that demand.

Just within that again, the underlying demand -- I appreciate the progress on market share -- the underlying cabinet demand, especially on the R&R side. How is that behaving relative to your expectations? And how do you think about that specific category this year, R&R Cabinets?

I think it is robust. When you look at the pent-up demand that we've seen over lack of spend in prior years, when we look at the indicators in terms of new home values, we look at store traffic, the fact that KraftMaid for us has momentum and it's on our higher end of the price continuum, I think that bodes well for the overall R&R dynamics.

Great, thank you.

Mike Wood, Macquarie Capital.

Hi, good morning, thanks for taken my question. First question in Cabinets. I'm curious if you can give us how much of ERP inefficiencies were in the cabinet segment in first quarter?

And some of your competitors have gone through the portfolio and exited recently some unprofitable markets in cabinets, regional builder share. Have you gone through that your portfolio and made that decision yet as to whether or not you can exit certain underperforming businesses?

Yes, Mike, as it relates to the European inefficiencies we experienced, it was about $3 million in the first quarter.

In terms of the strategy of the team that's in place and the leadership of Joe, we are definitely applying segmentation to customers market, geographies, and channels. And we're looking at that as a factor, without question. And again, at the Investor Day next week we're going to go into more detail on that.

Great, and was the, in paint, was the deferral of that spending just more of an execution timing? And if you could also just comment on the pro initiative? It was mentioned in the release; just wondering how large that business is?

Yes, so, Mike, the deferral was more due to the fact that we had some inclement weather, and we thought it would be best to advertise when people are painting. So we just deferred it into second and third quarters. As it relates to the Pro business, it continued to have nice growth. And we will talk more -- Jeff Filley, the head up there, will talk more about our Pro initiatives next week at the Investor Day.

Thank you.

Philip Ng, Jefferies.

Good morning, top-line your cabinets were pretty strong. Have you've been able to regain some of that lost share in home center, the home center channel? And the high single-digit growth in KraftMaid is better than we would've expected. How does that stack up to your expectation? And have you seen some price re-gain market share?

It met our expectation. We planned on, as we talked last call of recalibrating our pricing and promotional strategies. We're leveraging the brand and the designer advocacy that we have in KraftMaid. So Philip, I would say it was on plan, and we do think that the growth that we showed was a share gain for us.

Okay, that's helpful. And can you give us a little color on how -- it sounds like you are generally upbeat about the outlook -- but can give us some color on how the start of the spring selling season is progressing and any sell trends you've seen in April?

Yes, we like what we are seeing. The demand is rolling along as expected. As I talked in some of the earlier remarks, the macroeconomics and what we are seeing in specific markets, the foot traffic we are seeing in retail, the movement with KraftMaid indicating that the buyer is moving up in terms of the price continuum, that all supports a nice spring selling season.

Okay. All right, thanks, guys. Good luck in the quarter.

Alex Rygiel, FBR.

Thank you, good morning, gentleman. Looking at the plumbing margins, expectation of 15% to 16% this year. Is there anyway you could quantify the negative headwinds this year from emerging markets, trade show expense, and foreign currency?

Sure, Alex. Well, that impact comes over a period of time. We choose a lot of new products at those trade shows, and particularly the one in Frankfurt. So we'll see the benefit of those sales really in 2015 and 2016 because a lot of those won't hit the market until later this year. But when they do because they are new products and we priced them appropriately because of the innovation that's in these new products, you will see the margin benefit at that time.

And then secondly, could you go a little bit deeper on the double-digit growth in windows in the quarter? Was that market share growth, price, or market share gains?

It was probably a little bit of share gain along with some improved mix in the quarter. We've seen a lot of nice upward pricing or price-point-driven demand from the consumers in the Western US. So think of our Essence Windows, as we talked about, or Keith mentioned a couple minutes ago. Our [paint and vinyl] products are doing particularly well. The sliding glass door/glass wall product that we came out with last year are all resonating very well with the consumers in the Western US.

Great, thank you.

Dennis McGill, Zelman & Associates.

Hi, good morning, thank you. I just want to go back to the decorative architectural segment. John, are you seeing, or did you guys see any difference between point of sale and your revenue recognition during the quarter?

We did, yes, POS was higher than our revenue recognition.

And what was driving that?

I think there may have been just a small amount of inventory balancing there, Dennis.

And is that across the hardware and paint segment, or more paint?

I would say it's solely in the paint segment.

Okay. And then just going back to Cabinets, you touched on this little bit, I think, on the Merillat performance, but can you speak to a little bit more, specifically the trends you are seeing on home center versus Merillat in the dealer channel? How much of a drag is that for you guys right now that you are looking to reverse?

We're performing well in the home center and dealer channel with KraftMaid. The challenge that we are facing, to give you a little bit of color on that from a Merillat side, as you know, last year we had delivery and lead time issues associated with some execution problems we had with our ERP system. We put that in the rear-view mirror.

We have our delivery and our lead times back, but there has been some hangover with regards to our ability to serve and businesses that those dealers go after. We're building that confidence back. We haven't lost dealerships, but we did lose some confidence in them.

And we are working that back, and step by step, we'll continue to do that. Directly to your question, Dennis, we are seeing some good strong retail and dealer business in KraftMaid. We continue to be challenged with regards to the demand side of Merillat, but we are getting better.

And I'm sure you will touch on this next week, but as far as communicating that message to that Merillat dealers, what is the primary focus that you're communicating to them right now as far as why they should stick with you?

Well, really it's not so much -- the communication isn't oriented on why to stick with us. It is why you should grow with us, and why we're going to be dependable. And fundamentally, we do that with our numbers and our performance.

Okay. I look forward to next week. Thanks, guys.

Thanks, Dennis.

Michael Rehaut, JPMorgan.

Thanks, good morning, everyone. First question I had was on just going back to plumbing for a moment. The 14% margin in the quarter you mentioned, obviously impacted by the trade show and some of the spend. And I believe you said last quarter the trade show itself was $3 million, so I just wanted to make sure that was the case.

But getting to that 15%, 16% margin for the full-year, from the 14% you are seeing in the first quarter, is that a function of most of that $8 million dissipating? Or is there incremental profitability that you expect as well from volume growth or price mix? If you could go into a little more detail in terms of going from the 14% to the 15% to 16% for the year?

Sure, Mike, it's John. The trade show actually cost us $4 million, so a little bit more than we expected than the [$3 million]. But in the [$8 million], there is an embedded incremental advertising and marketing expenses that we referred to, so that's how you bridge the [$4 million] to the [$8 million]. In terms of the growth, the profit growth going forward from Q2 to Q4, clearly a big part of it is just the expense that we incurred. In Q1 we don't expect to repeat itself in the following quarters.

At the same time, we do expect to grow this business, so the balance of that relates to the volume drop that we expect to have in the remaining three quarters of 2015. In terms of mix, we do probably see a little bit of improved mix over the quarter; though, we did have some cross winds in there in the first quarter just with the strong growth in the emerging markets that we experienced.

Great. Thank you. Just a second question on cabinets. You had a $7 million profit improvement off of $12 million in better volume, or I'm sorry, better revenue. So it would seem that a portion of the profit improvement was just from incremental margins. And I was hoping you could point, explain the other portion, if that was maybe lapping some ERP or costs that you're not incurring this year, if you could walk through the drivers of the profit improvement.

And in terms of new management, I was hoping just to get a sense for -- you referred to the fact that the new leader and I apologize for not catching the name, I believe Bill Gross, not coming from private equity. But there is also -- if you could just go through his background in a little more detail, as well as if there were any other major changes to the leadership team I think we've discussed in the past.

The improvement is a combination of some favorable mix that we've seen in KraftMaid growing. We certainly are performing better on the operational side and getting over some of the inefficiencies of ERP. We've also taken some cost out.

So it's a combination of the usual suspects with regards to the improvement. With regards to Joe Gross -- he's not a bond guy, he's Joe, and I'm [Bill] -- he's been with Masco for quite a number of years. He came from our tool business, and then was moved into President of our rough plumbing business. And all along the way, he's done a tremendous job.

He does have significant turnaround experience. As I mentioned, he's worked in private equity for a good portion of his career. So he brings a very good perspective in this business, and as I said, you will get a chance to meet him to talk to him, to have Q&A, et cetera at the investor conference.

Great, thank you.

George Staphos, Bank of America.

Hi, everyone. Good morning. Most of my questions have been asked, but I will give it a shot with these two. First of all, can you comment at all or affirm what your views on the incremental margin and incremental profit uplift should be for cabinets this year?

I seem to recall there was a $25 million or so built-in benefit given last year's inefficiencies, and then, Keith, I remember still a goal of 25% incremental margin. Can you confirm that that's the outlook for 2015?

And then, question for you, John, just on FX. Can you comment at all in terms of how your debt is allocated regionally? I don't recall on whether there's an opportunity at all to use that as a natural hedge for FX going forward?

George, with respect to your incremental margin question on cabinetry, yes, we do expect that there should be $25 million tailwind from just a lack of the incremental expenses that we incurred in 2014 that will benefit 2015. So above and beyond that, in terms of just the volume benefit, we should expect about a 30% drop down on our contribution margin on incremental volume in the segment. So that's how to think about profit growth in 2015 and beyond in our cabinet business.

As it relates to FX, right now all of our debt is US-based. But to your point, given the attractive rate environment that we are seeing over in Europe, as we have upcoming maturities, and we have a significant maturity that's coming up in 2016. If the rate environment stays similar to what it is now, we would definitely consider taking a look at [peer-ops] doing some Euro-based financing for that refinancing activity later next year.

Okay. Keith, just one [quickie], and not trying to be too short term, in answering a prior question, you were certainly espousing your optimism, your confidence in the way the quarter is developing. Is there a way to put a number or range on the sales comp you are seeing thus far in the quarter? Thanks, and good luck in the quarter.

Yes, I think I'm going to stay away from giving a number. Our outlook has not changed. We feel the same way about these businesses now as we did coming into the quarter and continue to feel good about the outlook for 2015.

Thank you.

Susan McClary, UBS.

Good morning. In terms of the pricing environment and promotions, I know that you made a big effort towards the end of last year to reset a lot of that. Can you talk about, with the improvement that you saw during the quarter, any changes there? And maybe any ability to get more pricing as we go through the year?

As I talked about last quarter, our intention was to adjust our promotional strategy and pricing in cabinets. We got more aggressive than the market would bear, as we talked about in past, and we made some adjustments to that.

We are competitive in terms of where we are in our strategy right now, and we saw good results from it. We are committed to driving this business to profitability, and we are seeing some nice signs, as Joe and the new team start to get traction.

Okay. And then in terms of your working capital, the improvement was really impressive there, as you saw things take off in the quarter. Can you talk a little bit about how we can expect that to trend during the year? And is there maybe anything significant that you can do there?

Yes, we continue to work on working capital, Susan. And it is highlighted just great outcome that the team from operations, finance, and supply-chain execute upon. We do incentivize all of our employees across the enterprise on working capital performance, so there is incentive to continue to improve that. So there is a variety of things that we are working on.

Principally, in our own inventories we think there's an opportunity to continue to improve. That said, I think, given that we are at record low levels of working capital, the improvement from here will be slightly incremental. Don't expect major step change improvement from working capital going forward.

Okay, that's great. Thank you.

Nishu Sood, Deutsche Bank.

Thanks. So Keith, when you're tenure started, you talked about portfolio restructuring. Most of the investor focus was on what might be divested, but you folks are fairly consistent in talking about potential bolt-on acquisitions happening as well.

So the Endless Pools acquisition, first, if you could give us a sense of the size of that, sales, maybe EBITDA. And also if you could give us some sense of how it fits into the acquisition vision? And what it might tell us about what sorts of future acquisitions you are considering and might make as time goes on?

Endless Pools was a small acquisition for us. It was about $25 million. In terms of how it fits into the overall strategy, we are focused on bolt-on's rather than, per se, another leg, another platform for us. We view plumbing and paint North American and global, so in that space is where our target is.

We are targeting in the range of $200 million to $300 million as the kind of acquisitions that we are looking on. So Endless Pools is small, but it is consistent in that it is in plumbing. It is where we see the potential to leverage either our technologies or our access to markets.

And that's what -- we've brought onboard a new VP of strategy and business development, and his role is to help manage our pipeline. And we are working with our teams to do that. So while it is small, it is quite consistent with what we are looking at in terms of our ongoing acquisitions.

Got it. And you mean up to $200 million to $300 million in the acquisition value?

Correct.

Got it. Okay. And second question, the Investor Day, obviously, we are looking -- everyone is looking forward to that. You mentioned we will be hearing from a few of the divisions, cabinets, Pro build, paint. Are we going to be hearing from all the different divisions?

Is it going to be a pretty systematic review of what's going across Masco? Are there going to be some themes you're going to be looking at? Obviously, I'm sure we will get all the details, but maybe if you could give us a movie trailer version?

You're not going to hear from every one of our general managers, but, clearly, you're going to have people talking to about every segment. We are going to go through and put the business leaders in front to talk about their growth strategies. We are going to talk about specific actions, as well as performance milestones. And we are going to talk about expectations.

Got it. Okay, great. We will see you next week. Thanks.

Will Randow, Citi.

Hey, good morning, and thanks for taking my question. Was curious on the cabinet side. It looks like you guys introduced the Merillat express five-day ship business along with recently purchased the Cardell trademark and have been making waves in cabinets. What is the strategic vision behind some of those initiatives?

Well, Cardell was purchased some time ago. And really what we are focused on is trying to give our customers what they need to drive foot traffic and to be profitable for them and for us to be profitable. So our strategy is a combination of market penetration with the strongest brand that we have, as well as getting our house in order with regards to performance and cost.

Thanks for that. And just one follow-up. In terms of the pace of the repurchase program, with about 4 million shares in the first quarter, is there any room to accelerate that? And are you looking at this consistently on a free cash flow less share repurchases neutral basis? Thank you.

Well, there is always opportunity to accelerate or decelerate the share repurchase activity based on where we see the share price go. As I mentioned in my remarks, we did reaffirm the fact that we would purchase between $400 million and $500 million worth of shares this year. And so we will continue to evaluate opportunities to accelerate repurchases based on where the share price is.

Thanks again.

Keith Hughes, SunTrust.

Thank you. My question is in cabinets. You had discussed mix being a positive in the quarter. Could you give us a view of where volume was in the first quarter?

Volume was up just a little bit, Keith. Pretty good volume in that we saw as a result of the mix of -- so KraftMaid really led the volume charge in Q1. As Keith mentioned earlier, both at the retail as well at our dealers, so that initiative has gone very well. So we are very pleased with the volume growth at KraftMaid.

Would that mean that Merillat volume was down year over year?

Yes, it was down slightly year over year.

Okay, thank you.

Ladies and gentlemen, that's all the time we have for today. Thank you for participating in today's conference call. You may now disconnect.