Masco Corporation (MAS) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to Masco Corporation's First Quarter 2013 Conference Call. My name is Tiffany, 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 Vice President of Investor Relations, Maria Duey. Maria, you may begin your conference.

Thank you, Tiffany, and good morning to everyone. Welcome to Masco Corporation's First Quarter 2013 Earnings Conference Call. Joining me on our call today are Tim Wadhams, President and CEO of Masco; and John Sznewajs, Masco's Vice President, Treasurer and Chief Financial Officer. Our first 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. I'd like to remind you that statements in today's presentation will include 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 statements. We have described these risks and uncertainties in our Risk Factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission. Today's presentation also includes non-GAAP financial measures. We've provided reconciliation of these adjusted measurements to GAAP 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, and thank all of you for joining us today for Masco's First Quarter 2013 Earnings Call. And if you would please move to Slide #4. We're pleased with our first quarter results, and that gets pretty tough comparison given the first quarter of 2012. And we certainly feel like we're off to a good start in 2013. Our Q1 performance reflects the strength of Masco's brands, our leadership position within the building products markets and our leverage to a continuing housing recovery. Our sales growth was driven by our execution against an increase in North American new home construction activity, which particularly benefited our Cabinet, Installation and Window-related businesses. Our top line also benefited from the new products that we've introduced at retail that continue to outperform our expectations and reinforce our strength in the repair and remodel channel. We also reached a major milestone by achieving profitability in our North American Cabinet business and a breakeven level of profitability at the segment level for cabinets. And obviously, we're very pleased with that outcome. The improvement in Cabinets, together with our focus on cost containment and our operating leverage, helped us continue our margin expansion. Our segments with European market exposure, which include Cabinets, Other Specialty Products and plumbing, were impacted by the continued weakness in the Eurozone, which, coupled with unusually harsh weather in Europe, caused a drag on our stronger North American results. And if you would please move to Slide #5. As we communicated in the past, our strategy is focused on 4 key elements to drive performance. We expanded our market leadership by continuing our legacy of introducing new products and programs which matter to our customers and consumers. In North America, our faucet and toilet businesses benefited -- benefiting from recent product introductions, delivered high-teens growth. And our Decorative Architectural business, which includes our paint and builders' hardware, continue to win new opportunities. Installation services is responding to new home construction growth by strategically adding greenfield locations in markets where activity is strong and the recovery is well underway. We also had another good quarter from a cost reduction standpoint. We continue to benefit from restructuring actions, our focus on lean and our efforts in supply chain. And John will talk a little bit more about the outcome later on, but certainly pleased with our continued progress there. We're coming off a solid 2012 in terms of our Cabinet and Installation segments in their improvement and had a lot of momentum coming into the first quarter, and we're really pleased with our first quarter results as it relates to Cabinets and Installation. On a combined basis, in aggregate again, those 2 segments improved by $24 million in terms of operating profit compared to the first quarter of 2012, and that's despite the first quarter generally being a little bit slower from a seasonality standpoint. While there's still a lot of work to do, the potential of Installation and Cabinetry is promising when considering their operating leverage and exposure to recovering markets. Our commitment to strengthen our balance sheet is evident in our working capital improvement and our ability to successfully negotiate a new 5-year revolving credit facility. These execution highlights represent what we feel is a very good start to 2013, and we're certainly pleased with our performance coming out of the gate. And with that, if you move to Slide #6. I'd like to turn the presentation over to John Sznewajs, our CFO. John is going to walk us through our operating performance by segment.

Thank you, Tim, and good morning, everyone. If you could please turn to Slide 7. As Tim mentioned, we entered 2013 with good momentum coming off a strong fourth quarter, and we delivered a solid first quarter this year. Sales increased 4%, with North American sales up 6% for the quarter, and volume increases were strongest in our direct-to-builder channel. As Tim mentioned, we faced a difficult comp to the favorable weather conditions in the first quarter of last year and unfavorable weather in both the U.S. and Europe in the first quarter of this year. This impacted international sales, which decreased 2% in the quarter, though currency was not an impact in the quarter. I should mention that this material excludes the results of our Danish RTA business, which is now reflected in discontinued ops, and in prior year results, have also been restated. And we are pleased with our bottom line performance as our commitment to cost control helped to increase adjusted operating income 19% to $140 million, with adjusted operating margins of 7.5%, our highest first quarter margin since 2007. And our adjusted operating -- our adjusted EPS nearly doubled in the quarter to $0.13 from $0.07 1 year ago. If you turn to Slide 8, you can see our operating income bridge for the quarter. Net price and commodity improved approximately $11 million and reflects the year-over-year impact of our metals hedge, which was, coincidentally, $11 million negative in the quarter. The favorability was largely driven by our Cabinet segment. The $6 million increase in net volume and mix was principally driven by volume increases in the Installation and to a lesser degree, in our plumbing and Other Specialty segments. This was partially offset by mix, primarily in our businesses that saw solid growth in sales to new home construction channels and in our plumbing segment, where there's successful new programs and expansion into international markets. We captured $42 million of profit improvements gross in the quarter and believe we are on track to realize our full year profit improvement initiative gross of $150 million. Turning to Slide 9. You see that our plumbing segment's sales increased 3% in the quarter. The strong sales momentum we've been experiencing with our North American faucet and toilet businesses, which include our leading brands, Delta, Peerless and Brizo, continues in the first quarter. Our sales of these products grew mid-teens percent in the quarter, aided by last year's program wins in the retail channel and strong balanced performance in the trade channel, reflecting our continued investments in the showroom, commercial and multifamily segments of the channel. Offsetting this growth were weaker sales from our other plumbing companies, including bathing unit sales. As I mentioned in our Q3 call last year, we lost a retail shower surround and tub liner view [ph] and exited a product line. These negatively impacted sales by approximately $17 million in the quarter and will total approximately $40 million for 2013. A noted drag on the segment's top line was our European sales, which declined 2%. While our Hansgrohe unit was relatively flat for the quarter, our other European businesses were down approximately 10%. And year-over-year operating profit declined $19 million, driven by the commodity hedge of $11 million; higher marketing and program costs of about $8 million and a big piece of this relates to a biennial European trade show that we participated in; and then mix, with a negative $7 million in the quarter, which more than offset volume increases and favorable price/commodity relationships. If you turn to Slide 10, you can see revenue in our Decorative Architectural segment was flat in the quarter. We experienced growth in both our Pro and Mexico paint initiatives, which was offset by lower U.S. paint volumes, primarily due to a difficult comparison to Q1 last year, where sales increased 16%, driven by strong exterior paint sales. Operating margin expansion in this quarter was aided by relatively easy comparison to the first quarter of 2012 because, at that time, input costs for paint were at a high and we incurred expenses associated with the launch of Behr's reformulated products. Without these headwinds and with a favorable mix of paint products and improved performance at our builder's hardware unit in the quarter, this segment's operating profit increased $16 million. As we look into the remainder of 2013, Behr intends to drive gallon growth and maintain its legacy as an innovator in the paint category, with 2 new products being placed into Home Depot stores in April and May, including BEHR MARQUEE, the finest exterior paint Behr has ever made, with features such as Paint & Primer in One, world-class durability and the ultimate in dirt and fade resistance. Retails have been targeted at the premium price point; and BEHR DECK OVER, an exciting new deck reservicing product that will be set in all stores by mid-May. Turning to Slide 11. You can see that we are very pleased with our continued improvement in the bottom line performance of the segment as we broke even in the quarter, something we have not done since Q2 of 2010, when segment sales were more than $100 million higher. While the environment for Cabinetry remains challenging, we saw improvement -- improved performance in the segment, with sales increasing 4%. North American sales increased 5% in the quarter, reflecting strong direct-to-builder sales growth. We are profitable in our North American business and improved our operating results in the quarter by $14 million as a result of pricing realization, cost control and the benefits from prior year restructuring activities. The turnaround planned in North America is on track, and we believe we will realize the $20 million to $25 million of profit improvement resulting from actions taken in late 2012. Turning to Slide 12. You see that our Installation segment sales grew 12%, principally fueled by higher sales volumes in our residential new construction business, with our commercial, retrofit and distribution businesses relatively flat in the quarter. We expanded our market leadership despite the first quarter seasonally being the weakest quarter for this business. Residential new construction contracting sales increased more than 30% in the quarter, and we continue to focus on increasing our installation sales across all lines of business, resorting [ph] to all builders, but particularly the big builders, including Toll, D.R. Horton, Lennar, Pulte and KB. In addition to solid top line performance, management's strong execution delivered significantly improved bottom line results, with adjusted operating profit improving by $10 million and adjusted operating margins expanding by 370 basis points. This segment exhibited strong operating leverage in the quarter, delivering nearly 30% incremental margins despite the impact of rising material and labor costs. This business is focused on cost control, coupled with the benefits they're realizing from profit improvement actions to position them to grow profitably with the housing recovery. Turning to Slide 13. Our Other Specialty Products segment increased a strong 8% in the quarter, driven by our North American window sales increasing more than 20%. This growth was due to higher sales in both the new home construction and replacement window markets and new product introductions. We are particularly pleased that our replacement window sales increased about 10%, reflecting share gains driven by new products. Segment adjusted operating income improved by $7 million, and adjusted operating margins expanded by 550 basis points, resulting from lean and sourcing savings. And turning to Slide 14. We continue to add strong performance and working capital, as working capital as a percent of sales came in at 14.2%, a 50-basis-point improvement from the first quarter of last year. As Tim mentioned, we entered into a new $1.25 billion revolving credit facility, thanks to the banks that supported us on that transaction. And then, we ended the quarter with about $1 billion of cash on the balance sheet, as we are on a cash burn cycle the first portion of the year as we traditionally are. So with that, I will turn the call back over to Tim to go through the outlook for the balance of the year.

Thank you, John. And if you would please move forward to Slide #16. As we've indicated, feel very good about our start in 2013 and certainly feel like we've made strong progress against the priorities we identified at the beginning of the year. These priorities are in support of our strategic initiatives, and as it relates to our Installation and Cabinet business, obviously, certainly pleased with our first quarter results and continue to be confident we'll see continued improvement during the rest of the year. We continue to support our brands through strategic investments, including geographic expansion and new product launches, which are critical to our future growth. Debt reduction is planned for later this year. I think you're -- most of you are aware that we've got $200 million maturity in August. We'll take care of that with internal funds. And as we step back and think about our progress in the first quarter, we certainly want to thank our employees worldwide for their ongoing efforts to drive Masco's performance. And if you please move to Slide #17, a couple of comments before we go to Q&A. As we look at the remainder of the year, there is certainly some economic dynamics which we'll need to navigate. European economic uncertainty persists and affects our businesses to varying degrees given their exposure to certain markets. And while new home construction in North America has certainly improved and increased significantly, the composition of starts includes more multifamily homes, which will have an impact on our mix as we go forward. Commodities, which have, for the most part, been relatively benign for the last couple of 3 quarters, certainly have the potential for increased volatility, especially if demand picks up later this year. Having said that and despite these economic factors, we feel we're well positioned to accelerate our performance as additional opportunities develop. Our strong liquidity enables us to respond to greater demand in new home construction, including realizing share gains with top builders who are seeking stable suppliers with adequate capacity for growth. Our pipeline of new products at retail, coupled with potential share gains, also represents a key area of growth for us. Our recent success with Delta's programs demonstrates our continued emphasis on innovative solutions for our customers and consumers. And perhaps, more importantly, we can execute against any additional opportunities for growth with a high level of operating leverage, given our continued focus on cost containment. As we mentioned a couple of months ago, on our fourth quarter call, we came out of 2012 with a fair amount of momentum. We're certainly pleased with our first quarter performance and results, and it looks like our second quarter for 2013 is off to a good start, with April sales, on a preliminary basis, up mid-teens compared to April of 2012. And with that, Tiffany, we'll open up the lines for Q&A.

[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: I guess on that last sentence there, Tim, with April up mid-teens, can you give us a feel for what you're seeing, particularly on the big ticket, how that translates into that mid-teens growth? I mean, it looks like the window business was up pretty strong. Cabinets had pretty decent growth in North America. Just wondering what you're seeing in terms of the bigger ticket discretionary trends, especially as you kind of roll into the second quarter here.

Yes, as we go into the second quarter, Pete, the increase in sales was pretty widespread. Cabinets in North America is certainly an area that we saw some good upside in April, and our sense is that there is probably a little bit of a pickup there on the bigger ticket side. Obviously, as John mentioned, we had a good outcome as it relates to windows in the first quarter. So our sense is there's a little bit of momentum there, but I don't think we want to get ahead of ourselves. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay, all right. And then, if I could transition just to the price cost x that hedge in the first quarter. How should we expect that price cost relationship to trend through the remainder of '12 -- I'm sorry, '13?

Yes, Pete. Yes, the -- I'd say price/commodity -- because commodities have been relatively stable, as Tim pointed out a couple of minutes ago, and we've not had as much pricing action in the last year or so except for our Cabinet business. So I think price cost should be slightly positive and then only impacted by the hedge as it moves up or down depending on how copper and zinc move.

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

It's nice to see all the momentum. I just wanted to see what your expectations are for the paint business in terms of normalized margins and what kind of momentum you're seeing. And also, do you think the $11 million loss that you had in plumbing comes back at some point?

I'll take the paint question, Bob. In terms of momentum, as we mentioned, John mentioned the first quarter was relatively flat, but we have put that in perspective. Weather last year was very, very positive in the first quarter, and our Decorative Arc was up 16%. This year, the first quarter was much more challenging from the standpoint of weather, and we were basically flat. We did see a nice improvement, again on a preliminary basis, as we go into April. Decorative Architectural segment had very strong lift, if you will, in terms of our expectations for April when we wrap that up. In terms of margins, in that segment, obviously, we had a very good outcome there. I would remind you that as we've indicated in the past, as we continue to pursue growth in this segment, whether it comes from the international side of business or -- which we're investing in or from the Pro side, there's an expectation that the absolute margin on that may be a little bit lower than we previously enjoyed. We've always said that we expect to have a good return on that. John did mention in his remarks that one of the major initiatives for us and Home Depot this year is to drive gallons. We think there's an opportunity with the lift in the economy to go after increased gallons and share, and we certainly feel like that's a joint objective between the 2 of us and one that we think we can execute against. And as we do that, we certainly will be thinking more about absolute profit dollars return on investment, if you will, as we go forward. So we think there's opportunity to grow absolute profit dollars in that segment, and that's certainly an area of focus for us.

And Bob, you also had a question about the $11 million and whether that will come back. And just to remind everyone on the call as to how that works, is we have to mark to market our hedges at the end of every quarter. So to the extent that copper prices or zinc prices rise from where they ended at the end of March, we should see that come back. Copper was -- has trailed off over the course of the last quarter or so, so there is some possibility that if the economy heats up again, that copper prices could rise and then we'd see a positive mark to market on that hedge at some point in the future. But I'm not predicting copper markets at this point.

Your next question comes from the line of Dennis McGill with Zelman & Associates. Dennis McGill - Zelman & Associates, LLC: On the Cabinet side, could you maybe walk through the year-over-year bridge on the profit improvement between volume cost cuts and then maybe include the retail pricing and promotional strategies that you talked about and maybe elaborate on that last point?

Yes, Dennis, on the kind of $14 million of improvement that we experienced, I'd say while we don't give out in specifics, I would say the majority of it came from pricing realization, and then the balance, we'd probably evenly split between cost cuts and promotional activity. Dennis McGill - Zelman & Associates, LLC: So can you maybe elaborate on the pricing strategies and what you're seeing both on a competitive standpoint and how you guys are reacting in the market and maybe what your forward strategy is on promotions?

Sure. I think as we talked about on our fourth quarter call, we pulled back on our promotional strategy in the fourth quarter of last year. And we have been very consistent since that time in the way that we've approached our promotional activity, particularly in the retail channel, which is where I think the biggest amount of activity has taken place. So as a result of that, our promotional activities have been fairly consistent through the first quarter since probably the early November time period, Dennis. I would say that we have seen competitors react and be more disciplined in their approach to promotional activity as well, kind of following our lead that we initiated in early November. As a result of that, we did see our retail sales of Cabinetry start to tick up in the middle of the quarter, and it wasn't much of an impact in Q1. Most of that will -- because of the way we ship the products, will hit our financial results in the second quarter. Dennis McGill - Zelman & Associates, LLC: And when you think about the difference between dealers and retail, would those comments hold true for both end channels?

Yes, the promotional have activity would -- had been consistent across both of those channels. Dennis.

Your next question comes from the line of Ken Zener with KeyBanc Capital Markets.

Can you talk about how price in Installation is benefiting you guys versus, let's say, the volume?

Yes, I would say in terms of Installation related to price, Ken, generally speaking, if you go back over the last couple of quarters, and this was essentially true in the first quarter as well, price/commodity relationships for us in that segment have been relatively stable. And so basically, we've been able to offset price either through working with our suppliers, productivity or certainly passing price along into the marketplace. So from our standpoint, there hasn't been a lot of impact there. I think we were slightly positive in terms of price/commodity in the first quarter, but generally speaking, that relationship has been a neutral for us.

Okay. I guess, as I think about it, I mean, wouldn't the pricing that some manufacturers are talking about be beneficial to you, given that you would just pass it through and perhaps help offset some of your fixed costs?

Well, it depends on whether you're getting margin on pricing. And as I was indicating, typically the price/commodity relationship, as we track it, has been neutral. That would suggest to you that we've been able to offset material cost improve -- increases with price, as opposed to necessarily see a significant benefit from it.

Okay. And then in windows, you really continue to outperform. You had a Western focus in that business. Is it really -- I mean, is it happening at the retail channel, as well as, I guess, some of your share gains amongst the builders? Because it sounded a bit really [indiscernible]...

Yes, we did see, Ken, both improvement in the builders side of that business and also in the repair/remodel side through dealers. And I would remind folks that whereas that business was about 75% new home construction 6, 7, 8 years ago, it's about 75% repair/remodel at this point in time.

And is this kind of a onetime load-in that we're seeing? I mean, we saw it in the fourth quarter as well. It really is an outstanding result. If you could give more color there, I mean, if it's regional exposure out West or what.

Yes, there's real no load-in, Ken, associated with that, and it is the regional exposure in the West.

Your next question comes from the line of Dan Oppenheim with Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering if you can just talk a little bit in terms of the Cabinets. You're talking about the promotions coming down, especially on the retail side. As we see more of the R&R, for instance, sort of big ticket remodeling, then we should see further margin improvement in that business. And is that the way you're looking at it in terms of the outlook for that?

Yes, that would be the way that we would take a look at that, Dan. With the promotional activity coming down, that should be favorable to us on a gross-to-net basis and therefore, should increase our profitability. Daniel Oppenheim - Crédit Suisse AG, Research Division: And you're talking about sort of the trends in April being sort of widespread in especially Cabinets. Is that mostly just the new construction coming through? Or is some of that the remodelings? Looking at the installation, I would have thought that might -- I mean, is that -- where are you seeing that? In terms of just mostly the new construction versus the remodeling, where is that coming?

Yes, the new construction, Dan, would be a little bit stronger, but fair increase in terms of retail as we look at the preliminary results for April.

Your next question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Wanted to look a little more at the April trends that you talked about, the up mid-teens. Could you break out the favorable benefit from Easter for that, if possible? And then, also remind us what the May and June year-ago comparisons are versus April.

Yes. No, we really couldn't, Sam, break out the impact in terms of the timing of Easter. Obviously, there are a lot of factors that get into things. Weather in the first quarter was obviously pretty tough. April has been a little bit better. But from that perspective, certainly feel like we're in a pretty good spot given that start to the quarter. And if you think about monthly sales in the second quarter, I think that was your question from last year. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Yes. April versus May and June, yes, please.

Yes, April last year would have been up low-single digits, May was up low-single digits, June was down low-single digits, and that's all in. And if you look at the elimination of foreign currency, I think we would have been right around 3% in terms of excluding foreign currency, and that was pretty constant for all 3 months.

And Sam, I might add to Tim's commentary that, you may recall, given the strength of the first quarter last year, that we thought there was some pull-forward out of the second quarter into the first quarter. So it's, I think, a relatively easy comparison compared to the second quarter of last year. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Got you. And then just a housekeeping question, if I could. You had 40 -- if my math is right, $42 million in D&A in the quarter, and you're guiding to $200 million. How should we look at the progression of D&A as the year progresses?

Yes, I think it will escalate a little bit, Sam, to get to that $200 million level. I think the actual number, if you factor in that we had to report it this way for reporting purposes, is a little bit higher than the $42 million because we had to layer into our general corp, as well as our discontinued ops. So I think that $42 million goes closer to $48 million for the quarter.

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

I think, John, I think it was about a year ago, on your slides, you guys gave sensitivity in the Installation business and in the Cabinets business, kind of a lagged starts number. I was wondering if you had any kind of framework like that you could provide us now.

Yes, and we do, certainly. We think, right now, for the Installation segment, that we're between $40 million and $45 million in revenue for every 50,000 housing starts, and that's come down just a little bit from what we saw this time last year. In the large part because of the mix of housing starts, more multifamily and more big building mix than single, custom home mix at this time. And then, on the kind of the Cabinet business, I think we've given the number of about $25 million for every 50,000 housing starts. And at this time, it looks like we're around that $20 million number for every 50,000 housing starts so that's kind of -- and for the same reason. We're a bit more multifamily mix and a little bit more big builder mix, which generally has smaller kitchens.

Great, that's helpful. And then a quick question on plumbing. Margins were a bit choppy last year. What's the right kind of run rate, if there is one, to think about on an ongoing basis in 2013 for the plumbing?

Yes, Adam, what we've said is that as we think about plumbing, we think that low-teens type margin in that segment is certainly something that we feel is achievable. That would kind of put you in a 12%, 13% kind of area, if you will. And again, we've had a fair amount of investment in that segment for new programs and some launch-related costs, and there is a little bit of choppiness in the numbers. The hedge gets to that a little bit. But generally speaking, we'd be pretty comfortable with sort of that 12%, 13% kind of area.

Your next question comes from the line of Nishu Sood with Deutsche Bank.

This is Rob Hansen on for Nishu. You've done a really good job restructuring the Cabinets business over the past couple of years. And I know you just gave that figure, 50,000 starts yields $20 million in revenue. For $25 million in revenue, you used to -- and 50,000 starts, you used to say $8 million to $10 million in profits. So I just want to see if the changes that you've made over the past couple of years have increased that profit percentage number.

Yes, Rob, I would continue to use a contribution margin of approximately 30%, which, obviously, $20 million would get you about $6 million. So I think staying with the contribution margin of around 30% is probably the appropriate place to be.

Okay. And then on the Installation business, I just want to see if you could talk about the kind of split between multifamily and single family. Multifamily seems to be growing a lot faster than single family, so it seems like you guys would have a bit of a tailwind from that. But the numbers are obviously not -- doesn't seem like it's growing as fast. So I just wanted to see if you could -- if I could get your comments around that.

Well, yes, multifamily has been a higher share of starts for the -- probably, the last 1.5 years or so. And I think in the first quarter, if my memory's correct, I think came in about 40%, which -- maybe a little bit lighter than that, but about around 40%, which is quite a bit higher than traditionally. I think our plan for the year, we assume that we'd be about the same rate as last year, and I think that was about 30% in terms of the total mix for the full year. That obviously has some impact on us. It impacts us in a couple of ways. It reduces our take per unit when we're involved in multifamily, and we tend to have less share as it relates to multifamily. I mean, that's an area that we're focused on and certainly pursuing. But it also extends the lag in terms of the timing of when work is done versus the single-family home. So there are some impacts there that tend to be a negative from a mix perspective. And -- but at the same time, it's business that we're pursuing. There's no question about it.

And again, maybe to add a little bit of color to Tim's comment on the lag. Anecdotally, we are now insulating multifamily units. They were counted as starts in July and August of last year. So you can see how that lag really does impact this segment of the business, that it's an 8- or 9-month lag compared to our normal 90-day lag with a single-family start.

Your next question comes from the line of David Goldberg with UBS.

It's actually Susan this morning. In terms of new products, you guys noted that you have been able to hold your pricing there. Can you just talk a little bit about if there's any change in the sort of advantage that you get in terms of new product pricing versus your traditional more established products and if you expect that to change as we go through the year? And then, as part of that, too, is there anything significant that we should think about that could come through in terms of new products through the year and the sort of benefit that, that could have, without giving any -- too much away there?

Well, I think you hit the nail on the head there, Susan. We really can't talk about anything that might launch later this year at this point in time, and we certainly will as things develop. John did talk about a couple of paint-related products in his prepared remarks, and I assume you probably caught that. In terms of pricing as it relates to new products, oftentimes, our new products have distinct innovation in them, and that puts us in a position when we're bringing new products with features that really resonate with both our customers and consumers, gives us a little bit of an opportunity from a pricing standpoint to place those. Obviously, we need to be competitive. But I think we've demonstrated over time that when we think about pricing, our ability to cover raw materials is really, I think, the thing that is most important in that equation. And as we've demonstrated over the last couple of years -- and again, we had a couple of years where we were down a little bit in price/commodity relationships. Last year, we were slightly positive. As John mentioned, in the first quarter, we're up slightly in the first quarter. Those tend to balance out over time. So we think we're in a pretty good place given the strength of our brands, the innovation that we bring to the marketplace to be able to price our products appropriately. And as we've indicated in the past, on incremental volume, generally speaking, as we think about our contribution margin and our leverage, that tends to run about 30%.

Okay. And then just as a follow-up, have you seen anything changing in terms of the M&A environment as things stabilize a little bit and sort of get back to some kind of a normalized level?

We are starting to see the M&A environment pick up a little bit, particularly smaller companies. And given the multiples at which building products companies are trading and the prospect for good future earnings, I think a lot of folks have been on the sidelines for a number of years and are starting to consider selling their business, so I think the M&A environment is slowly starting to pick up in our industry.

Your next question comes from the line of Michael Rehaut with JP Morgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: First question, I wanted to delve into comments you made, Tim, earlier about Decorative margins and growing the absolute dollars in volume but maybe margin being a little bit different. In the last few years, you've done margins in that business, obviously, it's kind of been, from a margin standpoint, the star of your business, plus or minus 20% for several years. Last year, you were at 18%, and this quarter, you actually also hit the 20% mark. So how are we to think about that going forward? Is it something that over time, over the next 2 years or so, with the strategy, you could expect mid-teens? Or is that too -- is that the right way to think about it?

No, I wouldn't want to predict where margins might go in that particular category, Mike. I think as you articulated, we've always had nice returns on sales in the segment. I think what we really want to convey to the investment community is that Masco, Behr, Home Depot are basically focused on trying to drive gallons, trying to drive share, trying to drive increases in absolute operating profit dollars, and we think we can do that with a good return on assets. So our sense is that to the extent that we can grow that bottom line and get a good return, that the margins will take care of themselves. We would expect to always have good margins in the segment. We would expect to always have good returns. But the real challenge for us is really try to grow this category, and we're excited about the opportunities. When we think about the Pro opportunity that's out there, when we think about what we've been able to do with the Behr brand in terms of the formulations, the Kilz brand, we think there's an awful lot of upside for us as we look out into the future. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: I mean, certainly, there is different levers to pull to get a similar good return. But I mean, is that essentially what you're saying, a little more volume, a little less margin and getting a similar or if not, better return?

Yes, that would be the dynamic that we would certainly like to try to accomplish. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Okay. Second question on the North American Cabinets growth of 5%. If you kind of do rough numbers and say 25% of that's new construction and that's growing new construction and so even single-family starts growing at 25%, 30%, that would imply a contribution growth of 7%, 8%. What's offsetting that, obviously, Europe is still tough, but the Danish piece is out of the business. Did you -- were you flat or down in the repair/remodel or dealer channel? If you could kind of walk through the different components of that north -- of the other parts of the growth picture.

Yes, Mike, it's John. I'll take that one. We were pretty flat in our dealer channel, down a little bit in our retail channel. And that has to do with the fact that, as I mentioned earlier, we've been very disciplined in our promotional activity. Some of our competitors had more aggressive promotions in the back half of the fourth quarter, first part of the first quarter, and that did temporarily take some share away from us. Since those promotions have subsided, I think share has gone back to a more normalized level. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: And how do you think about promotions going forward? I mean, you talked about last quarter being -- pricing strategy as being a part of getting back into the dealer channel, but at the same time, you're being more disciplined. So I'm just kind of not sure how to think about it going forward.

I think you should see the type of activity that we've got now in the marketplace continuing through the near term at least. We've moved away from giving away free products and free finishes and free upgrades and things like that to more of a either percentage or dollar off basis for our Cabinets. And that seems to have resonated well with the consumer. So I think we will continue with that program for the near term, Mike.

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

Just maybe a couple of higher-level questions. Let's start with Milgard. What's the long-term plan here for this? It's your smallest business. Prior to the downturn, you were beginning to open sales offices, moving east, but it's always been talked about as kind of a West Coast brand. You're banging up against 4 or 5 big national brands. What's the long-term plan for growing this business profitably?

Well, we're excited about the long-term plan, David, in relation to Milgard. I would point out that Milgard is the share leader in the West Coast market, the region where they participate, and that's basically west of the Rockies, and has taken share over the course of the last 4, 5 years. And so it's a very highly regarded brand. It's a product that is -- resonates very well in the marketplace. And from our perspective, as we've indicated on previous calls, we've expanded into Texas. We've expanded geographically into western Canada. Western Canada right now is quite slow from an economic standpoint. And I would mention to you, it's -- Milgard is far from our smallest company or business unit, if you will. So we think we've got a very bright future there. We think we've got a very good position in the marketplace. We tend to be an innovation leader. Good dealer relationships and certainly look at that as a key part of our growth strategy going forward. We think there's a lot of upside opportunity with Milgard.

Okay. So it's really about geographic expansion at this point?

Well, it's the execution in the markets that we're in, which are coming back relatively strong. And as you saw some of our numbers, John articulated the increase in terms of the first quarter, so it's really execution and continuing to focus on opportunities in Texas and western Canada at this point.

Okay. The second question is, I guess, more with respect to the balance sheet. Your book equity is less than $2 a share. Your gross debt is just over $10 a share. Would you issue equity at some point to bring this back to a more conventional capital structure?

Yes, David, a couple things there, I guess. Prior to issuing equities in the near term, I mean, we were very committed to taking down our debt. As Tim referenced, we have a $200 million maturity in August of this year. The other thing, just to remind you of is we do have a deferred tax -- a valuation allowance on a deferred tax asset, and that is kind of, call it, approximately $600 million. At some point, that will flip back on to the balance sheet and add to book equities. So when that does, that line gets another $2 or so per share in book equity. So I feel pretty confident about where we are with our equity. And then, as we come out of the recovery here, we think earnings should pile on and add to that equity base. So I feel pretty confident about the direction we're headed with our balance sheet.

Can you just talk about the timing, the expected timing around that deferred tax asset?

It's a tough one, David. I wish it was more formulated than it is. My guess is the earliest that we can start to look at it is late '14, early '15 would probably be the time frame, would be the very earliest.

Your next question comes from the line of George Staphos with BofA Merrill Lynch.

I wanted to come back to Cabinets for a bit. You're mentioning earlier that your share, if I heard you correctly, John, was relatively flat. Can you comment at all in terms of your sales and marketing resources? Are they where you want them to be in terms of pushing more share within the dealer channel and then more broadly, within all 3 of your channels? And then I had a follow-up on paints.

Yes, I would say sales and marketing efforts across all 3 channels, whether it's the builder channel, the home center channel or the dealer channel, are where we want them to be. We did cut them back last year. I think we've added a little bit of resource to that area since that time. It feels like we are in good shape to serve all 3 channels still, as evidenced by the fact that we did launch some new products at KraftMaid here in the first quarter, in early February. A lot of those -- it's very early on those new products. Initial reaction has been positive. And we're looking to add and introduce some new products as well to the Merillat line later in the year. So feel really good about where we're at from a sales and marketing standpoint.

Okay. And then in Decorative Arc, just briefly. I think I saw in the slide deck and in the commentary, you had some reduction program costs in the quarter, which was in line with expectations. Is there a way to put a finer point on what you might be able to see in terms of reduced program cost this year versus last year, if, in fact, that's your expectation within this segment?

Thanks, George. In terms of program costs, really what those related to were some programs that we initiated last year, kind of onetime costs, to get product in the store or on the store shelves. We are down in the first quarter. It's really tough to predict, quite honestly. We're hopeful to incur more of those in the future because that means we're winning more business, but it's tough from quarter-to-quarter to predict when and how those will play out. So we'll keep you updated as we make progress towards those, both -- in every quarter, but right now, no forecast for the balance of 2013.

Your last question comes from the line of Mike Wood with Macquarie.

Also on the program costs, can you speak to the $8 million that you incurred in plumbing, what that was in the same period a year ago and if you are currently expecting to incur any additional program costs in plumbing throughout this year?

Yes, so the $8 million was an increase versus what we incurred last year, Mike, so that's the year-over-year increase. Again, as I mentioned, part of that $8 million related to a European trade show that take place every other year, part of that had to do with some other display and marketing costs associated with either our Delta or Hansgrohe or some of our other units within that segment. So again, as we look forward, tough to predict how those are going to play out, so we'll keep you updated on a quarter-by-quarter basis.

Okay. And also it looks like you did raise your general corporate expense outlook for this year to $130 million from $116 million. Can you just speak to that and confirm if that's accurate?

Right now -- we always start off the year with kind of budgeted actual things, like variable compensation, things like insurance accruals and other accruals at the corporate office. And as the year progresses, we try to give you an update on a quarterly basis because those things tend to move. So last year, we had a very favorable insurance experience, both on the medical side, as well as on the general liability side. So right now, we're -- we've got a budget in there of $130 million. To the extent that it comes up or goes off to -- or comes down off that, we'll keep you notified on a quarterly basis.

Tiffany, thank you, and we'd like to thank all the participants for being with us today. That concludes our call.

This concludes the conference call. You may now disconnect.