Masco Corporation (MAS) Q3 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to Masco Corporation Third Quarter 2012 Conference Call. My name is Christie, and I will be your operator for today's call. As a reminder, today's conference is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to the Vice President of Investor Relations, Maria Duey. Maria, you may begin.

Thank you, Christie, and good morning to everyone. Welcome to Masco Corporation's Third Quarter 2012 Earnings Conference Call. Joining me on our call today are Tim Wadhams, President and CEO of Masco; and John Sznewajs, who is the Vice President, Treasurer and Chief Financial Officer. Our third quarter earnings release and the presentation slides that we will refer to during the call are available on the Investor Relations portion on our website. Following our prepared remarks, the call will be open for analyst questions. [Operator Instructions] If we are unable to take your question during the call, please feel free to call me directly at (313) 792-5500. If you would refer to Slide 2, I'd like to remind you that today's presentation includes our views about Masco's future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statement. We've described these risks and uncertainties in our risk factors in our Form 10-K that we've filed with the Securities and Exchange Commission. Today's presentation also includes non-GAAP financial measures. We have provided a reconciliation of these measurements on our website at www.masco.com. With that, I'll now turn the call over to our President and Chief Executive Officer, Tim Wadhams. Tim?

Thank you, Maria. Hey, and thank you for joining us. And for those of you who are dealing with some of the implications from the storm on the East Coast, we certainly wish you well, your families well. And obviously, that's a difficult situation. If you would please flip to Slide #4. From a top line perspective, third quarter sales were flat with the third quarter of 2011. And although economic growth in North America continues to be slow, our sales in North America were up 4%. We benefited from new home construction activity, the introduction of new products as well as pricing actions. Also from a repair/remodel standpoint, we saw some modest improvement as our sales to key retail customers were up low-single digits. Big ticket remodel continues to be relatively slow. The 4% sales increase in North America was offset by challenging economic conditions in Europe. And for the first time in several quarters, in fact it's hard to remember, we were down in local currencies in terms of our international operations. We also had a negative impact from foreign currency translation. Even with flat sales, we did see some improvement in operating profit. On an adjusted basis, our operating profit was up 11%. We also saw some nice margin expansion. And we benefited in the quarter from improved price/commodity relationships, as well as profit improvements. John will talk to you about those items in some detail as we get into the presentation, including a nice lift in adjusted earnings per share. If you flip to Slide #5, please. Earlier this year, we communicated to you the strategic initiatives that we're focused on to drive performance. Those include expanding our market leadership positions, continuing to focus on supply chain and lean from a cost standpoint, improving our Cabinet and Installation segments and reducing -- and continuing to improve our balance sheet. As you flip to Slide #6, we'll take a look at how we are doing against some of those strategic initiatives. As it relates to expanding our market leadership position. Over the last few quarters, as you know, we've had some expenditures for growth initiatives. That includes international expansion and it include some program costs, and we've seen in the third quarter some positive implications related to those expenses. Delta has launched a new Delta-branded toilet at The Home Depot, which we're very excited about, along with The Home Depot. We also have a nice program win in terms of Behr paint. Behr will be placed in all of The Home Depot Mexico stores by the second quarter of 2013. And we've won, at big box, several programs for builders' hardware-related businesses. So we're really pleased about those opportunities going forward. In terms of our cost structure, John will talk about the progress we're making from a profit improvement standpoint. We feel pleased. We're ahead of targets that we set initially this year. Also in the third quarter, we announced some additional headcount reduction and plant closures. And if we look at our headcount quarter-to-quarter, third quarter to third quarter this year, we're down about 1,000 employees. And so we feel we're making -- continuing to make progress, continuing to take actions to address cost structure. As it relates to our balance sheet, we ended the quarter with $1.2 billion of cash. And we did have a debt repayment in the third quarter, but we talked about -- that was really July, but we talked about that at the end of the second quarter. If you flip to Slide #7, we'll take a look at our cabinet- and installation-related businesses. We made modest improvement as it relates to Cabinets in the third quarter in terms of loss reduction. We did have a fairly positive outcome in North America. Our sales were up modestly in North America. We had about $4 million or $5 million of profit improvement in North America. Unfortunately, most of that was offset by significant declines in terms of top line and a couple other issues as it relates to our international operations. Our new leadership team took a couple of actions in the third quarter that were announced. One is a headcount reduction that will take place over the next couple of weeks -- or has taken place, excuse me. And we also announced a plant closure in the Cabinet segment in North America. Those 2 actions will cost us approximately $20 million, with cash at about $5 million to $6 million. And we expect to save about $20 million on an annual basis going forward. In terms of our Installation business, we just missed breakeven in the third quarter. Obviously, we've made a lot of progress in that segment this year. We've reduced losses by about $40 million compared to last year and are certainly very pleased with that. We expect to make money in the fourth quarter of this year. And if we get to the Blue Chip consensus of 900,000 starts next year, some folks think we can do a little better than that, we certainly expect to be profitable in 2013. So we're really pleased with the progress that we're making in this -- in both these segments. And with that, if you flip to Slide #8, and I'm going to turn the presentation over to John, who's going to talk about our operating results and our segment performance.

Thanks, Tim, and good morning, everyone. If you could please flip to Slide 9, please. As Tim mentioned, revenue in the third quarter was flat compared to the third quarter of last year. Excluding the impact of foreign currency translation of about $46 million, sales were up 2%. And the real story behind our third quarter numbers is evidenced in most of our segments: There is significant difference in performance between our North American businesses, which are in the aggregate strengthening, and our international operations, which are a little bit more challenging. Overall, sales in North America were up 4% in the quarter as we saw increased revenues in our businesses selling into the new home construction market, including our Installation business which was up 9%. We also had increased sales in North American plumbing products and we realized selling price increases. As Tim mentioned, sales to key retailers were up low-single digits in the quarter. International sales were down 12% in U.S. dollars in the quarter, a decline of 3% in local currencies. The adjusted gross margins expanded nicely to -- by about -- by 110 basis points compared to the third quarter of last year to 26.5% due to improvement in our plumbing and decorative architectural businesses. We are also pleased with our bottom line performance as adjusted operating income increased 11% in the quarter to $142 million, with an adjusted operating margin of 7.2%, the strongest quarterly company-wide margin we have reported in several years. And our adjusted EPS was $0.13 per share, an improvement of $0.04 per share from the quarter a year ago. If you could please flip to Slide 10, you can see the components of our operating income improvement in the quarter. We see net price/commodity improved $31 million in the quarter, largely driven by our Plumbing and Decorative Architectural segment. This $31 million reflects favorable year-over-year impact of our commodity hedge which was approximately $12 million positive in the quarter, with the balance of the improvement roughly split between our Plumbing segment, particularly our European plumbing businesses, and our Decorative Architectural segment. The $16 million reduction in net volume/mix was principally driven by the negative mix impact of approximately $16 million in our Plumbing segment which, as we have mentioned in the past, largely relates to Hansgrohe as they continue to penetrate new international markets. This was partially offset by increased volume in our Installation segment. We captured $52 million of profit improvements gross in the quarter, in line with our expectations, and these were realized across all of our businesses. These improvements were offset by higher employee-related costs and expenses across all businesses, including benefits and compensation, specifically equity-based compensation given the increase in our share price, as well as incremental promotional and program costs related to new product introductions as we continued to invest to grow our company. We are pleased with our year-to-date profit improvement initiatives totaling $140 million and believe we are on track to achieve the $175 million for the full year, as we discussed in our second quarter earnings call. If you could please flip to Slide 11. You can see that, in our Plumbing segment, sales declined 4% in the quarter principally due to foreign currency translation. Excluding the impact of $37 million of foreign currency translation, sales increased 1% in the quarter. European sales in the segment were down 11% but flat in local currency for the quarter despite a challenging economic environment. North American plumbing sales were up 1%. One thing I should probably mention is that we are up against a very tough comp and sales, as reported in the Plumbing segment in the third quarter of '11, increased 12% due to both strong North American and international sales last year. This said, we continue to experience very solid North American growth. And several of our most important faucet brands -- Delta, Peerless and Brizo -- saw sales in the quarter increase high-single digits in both the retail and wholesale channels as they continue to gain share due to new product introductions. Tim mentioned we are very excited about the launch of a Delta-branded toilet program in the quarter. While this program is in its early stages, we are very pleased with the initial response to these terrific new products. This said, we lost some business in both our shower-surround and tub and along with our plumbing connections units, which aggregated approximately $15 million in the quarter. We would expect to incur an additional approximately $50 million in lost sales in each of the next 4 quarters. From an operating profit perspective, the favorable price/commodity relationship in the segment offset the negative impact of mix. Margins in the segment were challenged by 2 items in the quarter as we experienced incremental costs for the new programs of $5 million, including the toilet program I just mentioned, and the negative impact of foreign currency of $5 million. Removing the impact of these 2 items would improve adjusted operating margins to approximately 12.4%. Now turning to Slide 12. You can see revenue in our Decorative Architectural segment grew $26 million or 6% in the quarter, driven by strong sales of Behr's Premium Plus Ultra products, our Paint & Primer in One products, along with selling price increases. The new formulations Behr introduced earlier this year are performing well, exceeding expectations. As a result, we believe we have likely gained some share in retail in the quarter. Operating margin improvement was due to the benefit of improved results from our builders' hardware business, which had a tough 2011 and has seen good results here in 2012, and a favorable price/commodity relationship in the quarter partially offset by incremental investment. The price/commodity relationship in the segment was approximately $10 million favorable for the third quarter. On a year-to-date basis, we have realized a favorable $5 million of price/commodity relationship in this segment. Even with the recent pullback in the price of certain commodities, prices of these commodities remain in very elevated levels, though slightly off their Q2 peak and are, at today's levels, still higher than they were in the third quarter 2011. Despite the favorable price/commodity relationship in Q3, given the steep run-up in TiO2 and other input costs over the past several years, we have not recovered the inflation we have experienced in 2010 and 2011. If you turn to slide 13. You can see the environment for cabinetry remains challenging as our segment sales declined 5% in the quarter. Excluding the $8 million negative impact of foreign currency translation, Cabinet sales were down 2% in the quarter. Our European sales decreased 12% in local currencies and 21% in U.S. dollars. Cabinet sales in North America, however, were up 2% in the quarter. We experienced solid sales growth with our countertop initiatives. Our home center sales of cabinets increased 4% and our direct-to-builder sales were up low-double digits percent. This growth was partly offset by declines in the dealer channel. We continue to experience a sluggish demand for big ticket repair/remodel products, especially cabinets. The promotional environment in retail continued in the third quarter at the same levels we have experienced year-to-date, and we anticipate that our full year and second half 2012 promotional spend will be at levels very consistent with what we experienced last year. We improved our operating loss in the quarter by $1 million, and $20 million year-to-date. We realized $11 million of profit improvements gross in the quarter driven principally by our North American unit through our current year initiatives as well as the benefits we have realized from prior year restructuring activities. These benefits were offset by other inflation and negative price/commodity and the loss of leverage as a result of declining volumes in our European businesses. As Tim mentioned earlier, the new team at our North American Cabinet business continues its turnaround effort, resulting in the announced plant closure and headcount reductions, which should generate $20 million of improved operating results in 2013. If you turn to Slide 14, you see our Installation segment. And we are very pleased with the continued improvement in both the top and bottom line performance of this segment. We essentially broke even in the segment in the quarter, something we have not done since 2008, when housing starts exceeded 900,000 units. Segment sales grew 9% and were fueled by higher sales volumes across all lines of business: residential new construction, retrofit and commercial. Sales were negatively impacted from the previously announced closure of branch locations and the mix shift to multi-family starts, which on a combined basis reduced sales in the quarter by approximately 3%. Well, we continue to focus on increasing our Installation sales across all lines of business and we are well positioned to grow with the big builders, particularly D.R. Horton, Pulte, Lennar and KB. Installation contracting sales increased nearly 20% in the quarter. In addition to solid top line performance, management's strong execution delivered significantly improved bottom line results, adjusted operating profit improving by $12 million and adjusted operating margins expanding by more than 400 basis points. This segment exhibited very strong operating leverage in the quarter, delivering nearly 50% incremental margins resulting from increased fixed cost leverage as well as the benefits from our prior profit improvement activities, which are driving improved operational efficiencies. If you turn to Slide 15, you can see that our Other Specialty Products segment sales declined by 3% in the quarter. Excluding the exit of certain U.S. window markets late last year, segment sales would have been up 1%. Our North American window sales increased 9% in the third quarter due to increased sales in both the new home construction and replacement window markets, as well as new product introductions. We are particularly pleased that our new -- that our replacement window sales increased, reflecting share gains driven by new products despite what we believe is a replacement window market in the Western U.S. that declined mid-single digits in the quarter. We did experience some top line declines in our fastening tool business in the quarter, which we attribute to the soft replacement roofing market and some new inventory balancing in retail. We believe we have experienced no loss of share, though, in this business. And the segment adjusted operating margins improved by $2 million or 160 basis points, benefiting primarily from rationalization activities in our U.S. window business in the third and fourth quarters of 2011. With that, I'll turn the call back to Tim.

Thank you, John. And if you would please flip to Slide #17. These are the priorities that are consistent with the strategic initiatives that we're pursuing, and we've talked about almost all of these as we worked our way through the presentation. Obviously, we continue to feel as though we're moving forward in each of these areas. And if you would flip to Slide #18, please, a couple of comments before we go to Q&A. We feel we continue to make good progress in the third quarter of 2012. If we step back a little bit and take a look at year-to-date, our sales are up 2% overall. And if we excluded the impact of foreign currency translation, we'd be up approximately 4%, and in North America, we're up 5%, again in a pretty tough environment. If we think about margins and EPS on an adjusted basis, we're up 120 basis points to 6.5% and up $0.17 in terms of EPS from $0.11 last year, adjusted to $0.28 this year. We've made a lot of progress in areas that have contributed to that. We talked about price commodities. Although we're still behind the curve, we have done a nice job this year of making progress there. As we focus on profit improvement, John talked about the $175 million that we think we can reach this year. That's up from our original projection of about $140 million to $150 million. When we look at the cab and install-related business, we're improved about $60 million versus last year and -- in aggregate -- in those 2 segments. And our working capital management continues to be a bright spot across the enterprise. We're pleased with all those outcomes and certainly want to take a second and thank our employees worldwide for their continued focus, dedication and commitment. While economic growth in North America and the unsettled economic conditions in Europe continue to be headwinds, we're relatively pleased that housing dynamics continue to improve in North America. On the new home side, demographics, affordability, slowing foreclosures, high -- home price increases and low inventory levels are forming a very solid foundation for a multiyear sustainable recovery in new home construction. The recovering repair-and-remodel activity has been more moderate and certainly uneven in general and relatively slow for big ticket remodeling. We anticipate that consumers will remain cautious until job growth, continued home price appreciation and access to credit improves their confidence. Once that happens, we should see solid momentum in repair/remodel activity. It looks like October top line for us will be up high-single digits to low-double digits on a preliminary basis. And we will push hard to close the year on a strong note by continuing to focus on the things that we can control to drive our strategic initiatives. Again, those initiatives include expanding our market leadership positions, continuing to focus on total cost and productivity, improving our Cabinet and Installation segments and continuing to enhance liquidity in our balance sheet. And with that, John and I will take any questions that you might have.

[Operator Instructions] Your first question comes from the line of Peter Lisnic with Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: First question. The -- if we look at the third quarter operating compares that you gave us, the productivity net $1 million hit, can you give us a feel for where that number could shake out for the year and any preliminary sort of targeting that you could be looking at for 2013 on that front?

We haven't done anything relative to '13 at this point, Pete, and would certainly put in perspective the fact that, over the last 3, 4 years, we've averaged probably about $140 million to $150 million in terms of gross profit improvements. Obviously, this year, we look to only be a little bit above that at about $175 million. And I don't know that I have the full year number in terms of the net number there. My guess is that, that net number -- John, I don't know if you have any detail on that, but we have seen a fair amount of cost inflation, some impact from growth initiative spend. And I have to roll that out, Pete, but I don't know exactly what the full year impact would be. I think, on a year-to-date basis, we're probably a little bit north but not much -- it's probably -- most of it's been offset.

Yes, yes, yes. I guess we'd be in that $20 million to $25 million range on a full year net basis.

Positive?

Positive. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay, all right. Perfect. And then as a follow-up question, with some of these new business wins and opportunities, Delta toilet, et cetera, can you give us a sense as to the -- what the opportunity from a revenue perspective there might be? It sounds like October's already benefiting, but just as we look forward, how significant are some of those opportunities, from a revenue perspective?

Yes, I would say the 3 that we talked about, Pete. If you took the Behr paint initiative, the toilet initiative as well as the builders' hardware, if you put all those together, we're talking somewhere north in aggregate of $100 million roughly on an annual basis, yes.

And Pete, just a little bit of color to Tim's: It's only benefited in October's by a little bit of a loading with some of these programs as well.

Your next question comes from the line of Keith Hughes with SunTrust.

Cabinets, you had highlighted the employee reductions year-over-year and the plant closure. But the new management team, what other types of initiatives do they have in terms of product and price points and things of that nature coming down the pipe?

Yes, the -- in terms of Cabinets, Keith, there's been a lot of activity there. As we mentioned earlier, we made some pretty significant managerial changes effective July, if you will, so we've got about 3, 3.5 months in terms of feet on the ground there, if you will. And as we've indicated in the past, they're looking at all aspects of the business really trying to step back, do a fact-based assessment and have made a lot of progress in that regard. They've done a lot of customer visits. And as we look at it from a priority standpoint, the first area of focus for them has been really in a couple of places. That would include the cost side. And we talked a little bit about that in terms of the headcount reduction. There's some other opportunities that have been identified and are being looked at, at this point in time. The other area is on the countertop side. Basically, the plant closure relates to our countertop fabrication business in New Jersey. And essentially, we're changing that model to basically subcontract with local subcontractors, if you will, that can fabricate countertops much similar to our builder precision model, which really kind of gets us a little closer to the customer. As we mentioned, those actions cost us about $20 million and will put us in a position where we save about $20 million going forward. In addition to that, there's been a lot of activity just in terms of reaching out to customers, a -- lots of discussion in terms of across the channels. And I think that the folks at -- the way I get the feeling is that we've done a good job of enhancing the dialogue there. Obviously, we're looking at all aspects of the business. We do have some product launches that will be taking place over the next 2 or 3 quarters and we'll talk about those after they happen, as supposed to ahead of time, just in terms of the implications, but those relate to both the KraftMaid and Merillat brands. So I think there's a lot of good activity going on at this point in time. And we certainly are in the early stages of this process, but we'd certainly have more to report as it develops going forward.

Second question. Your comment on October being up high-single, low-double digits, does that include Europe and are there any segments that really stand out in those results?

Yes, that does include Europe. In fact, in both North America and in Europe, we're up high-single digit to low-double digits in both geographies, if you will. And just to put that in perspective, last year, we had a pretty significant launch in the latter part of the third quarter in North America. We also had a price increase in Europe that -- with our Hansgrohe operation, that I think became effective in October. So we had a little bit of a pull-forward last year so October's probably a little bit easier comp for us, quite frankly. But having said that, as we looked across the numbers -- and again, Keith, I would want to emphasize that these are preliminary numbers in terms of the data that we're sharing with you. But as we look across the detail, I would say that the strength is pretty broad. Obviously, in the Installation segment probably a little higher than the high-single digit, low-double digit just in terms of reflecting new home construction-related activity but pretty widely dispersed across the business units.

Your next question comes from the line of Bob Wetenhall with RBC.

I just want to see, we're in New York, and the storm damage, the extent's been severe. Do you think this will have any impact on third quarter results? And any delay in shipments, or is it business as usual?

Well, I would guess that -- as we think about any activity on the East Coast, that there probably will be some negative impact just in terms of going forward. That's a little bit difficult to assess at this point in time. We do have our Masco Bath operation and Arrow Fastener located in the New Jersey area and those would be, I think, the only 2 operations, John, that come to mind?

We have numerous installation branches.

Yes, a lot of installation branches out that way. And then obviously, a lot of our customer activity in the Northeast is -- tends to be pretty robust. So my sense is that there'll probably be some negative implications but obviously very, very difficult to quantify what that might be.

Understood, that's helpful. As we go into 4Q, do you expect the positive price/commodity relationship to sustain itself, or accelerate? And in a similar fashion, what are your expectations for the $16 million hit on volume and mix? Do you think that's going to start to improve as well?

Yes, Bob, it's John. Let's take this part maybe in reverse order. The volume mix issue will probably still be a little bit of a headwind for a little while yet. That's, as we mentioned in the past, is emanating from Hansgrohe -- or principally from Hansgrohe over the last several years as they continue to grow the business internationally, as they mature and shift -- or balance their business out from a shower company alone to both a shower and a faucet business. So there's a number of things that contribute to the negative mix that they're experiencing out there. But that said, they were trying to address it. They are focusing on some products that will be at cost and price points that will be more attractive. And so nothing to really talk about yet, but it's something that they're very much aware of and are focused on improving. In terms of the commodities going forward, tough to say. It's been kind of a choppy commodity environment over the last couple of quarters. As we look across the commodity inputs that we buy, copper has been fairly steady in a narrow -- relatively narrow trading band despite peaked -- picked up a little bit in the third quarter, has come down just recently. Hardwoods are starting to get to us a little bit in cabinetry and chipboard pricing in Europe has been a little bit elevated at this point. As I mentioned, TiO2 is also -- come off its peak, though. What we are hearing from the producers is that, that could go up here in the -- either the fourth quarter or early part of 2013. So no certainly as to where that's going to land at the moment. So at this point, we might expect a little bit of a price/commodity favorability in the fourth quarter, but really just it's tough to assess as to where we're going to end up on a full-quarter basis at this point.

Your next question comes from the line of Stephen East with ISI Group.

If -- just follow on what you were talking about in October, Tim. Does that exclude foreign currency impacts? I know, in July, you started off a little bit better, but it looked like foreign currency then clipped you. So I just wanted to make sure I was clear on that.

Yes, I think the numbers that we had, had foreign currency in it, Steve. So in terms of the International operations, would have been up high-single, low-double, with currency in, and that would have been negative impact.

Yes. There would be a negative impact of foreign currency, Stephen. So x currency, those numbers would be just up a little bit more but not much because currency right now, at least compared to the fourth quarter of '11, is about the same levels.

Okay. Sure. I -- and then the other question I have surrounds Installation and Cabinets and restructuring charges, what you think we have going forward. Cabinet losses are still fairly high. Your Installation, you're almost at breakeven, it probably -- a little bit less than what you thought was happening. Is that anything other than just the timing of acceleration of the market? Or is there something going -- else going on, on the Installation side? Then on the Cabinets, I assume, with the new management team, you've got restructuring charges coming in the future.

Yes, I wouldn't want to necessarily predict anything relative to cabs -- Cabinets at this point, Stephen. But as I mentioned earlier, I -- the team has identified some additional potential opportunities for cost reduction that may or may not require charges going forward. But as you could tell from the action that took place this year, we certainly feel like we'll get a very good payback. As I mentioned, I think the $20 million, about $5 million, $6 million of that is cash, and we expect to get $20 million back in 2013, but again there could be some additional activity there and we will communicate that as it transpires. As it relates to the install business, John did mention that we were up 20% in the installation of insulation, and that's probably the closest metric that we have to new home starts on an absolute and/or on a lagged basis. And that might -- that's a little bit short of the 26% to 27% I think that new home construction is up. And if you look at it on a lag, I think that's the approximate number. My sense is that there are a couple of things going on there. One is that we have eliminated a lot of branches over time, and as John mentioned -- talked a little bit about the impact of the branches that we closed late last year, early this year. As we look at it today, our guys are taking a very hard look at our footprint and taking a hard look at where the housing activity is and our ability to serve those markets. We did add, over the course of the third quarter, late second quarter, I think, 4 satellite distribution-related operations. And the possibility of adding a few more locations is certainly there as we look at where the activity is. So in terms of that business, we may be a little bit short on the top line. But again, I would remind folks that we've got significant mix in terms of multi-family this year, obviously, and that certainly has some implications. But our guys -- in our opinion, we're not missing anything from a share perspective. I think we're in a pretty good spot and obviously continuing to focus on the bottom line. And as we look ahead, obviously, as I mentioned, we expect to make money in the fourth quarter and certainly feel like next year will be a year of profitability for the segment. And it's certainly been a while. John's got a couple of additional observations that we'll share with you.

Yes, Stephen, just as we think about share. Because we're highly focused on that number as well, our top line growth number. We did a couple of things. We went out and took a look at our consumption of fiberglass in terms of pounds. We're actually up in terms of pounds so we feel pretty good that -- that's one point that indicates that we're not losing any share. Another thing is just polling the fiberglass manufacturers. They feel that we are -- our consumption is up compared to a lot of other players in the industry, so again another point that leads us to believe that share, if nothing else, is not going backwards. If anything, we're picking up a little bit of share. And then as we look in our business and our position with the big builders, it looks like we're up there as well. This is with the publics, something we can more easily track. So feeling really good about our share position across the board there. I guess one thing, to circle back on the restructuring charges that you mentioned in the first part of your question, we did incur $48 million year-to-date. We have guided to be about $65 million for the full year, so a lot of that activity, the difference between the year-to-date, is actually that we initiated in the third quarter that will carry over into the fourth quarter. So we do have some further charges that we will be taking as a result of some stuff that we launched here just recently.

Yes, $20 million, Steve, related to the Cabinet business, about $9 million of that, I think, hit in the third quarter and the balance will probably hit in the fourth quarter.

Okay. Tim, very quickly on that: Is that all U.S., or is that -- some of it with the European ops?

There is a plant closure in Europe, a Spanish plumbing plant, that would have been impacting the third quarter number as well.

Your next question comes from the line of David MacGregor with Longbow Research.

Tim, I want to ask you about the Cabinet business and the brand line in particular. And once upon a time, one of the challenges that you talked about was that you didn't really have strong representation and opening price points since you had the KraftMaid brand, and then there really wasn't much beyond that. You responded to that by bringing over the Merillat and the Quality brands in order to establish a good, better, best lineup. You still seem to be struggling in the builder channel, and notwithstanding the fact you've got a new management team in here and they've got a lot of -- or in the dealer channel, excuse me, notwithstanding you've got a lot of plans here from the new management team, I'm just wondering if you're really kind of fighting an uphill battle here by trying to get Quality and Merillat into the dealer channel and if your brand strategy at this point is kind of where it needs to be in terms of penetrating that channel.

Well, I -- Dave, both Merillat and Quality have always had presence in the dealer channel, as has KraftMaid. And I think that, just about any brand for any competitor, if you will, almost all brands tend to go through the dealer channel. There may be a couple that are specific to home centers and that type of thing, but we have always had a presence there. The real effort has been to expand that presence. That's been our desire. And as we mentioned in our second quarter earnings call, some of the -- a couple of the reasons for the leadership change included some of the challenges that we've had implementing both the countertop and the dealer strategy going forward. So we continue to feel like there's an opportunity there, the -- a significant growth opportunity. I would remind us that the dealer channel, we think, represents about 60% of overall Cabinet sales. And although that's been an area where we have historically been somewhat underrepresented, our sense is that we are clearly the #2 player when we look at the combination of KraftMaid, Merillat and our Quality brand. So I think we continue to believe that there is certainly opportunity for us at the different functionality and price points for those 3 brands. And it is certainly an area that our new leadership team is very focused on in terms of future opportunity.

Is this something where you just have to spend more on brand support in 2013? I realize you're not talking about '13 in a lot of detail at this point. But in '13, we should be thinking about increased maybe ad spend in support of those brands?

I don't know that I would necessarily say that it's a promotional-type situation. The leadership team is looking at all aspects of the business in terms of quality, service, the experience with our brands. And so I wouldn't necessarily say that we would expect to see a lot of additional promotion. There would be -- and we have, where we've won new dealer representation, obviously, there's a display expense that traditionally goes with that. But I wouldn't say that -- as we think about the future going forward in the dealer segment, that we would be looking at an inordinate amount of expense relative to opportunity. And I think anything we do there would certainly be done with the expectation that we get a very solid payback.

And then just finally. I guess there's been a lot of talk about promotional activity in the home center channel on Cabinets. So I'm just wondering if you could talk about the dealer channel and the level of promotional activity you're seeing there and the extent to which that may be resolving.

Well, in the dealer channel, there is probably much less promotion than we've seen in terms of big box. I mean, obviously, there are incentives that folks like to use in terms of growth incentives, which would be different tiered rebates and allowances and things of that nature. But generally speaking, I don't think that the dealer segment shows any of the acceleration or increase, if you will, in terms of promotional activity that we see at the big box side.

Your next question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: I hope and trust everyone in the organization is safe and well after the storm activity the last couple of days.

Well, we haven't really heard, Sam, anything from the East Coast, but we appreciate your thought. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: A couple of quick questions, if I might. Most of my questions have been asked and answered. You mentioned that, in October, there was some benefit to -- from the load-in from the new products and also an easy comparison. Just for some perspective, how much -- the comparisons in November and December, how much more onerous do they get versus October?

Well, I would tell you, Sam, that last year's fourth quarter for us was pretty tough and so I don't anticipate that November, December comps are going to be overly challenging. Now having said that, I think monthly sales activity, when you're coming out of a pretty steep recession, like we are, can be fairly uneven, a little bit on the lumpy side. And -- I'm sorry?

The storm.

And you've got the storm issue too that is certainly going to be a bit of a wild card at this point in time. So we'll have to see how that shakes out, but I don't remember November, December being extraordinarily in that regard, as we look at them. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Two more quick questions, if I might. First off, regarding cash and cash flow, how much of that -- the $1.2 billion, on the balance sheet now, and prospectively, your cash flow is coming -- is offshore. John?

Yes, about $500 million or so of our cash, Sam, is offshore at this point. So I would say, fairly easily accessible for us. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: And then prospectively, your cash flow, would it be proportionate to your overall international sales in terms of what will be coming from offshore?

Yes, I think that's a fair way to look at it, Sam, just given the mix of businesses and everything that we've got internationally versus domestically. I think, yes, that's a good rule of thumb to use. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: And last question. There's $12 million, the copper hedge, I believe, you identified, the benefit to the third quarter. How should we look at that in Q4 and then going into 2013 as it starts to roll off and anniversary?

Well, this won't really necessarily roll off and anniversary because we continue to hedge our commodities in the marketplace. That will -- we will continue to highlight for the investment community the change on a quarterly basis. To the extent that -- I'm trying to think of where copper prices finished the end of the year versus where they are today. And that would give you your best sense of how the hedge will impact the fourth quarter. And I'm sorry, I just don't have those numbers handy off the top of my head, so -- although we can circle back with you on that one. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: So the hedge, then, would be essentially -- your costs for copper would be similar to what it was in Q3 and then we can just factor in whatever the year-on-year change would be.

That would be a way to think about it, yes.

Your next question comes from the line of Adam Rudiger with Wells Fargo Securities.

Look at just the Cabinet segment. And you -- and Tim, you just mentioned that last year, in the fourth quarter, was somewhat easy comparison. This quarter in Cabinets was only the second, I think, lowest-revenue quarter we've seen. And it really just suggests there's limited improvement. I was just curious more if you could talk bigger picture about what you think of the cabinet cycle, where we are and just what our expectation should be at all for next year.

Well, yes, I'll take a shot at that, Adam. I think that, as I think about North America, my sense is that we ought to see a continued top line improvement. We were up a little bit in this segment in the third quarter in North America, I think John mentioned 2%, and had pretty strong performance as it relates to big box and direct-to-builder. Europe obviously was a bit of a challenge in the third quarter. We were down 12% in local currencies and, I think John mentioned, 21% when we factor in translation. And I would expect that we should see -- continued positive comps going forward in Cabinets would be my sense, given the new home construction activity. And our sense is that, obviously, the election's going to be relatively important. There's a fair amount of uncertainty out there at this point in time. And bigger ticket remodel activity in North America will pick up at some point. We saw a little bit of improvement, obviously, from a big box perspective. But I think the real issue going forward is probably going to be the outcome of our European-related businesses. And as we have indicated in the past, those businesses are both in -- one's in the United Kingdom, the other one's in Denmark. And we have seen very, very significant drops in terms of volume from the start of the downturn to today, and obviously, that continued into the third quarter. So I would say that'll continue to be a bit of a headwind for us in that particular segment.

And then just -- I mean, I'm thinking about some of the new product initiatives. You mentioned, I guess, toilets and paint in Mexico, recognizing those would likely be modest revenue contributors near term. But assuming those businesses grew and started to impact the mix meaningfully, if they could, what would be the margin impact from those new businesses on those segments?

Those -- and those would be slightly margin dilutive because, for instance, our toilet program is a source-and-sell program. So the contribution margin on a source-and-sell program is generally lower than what it would be if we manufactured the products ourselves directly, so that would probably have an impact. And just given, I think, down in Mexico, that would be a little bit margin dilutive as well just given the nature of the product that we're manufacturing for that market is slightly different than what we've got here in the United States. I think that's -- it'd be just a little bit lower than what we experience today here in North America.

Yes, I would say, though, Adam, that, as we look at those programs, they tend to have a very, very high return on assets, return on investment. The payback on those is generally less than a year. And even though there is a little bit of margin dilution, we're excited about those kinds of opportunities and certainly look at those as a value creation opportunity, no question.

Okay, your next question comes from the line of Ken Zener with KeyBanc Capital Markets.

I wonder -- I do appreciate your guys' increased disclosure, at least from my angle. I think it is appreciated. I've 2 questions. One is going to be about insulation and the second about paint. In fiberglass, you mentioned you were up in pounds, is that -- does that mean you're kind of up in pounds similar to starts, meaning the mix and/or the price is part of the factor that's leading to your revenue on -- being under the growth of starts?

Yes, Ken, I would say there's a little bit of a favorable mix in that -- in our insulation purchases at this point -- and in our insulation Installation business at this point. Things -- with some of the businesses that we're launching not only with the builders, within our retrofit business and our commercial business, certainly a better mix there overall.

Yes, I think -- I don't know, Ken, if your mix question is really on the install side, the fact that we've got more multi-family. Is that where you were going?

Well, you said -- I thought it was a very good comment, that you said the pounds was up. So that could be -- there's different ways to think about that, obviously, in fiberglass. It could be an R-19 or a higher R-square. So I just kind of want to understand why the sale starts are up more than your growth that you highlighted and if you could kind of explain that on the volume, the price, which obviously some people were looking for.

I think -- I guess, Ken, if what we're focusing on is the 20% lift in the installation of insulation versus the start number of 27%, 28%, I think that, as I mentioned, I think there's probably 2 factors there. One is a multi-family mix, which tends to be a little bit lower and is an area that obviously we've been able to win some opportunities in. I think the other issue for us is really the fact that, as we contracted our footprint, we're taking a hard look at areas where homebuilding is starting to pick up to make sure that we've got representation. And as we mentioned, there are a couple of areas where we added satellite distribution centers, I think maybe 4 of those. And I think the guys are looking at another dozen or so locations that may be situations where we can expand our representation, given the opportunity. So I think it's a little bit of those 2 items that might help explain that delta a little bit. I think John's comment about the poundage was really -- as we think about share and really focus on share, we wanted to reach out to some of our suppliers to kind of get a feel. And I think what we were generally trying to communicate there is the fact that, as we look at where a product is going, again through our suppliers' eyes, that's -- that puts us in a position where we don't feel like we've lost any significant share. And I think that was really what we were trying to get across in that comment.

No, I do appreciate that. The paint segment was up a nice 6% versus kind of a more flattish industry. Could you kind of -- if you were to slice that into a pie, is it pretty much 1/3, like, paint price, 1/3 paint volume and 1/3 hardware gains?

Clearly, the hardware gains were a factor in the segment. Splitting that out: Price was probably a little bit higher on the proportion scale than volume of paint though our, like I mentioned, our Ultra products sold through really well during the course of the quarter. We had really significant top line improvement there. And then our Liberty Hardware programs, as Tim mentioned, the new products that we launched, new programs we won, had an impact. So on -- I think your assessment is right. I mean, we had a couple or 3 things impacting the favorable top line: price, Ultra products and our Liberty Hardware unit.

Yes, I think the Ultra, Ken, certainly would have improved our mix from a top line perspective. That tends to retail at a higher price, as you're probably aware. And I think that if -- I wasn't sure if you were trying to get at a share comment or not, but as we look at some of the industry information, our share performance in the third quarter, along with Home Depot's share performance, again based on information that is available, looked to be very good in the quarter.

And the hardware, was that more on a product launch in terms of putting it into the shelf, as opposed to POS?

Some of it is -- a little bit of both. We had some programs that we had earlier in the year or late last year that are kind of waterfalling, as well as some of the load-in associated with some of the new wins that we've had recently.

Okay, Ken, thank you. And again, thank all of you for joining us today.

That does conclude our conference call. You may now disconnect.