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Text: Following our remarks, we will open the call for analyst questions.
Please limit yourself to one question with one follow-up.
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 metrics.
I hope everyone is staying safe and healthy.
While we are well over a year into this pandemic, the effects are still being felt.
We are encouraged by the rollout of vaccines, but many areas around the globe, continue to experience a surge in cases.
Through the efforts of our employees and the robust demand we continue to experience for our products, we delivered another outstanding quarter.
We had a strong start to 2021 and our ability to effectively navigate this highly dynamic environment resulted in exceptional top and bottom line growth.
For the quarter, sales increased 25%.
Excluding acquisitions and currency, sales increased 19%.
Operating profit increased 61% to $366 million, principally due to strong volume leverage and reduced spending in the form of lower travel, entertainment, and marketing expenses across our segments.
Earnings per share increased an outstanding 89%.
Turning to our plumbing segment, sales grew 27% excluding currency, driven by strong volume growth at Hansgrohe, Delta, and Watkins.
Our two recent plumbing acquisitions performed well in the quarter and contributed 5% to Plumbing's growth.
North American Plumbing grew 28% led by our wellness business which continue to experience strong demand and begin to comp their March shutdown of 2020.
Delta faucet delivered another quarter of double-digit growth with strength across all channels, particularly e-commerce which showed exceptional strength as consumers continue to shift their buying patterns to online.
International Plumbing grew 37% in the quarter as many of our markets returned to strong growth with particular strength in Central Europe and China.
And our Decorative Architectural segment sales grew 15% against a healthy 9% comp from Q1 of 2020.
Acquisitions contributed 2% to our Decorative growth.
Our Lighting, Bath and Cabinet Hardware and Paint businesses, each posted double-digit growth during the quarter.
DIY Paint grew high teens in the quarter, which is impressive considering it was facing a strong double-digit comp in Q1 of 2020.
While PRO paint was down low-single digits for the quarter as it faced a tough comp in Q1 of 2020, we did see a return to positive growth in the back half of the quarter and we're encouraged by the momentum we are now seeing in this business as we move into Q2.
Lastly, we actively continued our share repurchases during the quarter by repurchasing 5.5 million shares for $303 million.
We anticipate deploying approximately $800 million toward share repurchases or acquisitions for the full year as we guided on our 4th quarter call.
In addition, we anticipate receiving approximately $160 million for our preferred stock in Cabinetworks, resulting from their recently announced transaction, assuming it closes as expected.
We intend to deploy these funds toward share repurchases or acquisitions, which would be in addition to the $800 million that I just mentioned.
Now let me discuss two issues that are top of mind right now, inflation and supply chain tightness.
We have seen significant inflation of raw materials, namely copper, zinc, and resin used in both our paint and plumbing businesses as well as increases in freight costs.
All in, we expect our raw material and freight costs to be up in the mid single-digit range for the full year for both our Plumbing and Decorative segments with inflation likely reaching high single-digit levels in both segments in the 3rd and 4th quarters.
To mitigate these impacts, we have secured price increases across both segments to begin offsetting these costs.
We have further actions planned including additional price increases and productivity improvements while continuing to work with our customers and suppliers to offset [Technical Issues] full year margin expectations in both segments that we provided on our 4th quarter call.
With respect to supply chain tightness in addition to the strain caused by robust demand, we have been impacted by significant disruption in the supply of resins and [Technical Issues] products in both our plumbing and paint businesses due to the severe weather that Texas experienced in February.
Additionally, ocean container availability and timeliness continues to be a constraint.
This has temporarily reduced output of certain spot products during the month of April and limited our ability to build certain -- to build inventory of certain architectural coatings and other products.
However, the availability of resins is improving and our teams have done an outstanding job utilizing Masco's size, scale, and agility to countermeasure these issues by working with our key suppliers to increase availability of certain materials by leveraging our purchasing power to increase container availability for our products and by working around-the-clock to adjust production to meet the needs of our customers.
This once again shows the competitive advantage that comes from being part of Masco's portfolio.
With our strong [Technical Issues] performance, the actions we have taken and will take to offset persistent inflation, the interest savings from our recent bond transaction and the continued strong demand for our products and innovative -- and products brands, products and brands, excuse me, we are increasing our full year expectations of earnings per share to be in the range of $3.50 to $3.70 per share.
This is up from our previous expectations of $3.25 to $3.45.
As Dave mentioned, most of my comments will focus on adjusted performance excluding the impact of rationalization and other one-time items.
Turning to slide 7, we delivered a very strong start to the year as first quarter sales increased 25%, currency increased sales by 2% in the quarter and the 3 recently completed acquisitions contributed an additional 4% to growth.
In local currency, North American sales increased 21% or 17% excluding acquisitions.
This outstanding performance was driven by strong volume growth in North American faucets, showers and spas as well as DIY paint.
In local currency, international sales increased 27% or 23% excluding acquisitions.
Gross margin was 35.6% in the quarter, up 80 basis points as we leveraged the increased volume.
Our SG&A as a percentage of sales improved 340 basis points to 17% in the quarter.
This was primarily due to operating leverage, decreases in certain costs such as travel and entertainment and trade shows and the deferral of certain marketing and other spend.
We expect SG&A as a percent of sales to increase throughout the year to a more normalized 18%, a certain cost come back along with additional investments in our brands, service, and innovation to fuel future growth.
We delivered outstanding first quarter operating profit of $366 million, up $138 million or 61% from last year with operating margins expanding 420 basis points to 18.6%.
Our earnings per share was $0.89 in the quarter, an increase of 89% compared to the first quarter of 2020.
Turning to slide 8, Plumbing grew 31% in the quarter.
Currency contributed 4% to this growth and acquisitions contributed another 5%.
North American sales increased 27% in local currency or 22% excluding acquisitions.
This was led by Delta's double-digit growth in the quarter as they continue to drive strong consumer demand across all their product categories and channels.
Watkins, our wellness business, was also a significant contributor to growth in the quarter, and both demand and our backlog remains strong.
Watkins' performance also benefited from a softer comp in the first quarter of last year as government mandated COVID lockdowns resulted in two of their manufacturing plants being temporarily shut in 2020.
International Plumbing sales increased 27% in local currency or 23% excluding acquisitions.
Hansgrohe delivered year-over-year increases across most of their markets with continued double-digit growth in both Germany and China.
Demand remain strong in Central Europe despite continued COVID restrictions and we are starting to see improvement in the UK.
Operating profit was $253 million in the quarter, up $94 million or 59% with operating margins expanding 370 basis points to 28.3%.
This performance was driven by incremental volume, cost productivity initiatives and lower spend on items such as travel and entertainment, trade shows, and marketing.
This favorability was partially offset by an unfavorable price cost relationship.
We expect raw material inflation in this segment to peak in the 3rd quarter.
During the quarter, we entered into an agreement to divest our Huppe business, a small shower enclosure business based in Germany as we determined it did not align to our strategic direction.
Huppe sales were approximately EUR70 million in 2020, net proceeds will not be material.
Given our first quarter results and the current demand trends, we now expect plumbing segment sales growth for 2021 to be in the 15% to 18% range with 10% to 13% organic growth, another 3% net growth from the recent acquisitions and then divestiture of Huppe.
And given current exchange rates, we anticipate foreign currency to favorably benefit plumbing revenue by approximately 2% or $70 million.
We continue to anticipate full year margins will be approximately 18%.
Turning to slide 9, Decorative Architectural grew 15% for the first quarter or 13% excluding acquisitions.
This exceptional performance was driven by low-teens growth in our paint business.
Our DIY paint business grew high teens against a strong double-digit comp in the first quarter of 2020.
Our PRO business also faced strong comp decline to low single digits in the quarter.
Despite this decline in our PRO paint business, delivered positive year-over-year PRO growth in the back half of the first quarter and anticipate high single-digit growth for the PRO paint business for the full year as consumers continue to become more comfortable with paint contractors in their homes.
Our builders' hardware and lighting businesses each delivered double-digit growth as their new products and programs capitalized on increased consumer demand.
Operating profit in the quarter was $142 million, up $46 million or 48%.
This outstanding performance was driven by incremental volume, cost productivity initiatives, and lower spend partially offset by an unfavorable price cost relationship.
For 2021, we are raising our outlook and now expect architectural segment sales growth will be in the range of 4% to 9% with 3% to 7% organic growth and another 1.5% from acquisitions.
We continue to expect segment operating margins of approximately 19%.
Turning to slide 10, our balance sheet remains strong with net debt to EBITDA at 1.3 times and we ended the quarter with approximately $1.8 billion of balance sheet liquidity which includes full availability of our $1 billion revolver.
Working capital as a percent of sales including our recent acquisitions is 17.5%.
During the first quarter, we continued our focus on shareholder value creation by deploying approximately $303 million to repurchase 5.5 million shares.
In mid-February, we completed a significant bond refinancing.
In this transaction, we called our 2022, our 2025 and our 2026 debt maturities which aggregated $1.3 billion and refinanced these with a combination of new 7 year, 10 year, and 30 year notes totaling $1.5 billion [Technical Issues].
From an interest perspective, the net effect is a $35 million annualized interest savings.
Due to the timing of this transaction, interest expense will be approximately $110 million compared to our previous guidance of $135 million for 2021 and will be approximately $100 million in 2022.
From a maturity perspective.
This transaction also means we have taken out all our near-term maturities and our next debt maturity is not until 2027.
And two reminders for everyone; first, we will be terminating and annuitizing our US defined benefit plans in the second quarter and we will have an approximate $140 million final cash contribution to these plans to complete this activity.
And second, our Board previously announced its intention to increase our annual dividend by 68% to $0.94 per share starting in the second quarter of 2021.
This will increase our targeted dividend payout ratio from 20% to 30%.
We have summarized our updated expectations for 2021 on slide 13 in our earnings deck.
Based on Q1 performance and current robust demand for our products, now anticipate overall sales growth of 10% to 14% up from 7% to 11% with operating margins of approximately 17%.
Lastly, as Keith mentioned earlier, our updated 2021 earnings per share estimate of $3.50 to $3.70 represents 15% earnings per share growth at the midpoint of the range.
This assumes a 254 million average diluted share count for the year.
Additional modeling assumptions for 2021 can be found on slide 14 of our earnings deck.
Our markets remain strong and housing fundamentals are supportive of continued long-term growth.
Year-over-year home price appreciation increased over 17% in March and existing home sales were up over 12%.
Both of these metrics have a strong correlation with our sales on a lag basis.
Furthermore, the US consumer is healthy with estimated built up savings of nearly $2 trillion even before the new stimulus money and consumers continue to invest in their homes.
We believe these factors along with the increased demand from the large millennial demographic will lead to continued growth in the repair and remodel markets.
With our market leading brands, history of innovation, and strong management teams, we are well positioned to capitalize on these growth drivers, serve our customers and deliver value to the shareholders.

user
q1 adjusted earnings per share $0.89 from continuing operations.
anticipate 2021 earnings per share in range of $1.52 - $1.72, and on an adjusted basis, in range of $3.50 - $3.70.

assistant