Good morning, ladies and gentlemen. Welcome to Masco’s Fourth Quarter and Full Year Results Conference Call. My name is Jack, and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. [Operator instructions] I will now turn the call over to David Chaika, Treasurer and Vice President of Investor Relations. Mr. Chaika, you may begin.

Thank you, Jack, and good morning. Welcome to Masco Corporation's 2018 fourth quarter and full year conference call. With me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco's Vice President and Chief Financial Officer. Fourth quarter earnings release and the presentation slides that we will refer to today are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at 313-792-5500. Our statements today will include our views about our 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 describe 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. Our statements will also include non-GAAP financial measures. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted measurements to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I'll now turn the call over to Keith.

Thank you, Dave. Good morning, everyone, and thank you for joining us today. I’ll begin with some brief comments on our fourth quarter before I turn to our full year results and conclude with the thoughts on 2019. Turning to Slide 4. In the fourth quarter, our top line increased 11%, excluding the impact of currency, driven by strong growth in our North American Plumbing operations, the benefit of our Kichler acquisition, and strong growth in paint. Excluding the impact of currency, acquisitions and divestitures, sales grew 5%. Operating profit grew $58 million or 23%, due to increase of volume, continued cost control and improved price realization. As a result, operating margins for the quarter expanded 150 basis points to 15.4%. Our earnings per share increased 56% due to improved operating earnings, a lower tax rate and lower share count. We repurchased 9.6 million shares for $300 million in the quarter, a significant increase in our repurchase activity compared to prior quarters. We were pleased with our fourth quarter performance. Turning to Slide 5, for the full year of 2018, we overcame significant inflation and delivered strong sales, operating profit and EPS growth for the full year. This growth was driven by solid consumer demand, healthy end markets and our continued focus on executing our growth and capital allocation strategies to deliver shareholder value. Sales for 2018 increased 9%. Excluding the impact of currency acquisitions and divestitures, sales grew 5%. This growth was driven by record sales years for five of our business units, Behr Paint, Delta Faucet, Hansgrohe, Watkins Wellness and Liberty Hardware. Operating profit grew 6% despite significant inflationary headwinds demonstrating our ability to manage our costs and successfully implement price to offset raw material and other inflation. Earnings per share increased 29% in 2018 due to a…

Thank you, Keith, and good morning, everyone. As Dave mentioned, most of my comments will focus on adjusted performance, excluding the impact of rationalization charges, inventory step-up related to purchase accounting for the Kichler acquisition and other one-time items. Turning the Slide 7, we've finished the year strong. Fourth quarter sales increased 10% or 11% in local currency. Excluding acquisitions and divestitures, sales increased 4% or 5% local currency. Currency translation unfavorably impacted sales in the quarter by approximately $19 million. Local currency in North American sales increased 14% in the quarter or 6%, excluding acquisitions and divestitures. Local currency international sales matched prior year in the quarter and increased 2%, excluding our divestiture of Moores in the fourth quarter of 2017. SG&A as a present of sales decreased to 190 basis points to 16.9% in the fourth quarter to leverage on volume, lower promotional spend and cost containment. We delivered solid bottom-line performance as operating income increased 23% in the quarter and margins expanded 150 basis points to 15.4%. For the fourth quarter, our EPS increased 56% to $0.64. I would like to note this performance was calculated based on a normalized tax rate of 25% versus a previously guided 26% tax rate. This change in our tax rate was driven by the issuance of recent IRS regulatory guidance regarding certain provisions of the new tax code. Due to this change, we have provided restated adjusted EPS numbers each quarter of 2018 in the appendix on Slide 23. Fourth quarter EPS was favorably impacted more than expected by approximately $0.05 consisting of approximately $0.03 benefit from the pull-forward of sales in the Plumbing and Decorative segments, $0.01 due to the lower normalized tax rate of 25% and $0.01 due to the gain in asset sale in the Decorative segment.…

Thank you, John. Looking at 2019, while we believe that growth may moderate in 2019, the fundamentals of our business and our core repair and remodel markets are healthy. Consumer confidence and wages are growing. This increases our consumers' willingness to invest in their home. Home prices continue to appreciate. This is highly correlated with repair and remodel spending. The age of the housing stock is increasing with 50 million owned homes greater than 30-years-old. This drives increased remodeling spending. And household formations have steadily increased throughout 2018, driven by the millennial demographic. This trend is projected to continue fueling housing demand for the next decade. With our continued focus on executing our strategy, including investing in our leading brands, innovation leadership and operational excellence coupled with our strong balance sheet and liquidity position, we will continue to create shareholder value. With that, we’ll now open up the line for Q&A.

[Operator Instructions] The first question comes from the line of Ken Zener with Keybanc. Your line is open.

The 8% growth we saw in North America Plumbing, I was wondering if you could maybe expand on that a little bit. And I'm just thinking of your Analyst Day in the past, where you looked at faucets and shower-heads, non-decorative and other wellness. I just want to see how much dispersion there was between those different end markets. If you can do that for the quarter and for the year just so we can get a sense of how those different initiatives are working.

When you look at our North American Plumbing market growth of 8%, we're very pleased with that. And we believe that that growth is higher than the overall market. So we think we're taking a share there. So we feel good about that. When you think about our international plumbing business, that's an extremely diverse set of demand spread over 135 countries, and it's difficult to really nail down the market growth with that kind of aggregation. But when you look at how Hansgrohe is performing, particularly in Central Europe, we're happy with that. So when you look over -- look across the Plumbing group's overall performance and where that growth was driven, there was some good geographic dispersion, which were pleased with. And then when you look further as it relates to price point, we had some very good growth in the opening price point, driven the way we wanted driven meaning we launched new products to specifically address that price point of the peerless brand, for example, we're seeing very good sales in our Beijing, toward that categories, which tend to be more opening or entry price point. But we also saw a strong growth in our high-end brands of Axor and Brizo for Delta and Hansgrohe respectively. And we saw very good growth as we talked in our prepared remarks in our spa business and our hot tub business. So we're seeing strong dispersed growth across both geographies, price points and across our full continuum of the portfolio. So we feel good about the growth and feel good about 2019 in that segment.

And then I was just looking at the DIY paint seems to grow. I mean, I -- we grew low-double-digits. Was that including the pull-forward? Because I mean, I think there was some other commentary from some other producers about it being kind of challenging. And it seems like you didn't have the issue if you can spend on that? Thank you very much.

Yes, Ken. It's John. I -- first of all, the low-double-digit growth rate does reflect or include the $20 million of sales that were pulled forward out of the first quarter into the fourth quarter. So that does help aid growth rate a little bit. That's said, we do think that the overall coatings market in 2018 just grow a little bit. And so we do feel like we've probably picked up a little bit of share gain on the DIY side, not a ton. If you look at our overall growth rate for the full year, it was definitely low single-digit, so a little bit of tailwind there in the fourth quarter, but for the full year low single-digit growth.

Your next question comes from line of Michael Rehaut with JP Morgan. Your line is open. Q – Michael Rehaut: The first question I had was, looking out to 2019, your sales growth outlook of 3% to 5%, obviously, by segment you continued to execute a lot of market share gaining initiatives such as propane, your expansion in Plumbing et cetera. I was curious -- it looked though that like the 3% to 5% was more of in line with your market growth assumptions, so if that is indeed correct, I was just curious about how you think about share gain opportunity in 2019, and if that's reflected at all in your outlook.

Yes, Mike, one of the things that did impact our guidance for the full year on the top line the 3% to 5% is the fact that we did have some of that pull-forward sales that impacted the fourth quarter. So that $30 million, we would have typically anticipated, hitting into 2019 pull-forward than 2018. But if you consider the markets that we are in both the R&R market, which is growing kind of mid single-digit 4% to 6% range and kind of low single-digits for both new Construction and International, and if you consider the fact that, in particular our Decorative Architectural segment, we've got growing low single-digits. If you put that all together, there is some share gain baked in there. So we do think we're growing ahead of markets, but overall the markets are slowing a little bit for 2019. So I hope that captures the essence of your question.

Mike, we're seeing some good share gain opportunities to continue on our propane segment, for sure. We have a real solid momentum in Plumbing, and we -- and expect that to continue. And our offering, as it relates to an aisle service product and brand et cetera, we feel good about that in the DIY space, while that market is a little softer. We believe it'll be a little softer going in 2019. So there is share gain baked into our thinking. Q – Michael Rehaut : I guess, secondly, you mentioned that the list three 25% tariffs are baked into your outlook for the year, your EPS guidance. Just wanted to clarify that it still represents $150 million of incremental headwinds, and more broadly if you could just remind us of the overall outlook for incremental raw material and tariff inflation in 2019, and how you expect to offset that between if it’s possible to break it down between price productivity and whatever other offsets you have?

That $150 million impact, Mike, is the right number. And we've talked about that before. Of course, there’s a significant amount of moving parts and potential variability there. Does -- do the 10% -- does that say? How much of the 25 goes in if everything, when it goes in? So I think it's best to think about that as a very dynamic situation. And as more certainty is revealed over time, we'll be sure to share that with you and reflect that in our updates. In terms of ROCE, without a doubt, tariffs is the biggest uncertainty for 2019. We are assuming in our forecast that does -- the tariffs do jump up to 25% in March. When we look at other significant commodities like copper and zinc, for example, in Plumbing, that has started to moderate in the back half of 2018. And we think that's the level we're at and we're assuming that the level we are at in copper and zinc will continue into '19, so there might be a modest benefit there as we move on through the year. In coatings, while TiO2 has moderated a bit, we are continuing to see significant pricing pressures in resins. And in cabinets, plywood distribution and logistics, they remained elevated. But we think those are moderating. We think those will hold where they are currently. In terms of how we're addressing it, certainly, we're making significant moves and decisions and doing a lot of work on our supply chain. For example, we've reallocated, if you would, and moved over $30 million of plywood purchases in our cabinet business to address countervailing duties and tariffs and the like. That's just one example. We're looking at value engineering and costs out. We're looking at productivity. We're certainly looking at other opportunities to move to other low cost countries and then price. And I think, we've demonstrated the ability to execute on all of those.

Your next question comes from Michael Wood from Nomura Instinet. Your line is open.

First question, I just wanted to ask for some more color on the DIY gallon growth, do you have any point of sale trend that you could share with us in the fourth quarter? It looks like, as you mentioned, you outperformed the market. And if you could provide some more color in terms of what's driving some of that relative strength.

So Mike, in terms of -- we really can't get into POS. That's not ours. We can't give you too much a read-through. That said the down growth was kind of flat for low single-digits in the fourth quarter. So that's where we stand there. We feel good about that overall. And we -- and that's a combination of both Pro and DIY. So we continue to grow the Pro side. The DIY has been a little bit sluggish. But that's been the case all of 2018. So that's not necessarily new news.

So, I think, in terms of what's driving that DIY growth in the aisle is a number of things. There's no one silver bullet. There is certainly -- a big driver of it is our strong partnership with the Home Depot, and the work we're doing in the aisle to convert foot traffic to cash paying sales to the consumer. The brand of Behr is extremely strong in the DIY space and well known. Our service levels both in the store and in terms of delivery are extremely strong. So that combination of brand and service and a continued steady innovation pipeline is all part of our success in DIY.

And then some other building product companies that have reported have seen some destocking in fourth quarter -- notably Europe and U.S. retail, did you see that in any of your segments?

There's always fluctuation with inventories at our customers. We did see a little bit of destocking in Plumbing wholesale, where we've had tremendous success. And that did slow down in that channel a little bit in the Q4. So that was a little bit of destocking there. But then, we also had significant pull-ahead volume, which would, obviously, equate to restocking. We talked about that $30 million impact over and across Paint and Plumbing. So really we did not see what I would characterize as any material destocking in our channels.

Your next question comes from the line of Scott Schrier with Citi. Your line is open.

I'm wondering if you could talk a little bit about if there was any impact on margins this quarter that might have come from pushing price to offset tarrifs, and then we have the tariff delays. So if there's any lag there, that caused a little bit of margin hell in there. And then, understanding that’s pretty uncertain, if tariffs don’t materialize or things turn out to be better than we hoped for, can you speak to the elasticity of pricing that you might have for some of those price increases that you're putting through?

Sure, Scott. As it relates to the impact in the quarter due to pricing related tariffs on margin specifically to your question, when you recall that what we're trying to do and what we're pursuing with price when we pursue price to offset the tariff impact is just to recover the dollar amount of the tariff. So there's not an incremental margin on as a result of the tariff pricing that we're putting into place, if anything, because we're only recovering the dollar value of the tariff is actually a slight potential for margin to decline because of that. So, really no margin benefit there. I forget the second part of the question.

In terms of elasticity, Scott, its – that’s really difficult to nail down when you look at the environment that we're in. Typically, the elastic studies that we do and information we have is based on in a constant environment of a particular product line goes up or down. With this kind of broad-based inflation in our -- across our markets, it's difficult to really take that down specifically, but we are expecting that there would be some pull back in terms of demand in the categories that are affected.

Got It. And then in the last couple of quarters, I believe, that you've mentioned that you are seeing strong trends in terms of your ticket size is, I'm curious, if you anticipate that continuing or consistent with your comments about some moderation in '19. You would expect to see some even ticket sizes moderate in an environment where you have some uncertainty. And if so, is that built into your guidance?

Mix is a good story for us Scott. We're seeing good high-end growth in our higher price bigger ticket items. I talked a little bit about it in terms of some very high-end shower systems at Hansgrohe. We continued to do well. Our spa business had a record year this year. So the high-end is very strong and it continues to be strong for us when we expect that continuing into '19. We're also increasing our revenue and our growth rate in the opening price point or in the low-end. And that's by design where we've launched specific products and talked about Peerless, we've talked about bathing and some of our toilets and vitreous China products. So we're also seeing growth there. I think that's a good story when you have that kind of bimodal dispersion into growth. The market is strong and new entries and new homeowners are forming households, driving some of that opening price point. And we have products to cover that. And then there's the move up phenomenon and we have products on the high end. Now while our lower-end products tend to be a little bit lower margin over time, we've done work to close that gap. There are lower margin. And when you factored all in how we're looking at '19, we're really not anticipating mix being a material impact.

Your next question comes from line of Justin Speer with Zelman & Associates. Your line is open.

I had a couple questions. One, just the broader corporate level SG&A, the management in the quarter was excellent. And I just want to understand which of that is temporal in nature? And how to think about SG&A as a percentage of revenues on a go-forward basis embedded in your guidance?

A portion of that favorability in SG&A this year is what we talked about terms of the gain a sale on the DAP segment, so that was about $4 million. And we did lap some investments in Q4 of 2017 tied to some pretty significant resets and program wins at -- in decorative hardware with Liberty in the shower program. So there was a bit of an easy comp, if you would. We also had good cost control throughout the year and we did push certain investments into '19 to mitigate inflationary pressures, for example. In '19 we expect total SG&A for the Company to be up slightly from '18 as a percent of sales, as we pick up some of those investments that were pushed out to '19. We're going to continue to invest strategically for growth, such as marketing spend in Plumbing and additional headcounts in Deco to support the pro initiative.

Okay. And then the next question is a two-part question, particularly as it pertains to the Plumbing business, you're looking for flat margins there included a 25% tariff. First question is do you already have the price in hand for that 25% tariff? And the second question is how do margins for that business flex around a more sanguine R&R market backdrop? Was that low-single or flat as opposed to your 5% view? And how do they look under a 10% or no tariffs scenario?

In terms of do we have price in hand for the 25? No, we do not. We obviously had significant conversations and pricing actions for the 10%. We feel we're with a combination of the price and cost-outs that we've driven there. We're in good shape on the 10%. But more conversations would be required for sure. Should we see this go to 25% -- Justin, could you repeat that second part of your question for us?

On the -- on margin flex in the low growth environment versus a-no tariff scenario. So Justin, as I think about that assuming that commodities are constant. So let's put that in and there is a really, I mean, commodity impact. I would say that we should see some modest margin expansion just given our leverage on incremental volume, right. And so that should help us out. And to the extent that the tariffs don't go into effect and that has a good impact or a favorable impact on consumer demand, we would typically see incremental margins off of volume in this segment kind of in that high 20% to 30% range. So we should see some, again, some modest margin expansion in that scenario as well.

But in a flat world, assuming a 25% tariff does go into depression that would potentially risk your guidance as you're looking for modest growth there?

It had a little bit of an impact on it only because -- we have 25% tariffs. We are going to be, again, the same answer I gave a couple minutes ago. We'll only be getting the dollar impact of that recovery on all these tariffs. So that -- if anything there, could present a little bit of a headwind to margins in that scenario, Justin.

Thank you.

I think I may have heard you say something along the lines of the 25% tariff risking our guidance. Just to be clear, we have incorporated into our guidance the expectation of 25% on March 1st.

Your next question comes from line of Nishu Sood with Deutsche Bank. Your line is open. Q – Nishu Sood: I wanted to ask first about the assumed moderation in demand that you're baking into your '19 forecast. So on the housing side, we clearly have some indicators that housing has slowed down, and I imagine you would expect that begin to impact some of your businesses in the next quarter or two. On the R&R side, the assumed slowdown -- is that something you've seen already in 4Q? Or are you just assuming that it happens given the slowdown on the new side?

We did see a little bit of a slowdown in Q4. I think in our coatings business, we saw it a little bit. I talked a little bit about our Plumbing business in the trade and wholesale. So there’s a little bit of slowness there.

And I'd also say that we saw a little bit of slowdown in our cabinets and to a degree, Windows business. We grew low single-digits for the fourth quarter, and Windows, we are in mid single-digits for the full year there. Q – Nishu Sood: And in terms -- just shifting gears to cabinets and other specialty, in terms of the kind of margin turnaround there kind of getting us back to a double-digit -- low single-digit revenue growth there seems pretty good given their greater exposure to new construction. On the margin side though we're expecting flat for the year, we have less -- I would imagine that tariffs impact based on your tables there, and less commodities as well. So, why only flat -- when can we expect further improvement in the margins on those two businesses?

When you look at cabinets, we had a full year margin north of 9%. And when you compare that to the competition, we think we're doing pretty good there. We've got certainly some good dropdown that can come from that. We also experienced some inflation in plywood that we've dealt with. There's still little bit more of that that could be a drag on margins. In terms of our Windows business, we've got ERP spend that we're going to continue to make into the quarter, which our experience shows us will have an impact on both the top line as well as the actual expense of that ERP system. So when you combine those things together, that's what's really led to our guidance as it relates to margin.

Your next question comes from the line of Stephen Kim, Evercore ISI. Your line is open.

I wanted to follow-up on the cabinet conversation a little bit. Menards, I think, you had indicated that it was going to be running at a run rate of about $80 million or so by on an annualized basis by the end of this year or the end of last year. I'm guessing that maybe you recognized about half of that in 2018. And if that were to be the case, that would suggest that Menards alone would add about 400 basis points to your sales next year. But you've guided zero to three. And so I'm kind of wondering if you could talk about what you're seeing in the market environment that underlies that guidance or was there any -- is there anything that you're seeing in terms of the sales environment that is depressing things that is worth calling out be regionally or price point wise or anything like that?

So, Stephen, with respect to the Menards business -- while we won't break-out the specific customer sales -- if I do a little bit better than that $40 million run rate that you suggests. So the impact for 2019 is great as you've laid out there. That says as we go into 2019, and we consider a little bit of the deceleration and so on 2018, and in the impact of the tariffs and the pricing feeling a big ticket item like Cabinetry, we do expect to see a little bit more of a market slowdown in Cabinetry going into 2019. And so that definitely weighs on our forecast for 2019. That's said, even though that we did see some of this deceleration, we do expect just some modest growth in this because we've seen nice growth on the R&R side of our business. And we've gone back to flat sales for our new construction business. So not while ago, but we do see a little bit of deceleration in that area for 2019.

Okay, that's helpful. But just when that -- just to clarify, you're expecting some modest growth excluding or in addition to Menards win?

We -- given the fact that we've taken some headwinds, given the tariffs and decelerate -- or the overall market demand, I'd say it'd be kind of flat to very low single-digit growth ex-Menards.

Ex- Menards. Okay. Got it. And then you talked about the outlook for housing certain things being kind of low single-digit growth for the year. At this point that seems like it's reasonably conservative, but also there's a lot still up in the year in terms of what the housing markets going to do as we just entered the spring selling season this week. And so I was curious if you see upside to this housing starts figure that you laid out of low single-digit growth, is there anything about your strategy that would change? And are there any particular segments that we should be expecting you would be able to generate outside sales or profit growth as a result of housing starts specifically?

If there's -- if rates start to go down a little bit, then obviously that could be an upside for us. In terms, Stephen, of your direct question, if we see upside in our guidance, I would say no. I think we put our guidance right where we think it would be where we expect to come out based on what we know now. With regards to our specific strategy and what we change anything in our strategy, should there be an increase in housing demand? No, not really. We've got our capacities in a good spot where we need to fulfill the demand. We've purposefully moved our portfolio to a less cyclical, higher margin, more stable state because we think that's the right thing to do for shareholder value. We talked a little bit about doing that in our cabinet business how we shifted it now to some close to 70% of our business coming from repair and remodeling rather than new construction. Obviously going back we spun off our services business. And we're continuing to drive our Paint and Plumbing business and our Lighting business, particularly into that R&R space. So that's our strategy. We think that strategy is sound and it's working. So I would not say that we would have any material strategic change should we see housing pickup in '19.

And Stephen, I just remind you that housing as a percent of our total revenue is now down to about 15%. So it's really a key point. Because of the strategic reposition that we've done over the years, it's really a very minor impact toward the overall part of our sales and our business.

Your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open. Q – Mike Dahl: I wanted to just go back to some of your commentary around sales and thinking about the cadence of things, you guys have called out a couple of things that are idiosyncratic about the pull-forward in the Paint and Plumbing segments with respect to the impact on 1Q, you pointed out some margin headwinds in 1Q. But I guess at a higher level, when we think about that 3% to 5% organic sales growth, how should we think about that playing out kind of 1Q, 2Q versus the second half?

Well, we've talked about some of the pressure that we're seeing in 1Q, as it relates to margin and also on top line with the pull-forward that we experienced in Paint and Plumbing. So that would be a factor on the first quarter. When we look at that from first half to second half, we certainly will see it pick up in the second quarter as those first quarter headwinds don't exist with regards to the pull-forward. And then the second half to be somewhat similar to the first half, so we're maybe a little bit stronger in the back half, but really pulling out the effect of the pull-forward out of Q1 into Q4 of '18, really not a significant change beyond that. Q – Mike Dahl: Okay, got it. And then my follow-up question. Just looking at the decorative segment, in particular with respect to the 2019 guidance, I was hoping to drill down on Kichler a bit more, because clearly that's a business that has potentially outsized exposure from a tariffs standpoint. You've expressed some conservatism broadly speaking around what potential demand impacts could be, should the 25% go into effect. So I guess on Kichler specifically, what are you guys embedding from a growth and margin standpoint to the extent you can give us a little more detail there.

Yes. I won't break it down into specific details for Kichler, but into speaking more on in general terms. You may recall, we have 10 months of Kichler in 2018, starting basically in March. So we'll have starting basically in March. So we'll have the full quarter in Q1 as Kichler. And just on face value of Kichler, that would be a margin drag as Kichler's margins are lower than the average in the segment. But particularly, in Q1, that's seasonally a weaker quarter for Kichler. So that will put some drag on the segment as we look at the performance in Q1 and that's part of our guidance, some of our prepared remarks with regards to margin in that segment. Very happy. We continue to build out the team down in Kichler has an outstanding leader that's demonstrated performance across the number of our businesses and a number of functions. As I interact with the dealerships and get more exposure to our customers, I'm really seeing a strong brand and then also seeing an opportunity for us to bring some of our [indiscernible] and operational skills and some of our purchasing power to that area. We have an outstanding ability and opportunity to bring e-business capabilities to that business. So we're very happy with Kichler acquisition, and we're going to continue to drive performance throughout the year. Understanding that given the full year or full quarter ownership of Kichler and the fact that Q1 is a seasonally weaker quarter that will be a little bit of margin drag in the segment.

Yeah, Mike, or maybe just to add on to Keith's comments just a bit. If you think about how we look at the lighting business and when we talked about when we acquired the business, we really don't see the fundamental market for lighting shifting dramatically from when we initially talked about. It should grow kind of at the same rate as the overall R&R market kind of in that mid-single digit 4% to 6% range, as you might call it. That said you raised the point about the tariffs and the tariff impacts, because that have a little bit of a headwind on that. Yes, they could, without a doubt. So something we need to look at and see how the tariffs actually roll-out and see how that plays.

Your next question comes from the line of Matthew Bouley with Barclays. Your line is open.

Hey, thank you for taking my questions. I just wanted to follow up on the discussion earlier around how you would kind of flex margins depending on different market assumptions, because you gave a point estimate for both Plumbing and Cabinets margins in 2019 in light of obviously a lot of moving pieces around tariffs and commodities. So I guess just what gives you confidence in such precise estimates? And then would you be able to kind of give, I guess, some more specific range or bracket around those margin estimates? Thank you.

I think the specificity comes from being able to identify the pull forward, for example. I think that's a significant benefit. We wanted to get some more detail in those segments, because there were so many moving parts. I think the -- historically, we understand how those businesses operate and the effect of Kichler as it relates to a seasonally slower point in time. And the fact that we own it three out of three months, instead of one out of three months there. So that was straight math and we wanted to make sure that we talked about that. So we could be more precise than that for specific quarter. With regards to more detail, I think we've laid out the detail that we're prepared to lay out with regards to our margin performance for the year. And with respect to the impact of tariff, which is obviously the big moving piece here that we're talking about, that would have -- if those were to go away that would move us up toward the higher part of our range and we'll leave it at that and will provide more detail as we get more certainty around the number with the dates, et cetera.

And then just the margin guidance specifically for Decorative, understanding the larger impacts in the first quarter, it still suggest that you're expecting a lower margin year- over-year from the second quarter to the fourth quarter. So is there any additional color on why that maybe in light of oil prices obviously moving lower. I guess how much of that would be the Kichler headwind from tariffs is mix of pro, a meaningful part of that just any additional color on why the conservatism on margins there? Thank you.

Kichler is a big mover there which that we've already talked about. We do expect some price commodity headwind in the first half of '19. We are going to continue to invest in hub stores and pro reps and recall that we don't anniversary our 2018 pro rep additions until the third quarter. So when you look at Kichler, you look at what we expect to be commodity headwinds particularly in the resin area that will be facing early in the year. We look at our growth investments in hub stores and pro reps and the fact that we don't anniversary some of those additions we made in '18 to late in the year. Those are combined to put our guidance in that 17% to 18% range.

The one other thing I would add to that list of items that Keith just called out is our depreciation and amortization in the segment. I called that out in my prepared remarks, will be up compared to what we've experienced historically, Matthew. So that's another margin headwind a little bit, but from an EBITDA perspective, where probably EBITDA does not -- no impact on EBITDA whatsoever.

Your final question comes from the line of Susan Maklari with Credit Suisse. Your line is open. Q – Susan Maklari: My first question is just around, you've done a fair amount of work on the working capital side over the last year or so. How much more do you think you can do there and how should we think about that potentially adding to some of the cash generation that you expect?

Certainly. So we [indiscernible] and thank you for noticing the fact that we've been working on working capital. Indeed, the businesses have been working hard at it. It has actually elevated a little bit from where we've been historically, a large part of that has to do with the Kichler acquisition as they carry a higher working capital than most of our business historically, our businesses, core businesses typically have done. That said, we are working with the Kichler team. We know they know that they see opportunity to reduce the working capital in their business. So there could be a little bit of a tailwind for us going forward. And as you may know, we have all of our businesses focused on working capital. So we're -- while we are happy with what we've posted so far, we always strive to get better than within where we've been. So I think there's an opportunity to grind out a little bit better working capital as we go into 2019. That said, the one thing that will be a bit of a headwind for us in working capital is the tariffs, because the tariffs, you have to pay the government in very short period of time. I believe its seven days and so that will impact our working capital a little bit as we go into 2019. Q – Susan Maklari: Okay. And then my next question is just now that Kichler is integrated, how are you thinking about M&A going forward? Can you give us any color on what you've been seeing in terms of the pipeline there?

We have not changed our strategy in M&A, our pipeline remains solid. We're focused on identifying spaces, if you will, that we think have good fundamental growth and tailwinds and good pricing power and then we identify specific targets and then start our cultivation activity and we have a pipeline process and I'm pleased with the level of the pipeline, we really are not changing our strategy. We are -- we have a strong balance sheet that affords us the ability to do the kind of deals that we want to do as well as allocate capital on a balanced approach toward share repurchases, dividends, and of course we are going to continue to fund our brand and innovation in our existing core business. So we like what we're seeing and we're going to continue to drive it and when we are ready to do to announce a deal, we'll do that.

This concludes the Q&A session and the Masco fourth quarter and full year results conference call. We thank you for your participation. You may now disconnect.