Masco Corporation (MAS) Q3 2025 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2025 Conference Call. My name is Sylvie, and I will be your conference 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 Robin Zondervan, Vice President, Investor Relations and FP&A. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Masco Corporation's 2025 Third Quarter Conference Call. With me today are Jon Nudi, President and CEO of Masco; and Rick Westenberg, Masco's Vice President and Chief Financial Officer. Our third quarter earnings release and the presentation slides 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've described these risks and uncertainties and 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 metrics. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I will now turn the call over to Jon.

Thank you, Robin. Good morning, everyone, and thank you for joining us. I want to start today with a few reflections on my first 100 days as President and CEO of Masco. Over the last 3 months, I've had the privilege of meeting with our teams, customers and shareholders. I've toured manufacturing sites, participated in strategy reviews and listened to feedback related to both our strengths and opportunities or confirm what I believe to be true when I took this role. We have a strong foundation, industry leading brands, innovative products and incredibly talented and dedicated people. Our product portfolio is focused on the right categories and we have industry-leading capabilities. We've shown resilience in navigating dynamic environments while continuing to deliver value for our customers, consumers and shareholders. I've been especially impressed by the market leadership across our business units. Delta Faucet company has demonstrated incredible agility in the face of a dynamic geopolitical and macroeconomic environment, very strong partnership with our largest retail customer drives significant value for them and for us. Hansgrohe continues to be a global leader with customers in over 100 countries, and Watkins Wellness is winning with strong innovation, even amid broader category headwinds. There's real momentum here and also a real opportunity. In the coming months, we will focus on unlocking those opportunities with continued strong execution, greater speed and strategic investments in the capabilities that set us apart. I'm proud to be part of a team that delivers at a high level. I'm incredibly excited for the opportunities ahead. Now let's turn to our third quarter performance and updated outlook for 2025. Please turn to Slide 6. We continue to navigate a dynamic geopolitical and macroeconomic environment during this quarter. While the near-term market conditions remain a headwind to our business, our teams continue to focus on execution to grow market share and drive long-term shareholder value. For the quarter, our net sales decreased 3% in local currency, and excluding the Kichler divestiture, sales decreased 2%. Operating profit was $312 million, and operating profit margin was 16.3%. Earnings per share for the quarter was $0.97. Now turning to our segments. Plumbing sales increased 1% in local currency. North American plumbing sales increased 1%, driven by favorable pricing. Delta Faucet delivered strong performance again this quarter, particularly at e-commerce and trade. We recently relaunched our iconic Newport Brass brand, showcasing the brand's timeless design and enduring quality. This relaunch helps shape and expand our luxury portfolio represents an important growth initiative for our business with an addressable market of $1.8 billion. Another important growth initiative for Delta is in the water filtration category with a market of $1.2 billion for under-counter water filtration products. Delta's new product introductions in this category continue to outperform our initial expectations and our tankless reverse osmosis water filtration system was recently named the winner of the Good Housekeeping 2026 Kitchen Award. International plumbing sales were in line with the prior year in local currency. We saw growth across many of our European markets, while the China market was increasingly challenged. Operating profit for the segment was $204 million. Operating margin was 16.4% and included higher costs such as tariffs, commodities and inventory-related reserves. Turning to our Decorative Architectural segment. Sales decreased 12% in the quarter or 6% excluding our divestiture of Kichler. Operating profit for the segment was $128 million, and operating margin increased 100 basis points to 19.1%. Within our Paint category, overall paint sales decreased low single digits. DIY paint sales decreased mid-single digits as demand for DIY paint remained soft across the industry, impacted by low existing home turnover. In PRO Paint, sales increased low single digits. This continues the trend of multiyear growth for our PRO Paint. We remain tightly aligned with The Home Depot as we both prioritize and invest in strategic initiatives that allow us to capitalize on the sizable growth opportunity in the PRO Paint market. We also continue to develop new products at Behr that serve the needs of our customers. Most recently, we've launched Kilz original water-based primer and Behr Premium plus Ecomix, a plant-based interior paint. These launches demonstrate our commitment to introducing innovative and sustainable products with quality that our customers can trust. Turning to capital allocation. We generated strong free cash flow during the quarter and maintained a solid balance sheet. We remain committed to our capital deployment strategy and returned $188 million to shareholders this quarter through dividends and share repurchases. I'm proud of how our teams continue to work diligently to implement various mitigation actions in response to the near-term macroeconomic uncertainty, the geopolitical environment and rising costs. We are focused on remaining agile as we continue to execute effectively in this rapidly changing environment. Turning to our expectations for the full year. We now anticipate adjusted earnings per share for 2025 to be in the range of $3.90 to $3.95 per share compared to our previous expectation of $3.90 to $4.10. Our updated range includes the impacts from our third quarter results as well as higher tariffs and our expectations for softer industry demand resulting from the ongoing macroeconomic and geopolitical uncertainty. While uncertainty remains for the near term, we are focused on positioning ourselves for growth over the mid- to long term. The structural factors for repair and remodel activity are strong, including the age of the housing stock, consumers staying in their homes longer and near record high home equity levels. We have the right portfolio mix and our innovative new product introductions are outperforming our expectations. We continue to gain market share in key growth areas, including e-commerce, luxury faucets and showering and PRO Paint, and we are building strategies to further accelerate growth opportunities. Our high-performing teams have a history of leadership in navigating dynamic environments. When that leadership is combined with the strength of our brands, innovative products and unmatched customer service, we believe we are well positioned to continue to deliver long-term value for our shareholders. With that, I'll turn the call over to Rick to go over third quarter results and our 2025 outlook in more detail. Rick?

Thank you, Jon, and good morning, everyone. Thank you for joining. As Robin mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization charges and other onetime items. Turning to Slide 8. Sales in the third quarter decreased 3% or 2% excluding the impact of our divestiture of Kichler and favorable currency. Our divestiture of Kichler in the third quarter of 2024 resulted in a decrease in sales by 3% year-over-year in the third quarter of 2025, while currency represented a 1% increase in sales. In local currency, North American sales decreased 6% or 2% excluding the divestiture impact. International sales were in line with the prior year in local currency. Gross margin of 34.6% in the quarter was impacted by higher tariffs and commodity costs. SG&A decreased $16 million, primarily due to our divestiture. SG&A as a percent of sales improved 20 basis points to 18.4% in the quarter. Operating profit was $312 million in the quarter, and our margin was 16.3%. Operating profit was impacted by lower volume and higher costs, primarily related to tariffs, commodities and inventory-related reserves. Note that the temporarily elevated tariffs of 145% on China imports added approximately $15 million to the overall tariff impact in the third quarter, primarily in the Plumbing segment. These impacts were partially offset by pricing actions and cost savings initiatives. Our EPS was $0.97 per share in the quarter. Turning to Slide 9. Plumbing sales increased 2% in the third quarter or 1% excluding the favorable impact of currency. This growth was largely driven by pricing, which increased sales by 3%, partially offset by lower volume. In local currency, North American plumbing sales increased 1% in the quarter. This performance was primarily driven by Delta Faucet, which delivered growth in both the e-commerce and trade channels. In local currency, international plumbing sales were in line with the prior year. Hansgrohe continued to see growth in many of its European markets, including its key market of Germany. This growth was offset primarily due to an increasingly challenging market in China. Segment operating profit in the third quarter was $204 million, and operating margin was 16.4% Operating profit was impacted by lower volume and higher costs such as tariffs, commodities and inventory-related reserves, partially offset by pricing actions and cost savings initiatives. Turning to Slide 10. Decorative Architectural sales decreased 12% in the third quarter or 6% excluding the divestiture of Kichler. Performance in the quarter was driven by lower volume in our paint business as well as our builders hardware business, which also was unfavorably impacted by timing of shipments. In the quarter, total paint sales decreased low single digits due to lower volume. PRO Paint sales were up low single digits and DIY Paint sales decreased mid-single digits. Given the persistent softness in the overall DIY paint market and the favorable inventory timing we experienced in the fourth quarter of last year, we continue to anticipate our total paint sales for the full year to decrease mid-single digits. Excluding the impact of the prior year inventory timing benefit, we would anticipate full year DIY Paint sales to decrease high single digits. In our PRO Paint business, we continue to expect sales to increase mid-single digits for the full year. Operating profit in the third quarter was $128 million, primarily impacted by lower volume, partially offset by cost savings initiatives. Operating profit margin increased 100 basis points to 19.1%. Turning to Slide 11. Our balance sheet remains strong with gross debt to EBITDA at 2x at quarter end. We ended the quarter with $1.6 billion of liquidity, including cash and availability under our revolving credit facility. Working capital was 18.5% of sales at quarter end. Working capital continues to be impacted by tariff-related dynamics, including higher material costs and pricing, increasing our working capital balances. Given our strong cash generation, we returned $188 million to shareholders in the third quarter through dividends and share repurchases, including the repurchase of $124 million in stock. As it relates to capital allocation, we now expect to deploy approximately $500 million towards share repurchases or acquisitions in 2025, slightly higher than our previous expectation of at least $450 million. This increase is driven by a cash tax benefit from the recently enacted tax legislation. Now let's turn to Slide 12 and review our full year outlook. The market environment remains volatile and tariff uncertainty persists. The guidance that is being provided today includes the impact of currently enacted tariffs in effect in October, which now includes new tariffs on copper, antidumping duties on glass and increases to global reciprocal tariffs, particularly on Vietnam, Thailand and the European Union. As a result of these additional tariffs, we now estimate that the total annualized cost impact of all incremental tariffs enacted this year to be approximately $270 million before mitigation, up from $210 million as of our second quarter earnings call. Of the $270 million annualized cost impact, approximately $140 million continues to be related to the incremental 30% China tariffs. And the remaining $130 million is driven by the global reciprocal tariffs, the 50% tariff on steel, aluminum and copper and the glass antidumping duties. Of this approximately $270 million total annual cost, we expect a 2025 in-year impact of approximately $150 million before mitigation, up from $140 million as of our second quarter call. Our teams continue to actively work to mitigate these additional costs through a combination of levers. These include cost reductions, continued efforts to change our sourcing footprint and pricing where necessary. We anticipate that these mitigation actions will mostly offset the direct cost impact of the currently enacted tariffs in 2025. It is important to note that our guidance does not attempt to estimate the impact of potential future tariffs or any changes in existing tariffs. Turning to the overall market. Our expectation continues to be that the U.S. and international repair and remodel markets will decrease low single digits in 2025. For Masco, we expect our sales in 2025 to decrease low single digits, impacted by the 2024 divestiture of Kichler, which will reduce sales by approximately 2% year-over-year. We anticipate currency will have a favorable impact of approximately 1%. Excluding the impact of our divestiture and currency, we now anticipate Masco's overall sales to be down low single digits versus our prior guidance of roughly flat year-over-year, given continued industry softness with lower volumes partially offset with pricing. As a reminder, fourth quarter sales will face a challenging year-over-year comparison due to the favorable inventory timing impact we experienced in our paint business in the fourth quarter of last year. We now anticipate total company operating margin to be approximately 16.5% in 2025 versus our previous guide of 17%, driven by slightly lower volume, impact of additional tariffs and higher costs. In our Plumbing segment, we continue to expect 2025 full year sales to be up low single digits. We now anticipate the full year Plumbing margin will be approximately 18% versus our previous guide of 18.5%. In our Decorative Architectural segment, we continue to expect 2025 sales to decrease low double digits or mid-single digits, excluding the impact of our divestiture. We also continue to anticipate the full year Decorative Architectural margin to be approximately 18%. Finally, as Jon mentioned earlier, our 2025 EPS estimate is $3.90 to $3.95 per share. This continues to assume a 211 million average diluted share count for the year and a 24.5% effective tax rate. With that, I would like to open up the call for questions. Operator?

[Operator Instructions] And your first question will be coming from Stephen Kim at Evercore ISI.

It's Steve. We will have -- we do have a tariff question, but I wanted to start off actually on the paint side. There was a competitor who talked about a price increase going in Jan 1. I was wondering if you could sort of talk about how that might influence your outlook for pricing as we get into the new year on dec arc. And maybe you can talk just generally about how given the relationship you have with depot, how you think about pricing relative to competitor actions?

Steve, it's Jon. Thanks for the question. We certainly have a unique relationship with Home Depot. It spans 40-plus years, incredibly strong. As you mentioned, we do have a relationship, it's essentially price cost neutrality over time. As we look at our dec and particularly our paint input costs, we see some upward pressure, but not significant. So at this point, again, we'll continue to have private conversations with our retail partner, but I wouldn't expect to see significant pricing on paint as we move into the coming year.

Okay. That's very helpful. Appreciate that. Aatish, do you want to jump in on the tariff?

Yes. I just want to clarify on the tariffs. When all is said and done kind of longer term impact to Plumbing margins from tariffs, like, how do you see that given that price action will mostly mitigate tariffs dollar for dollar? It's kind of like more of a longer-term question on Plumbing.

Yes, sure. Well, from a tariff perspective, as we've all realized here, it's a relatively volatile and dynamic environment. And so based off of the current tariffs enacted as of October, we articulated it's about a $270 million annualized impact. And we're tackling that on a number of fronts from a mitigation standpoint. First and foremost, from a sourcing footprint standpoint, particularly sourcing out of China, where our largest exposure exists to other markets, also reducing cost and sharing that tariff impact with our suppliers. And third is pricing, as you alluded to. Those are levers that we continue to pull. And our objective is to not only offset the dollar cost of the tariffs, but ultimately, the margin implications over time. So obviously, we've got to track and monitor the situation closely. But based off of where we sit today, our expectation is that we'll continue to work towards mitigating. As we mentioned in our comments, we've mitigated a large part of the tariffs, not all, but a large part of the tariffs here in this calendar year. And certainly, our objective as we move into 2026 is to mitigate further as well as start working to build margin. So we're continuing to focus on the mitigation and working to restore our margins over time.

Next question will be from Matthew Bouley at Barclays.

I wanted to ask one, I guess, kind of zooming into the plumbing margins, and I guess, the 3Q results, specifically. I think you guys have previously signaled that there would be some of that impact from the 145% tariffs. And so I mean, I guess that played out. But the question is, was there anything else that was effectively a surprise versus your own expectations? Did any of those incremental tariffs that were coming in the summer end up sneaking into the quarter there as an impact? Or just any other cost that ended up surprising you?

Sure, Matt. It's Rick. As it pertains to our Q3 results, I would say it was impacted really by 3 drivers. One is tariffs, as you articulated. There were incremental tariffs since our Q2 call as you articulated. But those -- that took our in-year impact from $140 million to $150 million. But that incremental $10 million of in-year impact is really going to be a Q4 event. So those were new tariffs since our Q2 call. And so that factors into our updated guidance for the year, but that's really a Q4 dynamic. As you also alluded to, within the tariff realm, we did experience that elevated tariff impact on the 145% on China imports. That was about a $15 million impact in Q3 specifically. And that was, as we alluded to in Q2, something that we anticipated, but did manifest itself in Q3. The second driver is with regards to overall softness in the industry. And so we do believe that the industry, both North America and international is going to be down low single digits. We're really coming in from an industry perspective on the lower end of that range. And so that was a bit of an impact as we flow through Q3 as well as the calendar year outlook. And then fourth, we're incremental -- I'm sorry, third was incremental cost, both with regards to commodity inputs, particularly on copper, that continues to be elevated as well as the inventory-related reserves, which really was an update in our assumptions based off of market conditions that we -- as we generally review our reserves on a quarterly basis, we just had a higher than typical adjustment in the quarter. So that would be really the drivers behind our margin performance in the quarter.

Okay. Got it. I guess secondly, I wanted to touch on the builders' hardware business since, I guess, paint and coatings is only down low single digits, overall. I think I heard you say there were some unfavorable inventory timing. I'm wondering if there was maybe a pre-buy there earlier in the year or just kind of more elasticity related to price increases in that category. So presumably, it would have been a fairly large move in that business to impact the segment as it did. So just any more color on exactly what's going on there.

Sure, Matt. It's Rick. Yes. So as it pertains to the builders' hardware business, it was impacted by softness in sales as we saw really across the industry. But as we mentioned in our opening comments, there was a bit of a shipping timing dynamic. It was really due to a planned shipping process change in the quarter. So we curtailed our shipments during the quarter in order to infatuate the change, so it is something that we noted in our talking points, but we do not believe that it would be a significant impact for the calendar year overall.

Next question will be from Michael Rehaut at JPMorgan.

Great. First question, I just wanted to clarify on the margins -- Plumbing margins for the third quarter. The -- given that some of that was already anticipated the 145%, was the delta perhaps versus expectations a little more driven by the inventory-related reserves? Or were there other factors also at work? Because I think the overall more recent tariff changes, I think you said was more of a 4Q event?

Yes. Sure, Mike. You're right. As it pertains to our expectations coming into the quarter, we did have contemplated the elevated China tariffs. So that was part of our expectation. I'm not sure it was fully contemplated all in Q3 in terms of external expectations, but certainly, we had contemplated that internally. As it pertains to development since our second quarter call, I would say there were 2. One is the inventory-related adjustments that we alluded to. And second is just softer sales, particularly in certain markets like China that came in, from an industry perspective, lower than we had anticipated.

Okay. Perfect. And then in terms of the overall full year sales guidance, I believe last quarter, you had consolidated sales still down low single digits similar to what you have in this updated guide. But it seems like perhaps you're now kind of talking towards the lower end of that guide or lower end of that down low to single-digit range. Just wanted to make sure I also have that right. And again, just to kind of -- and I apologize, if you kind of hit on this earlier, but just to be clear, which segment that's really coming from, if part of that is the builder hardware or maybe a little bit softer trends in plumbing as you just alluded to, international or North America, just a little bit more granularity around that.

Sure, Mike. Yes, your observation is directionally correct. Ultimately, we see the industry coming in a bit lower, kind of on the lower end of our range. As expressed in EPS, we are coming in at the lower end of our range that we publicized in our due to earnings call, and part of that is driven based off of lower industry expectations. And it's relatively across the board, I would say that it does impact the Plumbing segment, as we mentioned, particularly China, but also impacts our builders' hardware as well as our DIY Paint. So not dramatic changes, but the industry is a bit softer, really at the lower end of our expectations. As it pertains to our underlying performance, I would classify that as pretty solid, meaning that we're continuing to perform in line or in many categories better than the overall industry. It's just the overall industry softness that continues to be relatively weak.

The next question will be from Mike Dahl at RBC Capital Markets.

Some clarifying questions on tariffs. I guess just to be clear on China. It seems like you're still at, call it, $450 million to $500 million of underlying cost of goods sold. So there's been discussions in the last couple of days about the tariffs getting reduced by maybe 10%. Is it right to think about that as a $50 million annualized impact if that came to fruition in terms of that $140 million going to something more like to $90 million to $95 million? And then the second part of the question would be, if you could just break out what's like within that other $130 million, can you just specify what the global reciprocal bucket is versus the steel, aluminum, copper and the antidumping?

Sure, Mike. Your math on the first question is directionally correct. As we've articulated in the past, our annual import exposure from China is $450 million on a 30% tariff from China that represented about $140 million of impact. So hypothetically speaking, if there were a change in tariffs, whether it's plus or minus, you can extrapolate from there. As it pertains to your second question, we're not going to provide a detailed breakdown in terms of the composition of our exposures in the "other bucket". It's really a composition of reciprocal tariff, Section 232 tariffs on steel, aluminum and copper as well as the glass antidumping duties. And part of it is it's a dynamic environment. And so as we continue to modify our sourcing footprint, as we move out of China into other markets, and we continue to manage and work aggressively to mitigate our tariff exposure, those underlying exposures will change and update over time. What we will do and we will continue to do is provide the investment community with an overview in terms of the financial implications split between China and pretty much everything else as we've done this quarter. And then from an annualized perspective, as we've articulated, we have a $270 million annualized exposure -- or I'm sorry, impact. $140 million is China, $130 million is everything else. And we'll continue to provide updates if and as things change in our quarterly reviews.

Okay. Understood. That's so helpful. My second question is just specifically on paint. I understood that you've got the comp dynamic. The fourth quarter, it still implies like a pretty big step down in margins in the fourth quarter versus what's been really solid like 2Q, 3Q performance despite the top line challenges. So I'm just wondering if there's anything else there in the fourth quarter aside from just comping against that load-in that would be driving that margin down so much?

Yes, nothing particularly of note. What I would say is the biggest driver on a year-over-year basis in terms of top line and margin. I know you're talking about Q4 specifically in regards to the unfavorable comparison relative to the impact of the channel -- favorable channel inventory build that we experienced in Q4 of 2024. So that is really the biggest driver from a year-over-year basis.

Next question will be from Sam Reid at Wells Fargo.

Wanted to touch on plumbing price in a little bit more detail, the 3% you reported. Could you just characterize kind of where that landed relative to your expectations? I know you had obviously larger price increase in the market. So just curious kind of what you got on a realization standpoint versus what you were expecting to get? And then as you look to the fourth quarter, does the guidance contemplate any step-up in plumbing price sequentially? Just wanted to maybe understand that Q4 dynamic as well on price in plumbing.

Sam, this is Jon. Maybe I'll start, and then Rick can jump in as well. I would say that pricing and plumbing primarily played out according to plan and what we expected. If you think big picture, obviously, significant increase in tariffs versus what we thought at the beginning of the year. And the team, particularly at Delta, which is the most impacted business, have done really a remarkable job of mitigating tariffs. And it really starts with making sure that we optimize our footprint. We've been doing that over time. We have a 40% or 45% reduction versus 2018. We'll continue there, working with our suppliers on concessions, looking at our own cost structure and making sure that we optimize that. Then ultimately, as the last resort, we will take pricing. And we did take pricing throughout this year. I would say it's executed according to plan, and we'll continue to look at our -- what we need to do as we move into the coming year as well. In terms of Q4, I'll let Rick cover that.

Yes, Sam, in terms of sequentially, as you would expect, our mitigation actions take hold over time, really from a pricing, cost reduction and sourcing standpoint. But you'd expect that our pricing being one of the levers to continue to get increased traction over time. And I guess I'll leave it at that.

That helps. And then one more plumbing-related question here. You called out strong Delta performance in 2 channels, e-commerce and trade. I might have missed, but how did Delta perform in home center? And perhaps can you talk through kind of how you trended in home center relative to the broader category?

Yes, absolutely. So Delta in particular had a very strong quarter driven by e-commerce, where we saw nice growth. Our wholesale channel grew kind of low single digits. And we saw relatively flat, maybe slightly down performance in retail. And as we look to the coming year, we're excited about the plans we have coming, and we believe that we'll be driving even stronger results in retail as we hit 2026, but no major bogeys from a plumbing standpoint and, again, strength in e-commerce, wholesale and then relatively flat in retail.

Next question will be from John Lovallo at UBS.

There's a couple of factors impacting the back half. One of them, you talked about on the inventory side. Just wanted to get a little bit more clarity, if I could, on the lower employee-related costs that are not expected to repeat in the back half. So curious what was the third quarter impact of that and what's the expected fourth quarter impact?

John, you're referring to a comment that we made in the Q2 call, correct?

Correct. Yes.

Yes. So from an employee related, yes, you're correct. We did have a favorable benefit in Q2. We continue from a cost perspective to be very disciplined on cost, particularly given the current environment and managing people costs as well as other costs that continues to be a priority for us. So we didn't have a repeat of the onetime item, so to speak, that we benefited from in Q2. But suffice it to say, we're continuing to drive efficiencies, cost reductions, et cetera, throughout the business just to drive operational efficiencies.

Okay. And then maybe just a follow-on to that, maybe outside of some of the tariff mitigation actions, what are some of the cost savings initiatives being taken in both segments to help kind of lower the cost basis? And what do you expect for the impact of that on a go-forward basis?

Yes. So John, we continue -- I know you've heard us talk about before, leverage our Masco operating system to continue to drive productivity and efficiency. And so that is productivity in our plants, supply chain efficiencies, procurement cost savings. I know we talk about tariff mitigation, but we also are working on driving cost efficiencies throughout our sourcing footprint. We talk about automation, VA/VE. And in this year, in particular, we're looking at more austerity measures as it pertains to the headcount and discretionary spend. So really a combination of all those factors. And it's not isolated to a particular segment. It's really across our businesses.

Next question will be from Trevor Allinson at Wolfe Research.

You mentioned seeing some input cost inflation, more input cost inflation you expected in Plumbing, call that metals. Can you put some numbers around what inflation rates you're seeing in your plumbing business in the third quarter and what you're expecting for the fourth quarter?

Sure, Trevor. It's Rick. So yes, we are seeing some upward pressure, particularly on the copper input. And as you may recall, in Q2, I believe it was at a record high at least on the COMEX. So it continues to be a headwind for us from an overall input perspective. We can going to manage it from a cost standpoint. But ultimately, it's -- to answer your question, it was a low single-digit inflationary impact in Q3 in Plumbing, and we expect a similar low single-digit inflation for the calendar year for the Plumbing segment.

Okay. That's helpful. And then a question on DIY Paint. Obviously, it's been weak for some time now after being very robust during the pandemic. Now we've had several years of DIY Paint declines. Can you talk about where you think we are in terms of pull forward versus deferral? And do you think DIY Paint is a category that can get back to growth in fiscal '26?

Yes. Trevor, this is Jon. We really like our DIY Paint business. Obviously, the strength of Behr over time. DIY Paint correlates heavily to existing home sales. And as you know, existing home sales are near 3 decade lows right now. And if you think about it, it's pretty simple when you go to sell a house, you typically paint it, when you have buy a house, you typically paint it again. So without existing home sales moving at the pace that they have historically, that's really put a dent on the market. We expect the long-term fundamentals to get better for sure as existing home sales free up and start selling at more historical rates. I think consumer confidence in interest rates will help with that. And at the same time, we're excited about our PRO business. When you think about the upside that we have there. We have a relatively low share. We've grown nicely over time. And it's approaching nearly 50% of our business at Behr. So again, we think that we can continue to drive DIY. And at the same time, we think there's a significant opportunity on PRO as we work with our retail partner to really maximize that.

Next question will be from Susan Maklari, Goldman Sachs.

My first question is going back to Delta, you cited the strength that you're seeing in e-commerce and the wholesale channel there. Can you talk a bit about what is driving that strength, the outlook, the ability to sustain that? And what that could mean for volume and price mix in the Plumbing segment next year if the macro does stay tougher?

Yes. So this is Jon. Maybe just a little color on Delta. As I mentioned, really pleased with that team and is also we're driving. I think it starts with -- they do a great job of building the Delta brand as well as the Brizo brand and all the different brands portfolio and really making them stand for something with end consumers. Innovation has been a big part of the Delta story. So our vitality rate, which is new products launched over the last 3 years at 25%, which we think is industry leading, and we'll continue to drive that and drive even more innovation as we move forward. And then really developing great capabilities from an e-commerce standpoint, we believe that we're growing share in that channel at a pretty significant rate just due to the capabilities and really the customer insight that we have with different retailers and different e-commerce customers in that channel. So the team is really firing on all cylinders. We would expect that momentum to continue as we move into fiscal '26.

Okay. And then turning to capital allocation. You mentioned that you are increasing the outlook for returning cash to shareholders by $50 million for the year. Can you talk a bit about the timing of that? And also, what you're seeing in terms of other uses of cash, such as the M&A environment and the potential there?

Sure, Sue. It's Rick. Yes, as you mentioned, we did increase our expectation for cash available for share buybacks or M&A activity from about $450 million to $500 million. A big component of that was the favorable cash tax benefit from the recently enacted tax bill. So that was a favorable impact, and we are increasing our cash available for share buybacks and M&A accordingly. What I would say is as it pertains to in terms of timing, through the first 3 quarters of the year, we've returned just over $350 million to shareholders. And so you could envision that about $150 million remains for the fourth quarter. As it pertains to M&A activity, no change in terms of our overall capital allocation framework and our strategy in that regard. We continue to cultivate a pipeline of opportunities, focused really on bolt-on opportunities and nothing to report at this time, but it's certainly something that we look at as part of our overall growth algorithm. To the extent we do not have an opportunity this year, you would expect us to utilize that cash for ongoing share repurchases.

Next question will be from Phil Ng of Jefferies.

This is Maggie on for Phil. I guess, first, just maybe to ask the Plumbing pricing question a little differently. It was kind of surprising to see a similar pace, that 3% in 3Q similar to 2Q, just given the tariff mitigation efforts and the magnitude of pricing you have out there. So are you seeing more pressure from competitive dynamics or just pricing fatigue from customers? Maybe just walk us through some of the puts and takes there?

Sure, Maggie. It's Rick. So I think Sam asked a similar question from a sequential standpoint. So our price, as you articulated, was about 3% favorable from a Plumbing segment perspective, and that is as our pricing continues to gain traction in the market. So I'm not going to get into specifics on Q4 at this point. But suffice it to say, we're gaining traction. As it pertains to the overall dynamics, it's something that we're monitoring very closely. As Jon articulated, there's a number of levers that we pull with regards to our tariff mitigation and to address our margin headwinds, which are sourcing footprint changes, cost reductions and as necessary pricing. So we will leverage the pricing component of that, but it's something that we do in a very targeted way, and we look for a balanced approach overall. But I guess the bottom line is we continue to see pricing as a favorable impact on a year-over-year basis, but it's largely going to be driven based off of our need to mitigate the tariff impact as well as our assessment of the overall market dynamic.

Got it. And are there any nuances to call out between channels in terms of realization or acceptance by channel? And then thinking ahead, you have this January price increase announced out there. What have you seen this year that's kind of influencing how we should think about realization on that in 2026?

Yes. So Maggie, we're not going to comment with regards to specific channel pricing performance. That's just something that we manage with our customers. As it pertains to anything that might be out there as it pertains to future pricing, I'm not going to really comment on that either. That's something that would be kind of in development. And so again, I would just take a step back and just look at it from a standpoint of pricing continues to be one of the levers that we've deployed in terms of mitigating our tariffs as well as other impacts such as commodity inflation, et cetera, and that's something that we're going to continue to focus on and execute against.

Next question will be from Adam Baumgarten at Vertical Research Partners.

Just on the timing-related issues in builders hardware, which is obviously a headwind in the third quarter. I think you mentioned that maybe it wouldn't be much of an impact for the full year. So would that imply that 4Q, those shipments kind of go through and therefore, the full year won't be as impacted?

Yes. And directionally, that is correct. So it was a Q3 adverse impact. But for the overall year, we don't expect it to be a significant impact. So I guess that would be a fair conclusion.

Okay. Got it. And then just in plumbing, just on China. You talked about that being a headwind. It seemed like maybe a bigger headwind than it's been in prior quarters. If you can maybe kind of walk through what you're seeing on the ground over there?

Yes, Adam, for sure. So the market itself has been challenged. And I think, obviously, you read about the housing market and what's happening in China. But at the same time, I think local players have become much stronger as well. So between those 2 things, the market itself is challenging, and I think the competitive situation is challenging as well. I'll tell you that we feel like we are holding up at least as well and probably better than our other major global competitors that are in that market. We still like that market. It's a significant market for us. And we think over time, we'll be able to get back to growth, but it has been a bit more of a headwind, certainly in Q3 than what we had seen through the first half of the year.

Next question will be from Keith Hughes at Truist.

Just a question of the inventory reserves you discussed in plumbing. Is that -- are you writing off obsolete inventory? Or what specifically is going on? And how much of a dollar hit is that?

Yes, Keith, it's Rick. So as part of our normal process, we review our balance sheet reserves on a quarterly basis as you anticipate. We make adjustments quarter-to-quarter based off of the assumptions in place at the time. And it's really driven based off, this quarter based off of the overall market environment and really the slow pace of the industry sales, et cetera. And so we do have adjustments, as you would expect, kind of quarter-to-quarter. This quarter was bigger than typical. So we've called it out, particularly given it hit our Plumbing segment and one of the drivers in terms of our margins. Although we wouldn't expect this to occur kind of on a regular basis, it was something that was -- we felt appropriate to call out for Q3. As it pertains to overall magnitude, I'm not going to give you a specific dollar amount, Keith, but I could dimension it a little bit for you. And I would say, on a year-over-year basis, if we look at whether it's operating profit or operating profit margin, it represented about 1/4 of the performance impact on a year-over-year basis. That helps?

Okay. And is there a cash offset to this that comes or is this a noncash element.

This will be noncash.

Next question will be from Eric Bosshard at Cleveland Research.

Two follow-ups. On the DIY Paint, I understand the softer sales, the down 7% to 9% and the market overall -- R&R market, that's not that bad, but you're linking that to housing turnover. I'm curious if strategically, there's anything different to do in this business to drive better growth. Obviously, you're having success with the PRO initiative in Depot. But on the DIY side, is there anything strategically different to do to stimulate better performance?

So this is Jon. Good question. I think at the end of the day, I think the biggest thing we can do to drive our business continue to drive a better brand. And Behr paint has amazing quality, and we offer great value as well. And I think we can get even tighter in terms of our communication of why we have such a great proposition for our consumers. I think the other thing we can do is continue to innovate. As I mentioned in the prepared remarks, we're launching some innovation we're excited about some plant-based paint that's obviously very much in trend with younger consumers and millennials, and we think that will be a positive for us as well. We are with the right partner that obviously continue to do well in market. We continue to work with them to make sure we maximize our sales. I think, for us, though, again, I think getting tighter on our messaging from a brand standpoint really around value and quality because we think by far, we've got the best proposition in the industry.

Okay. And then for Delta, your comments were optimistic about retail '26 growth. I'm curious if there's anything in the business or from a market share perspective that informs that or if this is more function of lower rates and at some point, consumers will spend money. Just trying to figure that out.

Yes, great question. As you would likely imagine, we have a good sight line into 2026 in terms of our plans with our major retailers. And without going into the details, we feel really great about where we're going to be from a distribution standpoint. We feel really good about our innovation that we're launching as well. And we would fully expect to have a very strong year at retail in 2026 as a result of those plans that are in place.

Next question will be from Rafe Jadrosich at Bank of America.

I wanted to just get a little bit of a better understanding about the timing of when tariffs like hit your P&L and the cadence of the mitigation. So obviously, you have to work through some of the inventory that maybe came in pre-tariffs. Like how much of that of the impact is being like in your P&L today? And how do we think about that going forward? And then sort of same question on like the mitigation that you're planning, how do we think about the cadence of that?

Yes. Rafe, it's Rick. So as it pertains to the cadence of the tariff impact, as we've articulated in prior calls, that we fully expect most of that impact -- we know that most of the impact is going to occur in the second half of the year. And so that's why, as you saw in Q3, the tariff impacts really get kind of traction in our P&L. We did see some in Q2, but the vast majority is in Q3 and Q4. As articulated, we did have incremental or additional tariff impact in Q3 given the temporarily elevated China tariffs at 145%. So that translated into a $15 million additional tariff impact in Q3. Now that is hopefully onetime in nature as it pertains to the tariff dynamics. As you think about on a prospective basis, that's why we give the annualized tariff impact and our annualized tariff impact is $270 million. So you can think of that as a run rate basis on a calendar year basis. We saw, again, most all of that in the second half, thus the $150 million in the second half of the year, inclusive of the $15 million that I talked about. But $270 million is how we think about it going forward. I would caution, of course, that, obviously, we continue to be in a dynamic environment from a geopolitical standpoint. And so that estimate of $270 million is based off of really a static picture of not only the tariff environment, but our footprint. And we'll continue to provide updates in terms of our exposures as well as our tariff impact as we move quarter-to-quarter.

Got it. Okay. And then would you -- are you -- is the plan to fully mitigate in 2026? And then of those, you listed a few things that you're shifting supply chain pricing, like how do we think about the timing of that and when you would be planning to fully mitigate?

Yes. So with regards to mitigation actions, those are all underway, and we're pursuing them very aggressively and expeditiously. And so each exposure has a different time line. But ultimately, we would expect to, as we said before, offset a large part of the tariff impact this year, not all, but a large part. And really, our goal is to ultimately offset the tariff impact, not only from a dollar perspective but also from a margin standpoint, based off of the tariff environment as we see it today, and we would expect and we'll provide more color on that in our February call in terms of our expectations for 2026 specifically. But one of the largest levers of our tariff mitigation strategy is our sourcing footprint, and that takes some time. It continues to be an exercise that the team has done an excellent job in terms of reducing our exposure specifically to China. As mentioned earlier in the Q&A section, our exposure to China is $450 million, but that's down 45% from levels of 2018. And we continue to be on that glide path and accelerate that. So we'll provide an update in terms of what that looks like in 2026 in our February call. But suffice it to say, we're continuing to really execute towards the tariff mitigations and offset the dollar amount as well as margins over time, and we'll provide further updates in February.

Next question will be from Collin Verron at Deutsche Bank.

Just one for me. I guess on the plumbing side of the business, can you just talk about how long you think this soft demand environment will really last here? And I guess like if you're looking out over the next 6 to 12 months, like what specific factors would you be looking for that would get you a little bit more excited about the demand environment?

Collin, this is Jon. I'm relatively new to this industry, as you know, but it's been consistent as I go out and talk to our customers, channel partners, suppliers. I think everyone feels like the rebound will come, the crystal ball. We don't have a crystal ball, we can't tell you when that is. But all the macro factors remain incredibly positive. If you think about what drives R&R activity. I mean it's really about home equity levels. We know that they're at record highs right now. We know the age of the housing stock in the U.S. is ripe for renovations, remodels. In fact, over the next few years, something like 20 million more homes will become into that prime point to be remodeled. That's 20 to 40 years of age. And then I think it's about consumer confidence and interest rates. So I think if we see interest rates continue to tick down, consumer confidence in their economy increase, we'll see consumers tap into their home equity funds and start those remodels that they've been deferring. So we're very confident about the long term. Obviously, we don't have a crystal ball. I can't predict exactly when that will happen. As we sit here, we're not going to talk too much about 2026 or certainly give guidance, but I think we would expect to see a gradual improvement in our markets as we move forward into the coming year.

Our last question comes from Anthony Pettinari at Citi.

I just had 2 quick ones on Plumbing. I guess first, how would you characterize the performance of kind of your best brands. You talked about the strength in Delta, I'm just wondering how Brizo and Hansgrohe, are they still kind of outperforming the good, better? Or is there like any change in that dynamic? And then, I guess, just second question, sauna, wellness, smaller part of the business, but I'm just curious how that category is performing in what's obviously been kind of a tough market? And do you see the growth opportunity there organically or inorganically maybe different than you did 6 months ago, 12 months ago?

Yes. Absolutely. In terms of plumbing, we really like the way our brands are performing. When you look at upper premium and luxury, we've got brands like Brizo as well as Newport Brass, Axor, which is our global luxury brand. And really, we see a bifurcation in terms of the market. We're seeing the upper income consumers hold up relatively well. And actually, we're growing the fastest in upper premium and luxury, so really like the performance there. From Hansgrohe growth standpoint, really like the way that they're performing around the world. Germany in particular, the home market, they're growing nicely, taking a tremendous amount of share. And really, we believe, growing share in most markets around the world. I mentioned China is definitely the soft spot for Hansgrohe and that's something we'll continue to work out for sure. So I really like the way they're performing around the world from a Plumbing stand point. In terms of Watkins, that's been a business that, again, we're really excited about the long-term opportunity for. When you look at Wellness very much being on trend from a consumer standpoint, the low household penetration of our categories. If you think about hot tubs, only has 5 or 6 household penetration in North America. Sauna is only 1% household penetration. And if you listen to what's happening in culture and society, you see and hear a lot of buzz around both of these and particularly saunas are on fire, right? So we think there's a tremendous opportunity for us. We're the market leader in hot tubs in North America, we continue to push our advantage there. We're a leader in sauna. I think that's an area that we'll continue to drive as we move through the future. We think there's a lot of tremendous upside for that business for the short to long and long term as well.

At this time, we have no other questions registered. I would like to turn the call back over to Robin Zondervan.

We'd like to thank all of you for joining us on the call this morning and for your interest in Masco. That concludes today's call. Have a wonderful day.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.