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Masco Corp (MAS) Q1 2021 Earnings Call Transcript

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MAS earnings call for the period ending March 31, 2021.

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Masco Corp (MAS 2.00%)
Q1 2021 Earnings Call
Apr 28, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, welcome to Masco Corporation's First Quarter 2021 Conference Call. My name is Michelle and I will be your operator for today's call. [Operator Instructions]. I will now turn the call over to David Chaika, Vice President, Treasurer, and Investor Relations, you may begin.

David Chaika -- Vice President, Treasurer and Investor Relations

Thank you, Michelle and good morning. Welcome to Masco Corporation's 2021 First Quarter Conference Call. With me today are Keith Allman, President and CEO of Masco and John Sznewajs, Masco's Vice President and Chief Financial Officer. Our first 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 cannot 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 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'll now turn the call over to Keith.

Keith Allman -- President and Chief Executive Officer

Thank you, Dave. Good morning everyone and thank you for joining us today. 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. The safety of our employees remains our number one priority and I would like to thank all our employees for keeping each other safe and for serving our customers. Through the efforts of our employees and the robust demand we continue to experience for our products, we delivered another outstanding quarter. Please turn to slide 5.

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.

With that, I'll now turn it over to John for additional detail on our first quarter results, John?

John Sznewajs -- Vice President and Chief Financial Officer

Thank you, Keith, and good morning everyone. 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 EPS 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 EPS estimate of $3.50 to $3.70 represents 15% EPS 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.

With that, I'll turn the call back over to Keith.

Keith Allman -- President and Chief Executive Officer

Thank you, John. 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. With that, I'll now open up the call for questions. Operator?

Questions and Answers:

Operator

Okay. [Operator Instructions]. The first question will come from Matthew Bouley from Barclays. Your line is open.

Matthew Bouley -- Barclays -- Analyst

Good morning, congrats on the results. Thanks for taking the questions. I wanted to start out on the full year margin guide, which is unchanged at 17%. With that, I guess, Q1 margins do they come in better than planned or wasn't in line, I'm trying to understand if the tempered expectations for the balance of the year reflecting all that cost inflation you mentioned, I heard you say peak cost headwind, I guess for plumbing in Q3 specifically. I'm just trying to understand how the cadence of 2Q to 4Q may have changed versus your prior expectations. Okay.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah, Matthew very good morning, its John. I think there's a couple of things that we experienced through the year. So, as you expect the first quarter, pricing, a little bit better than we initially expected but I guide you to think about two things. One, I do think because we raised our topline [Technical Issues] at the same time, what we are seeing is a little bit [Technical Issues] so. Well, I think the 2 kind of offset each other and that's what's causing us to maintain our margin guidance at 17% as we called out on our Q4 call.

Matthew Bouley -- Barclays -- Analyst

Okay, thank you for that John. Second one on the lifting, to your point, the organic growth guidance for the year, I guess it's a similar question with how much of that was driven by Q1 itself but more broadly you guys have talked about North American R&R for example up low-single digits this year. You talked about tougher comps in the second half and my question is as we do get further into the year, late April now, is it becoming clear that the backlog of home improvement activity and what consumers are doing may not exactly shift overnight and maybe that tough comps in the second half you guys had previously spoken to might have a little bit better outlook just similar kind of question there on the organic side. Thank you.

John Sznewajs -- Vice President and Chief Financial Officer

Matthew. There is a couple of things going on. One is the real strong -- continued strong demand that we've seen in Q1. So the Q1 demand is certainly a factor. When we look at how we exited the quarter and how things are starting this quarter we continue to see strong demand, little bit more than what we had initially planned, so nothing is going to move those [Technical Issues] they are still there and we have to face them but when we look at how demand is shaping up, both in the quarter and then what we expect going forward in the fundamentals that really was the rationale for us lifting our guide on the revenue side.

Operator

Your next question will come from Stephen Kim from Evercore. Your line is open.

Stephen Kim -- Evercore ISI -- Analyst

Yeah, thanks very much guys. Strong results. Just following up on Matt's question about the margin. I just wanted to throw in that you also had the refinancing of the debt, probably at about $0.09 for the full year. I just wanted to get an idea whether that had previously been contemplated in your guide and then if I heard your answer, John, it sounds like its higher inputs just totally understandable. But you had said, I think that you're expecting neutrality on input cost by year-end, which I think is pretty much what you thought before, so just to get a sense for the arc of margins for the quarter relative to your previous expectations. Are we looking at kind of maybe lower margins in 2Q and 3Q than you had previously thought, but then higher in 4Q, as you get the neutrality back and then of course you did better in 1Q as well, is that the kind of way we should be thinking about the trajectory of margins relative to your previous expectation.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah. So a couple of questions there Steve, let me try to address those. So first of all, with respect to the interest savings, I think for this year given the timing of that transaction, it's probably about a #0.05 or $0.06 benefit in 2021. Now that said, you may have heard in Keith's remarks we talked about receiving some proceeds from the sale of Cabinetworks. That also then contemplates we need to update our guidance to reflect the fact that we will not be getting interest income from that investment. So I think the net benefit there is, call it $0.02 to $0.03, So, well, I just want to make sure we're clear on that. So you, as you think about our raise, it's both the first quarter plus the net impact of interest for the -- for the year. Now with respect to second part of your question about price cost neutrality. Yeah. you're correct, what we -- what we are committing to is exiting the year being a price cost neutral. In terms of how that plays out through the course of the year, having pricing conversations with our customers and so can't really give you a good clear signal as to when those are all going to flow through and hit the P&L. So I don't want to -- I'm not going to give -- when I'm going to give clear guidance on Q2, Q3 or Q4 exactly how that flows through because those conversations are fluid.

Stephen Kim -- Evercore ISI -- Analyst

Great. that's very helpful. Thanks, John. The second question just relates to the massive [Phonetic] beat in plumbing sales. It sounds like it was very broad based, it certainly came as a welcome surprise to us and it [Technical Issues] came as a bit of a surprise to you. I just want to make sure that that's correct. Does that mean that things really intensified in February and March. And if you could just provide a little bit of color as you sort of look at it, it sounds like strength is continuing here in April, exactly what would you attribute that to, because I'm inclined to think that it's probably going to persist. So if you could just provide a little bit more context around that, that'd be great.

Keith Allman -- President and Chief Executive Officer

Good morning, Steve, this is Keith. We are seeing demand stronger than we expected in the quarter and we're also feeling better about the back half of the year. When you look across the plumbing segment, we have strong North American growth as we talked about and that really is across all channels. We continue to do very well on retail, obviously the DIY component is strong, our trade plumbing business continues to be strong and we believe we're maintaining our leadership and growing quite nicely in e-commerce, so strong across the board growth in North America and then we're seeing a nice recovery in -- in Europe, as we talked about particularly in Central Europe, the UK is starting to get better confidence both now as we look at what we're seeing [Technical Issues].

Operator

And your next question will come from John Lovallo from Bank of America. Your line is open.

John Lovallo -- Bank of America -- Analyst

Good morning guys and thank you for taking my questions. And the first one is, I think you had previously outlined about $40 million of delayed investments that kind of accumulated during COVID, I'm curious what sort of the cadence that you're expecting of the spend coming back and if in fact this is contemplated to do that 18% SG&A that you expecting for the remainder of the year.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah, John. The $40 million is still contemplated and it's probably more back half loaded and again it's all going to depend on the rate of that investment will depend on what we're seeing on the market, if all of a sudden the market starts to contract will be -- we will temper that investment to ensure that it aligns with the growth that we're -- that we expect to see.

John Lovallo -- Bank of America -- Analyst

Understood. Okay. And then maybe just on the raw mat headwind think you guys talked about mid single-digit range for the full year and high single digits in 3Q and 4Q. Can you just help kind of parse out the difference between the freight inflation versus actual raw mat. inflation.

Keith Allman -- President and Chief Executive Officer

Maybe, maybe I'll start, John, and you can give him some of the specifics. In terms of while we don't normally see this kind of significant commodity changes occurring this quickly, we certainly are no strangers to commodity changes and this is really part of our business and we've consistently communicated, John, and more importantly I think demonstrated our ability to reach price cost neutrality through cycles, and this is included garden variety sort of changes in costs related to the relationship between supply and demand. It's included force majeure kind of spikes in -- in cost and as well as tariffs, which was quite a spike that we were able to cover, so our pricing to cost neutrality capability is really underpinned by this consistent investment that we've had in our brands and innovation and customer programs and the like, as well as our well developed ability to drive total cost productivity and to ultimately deliver value to our customers and consumers that they recognize. So we're going to continue with this commitment, and we will reach price cost neutrality as we exit this year. Now in terms of specifics. John, maybe you want to hit a little bit on some of the commodities and relative spikes that we're seeing.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah, sure. So challenging reference, we're seeing both inflation in our raw material baskets really across the enterprise as well as transportation and logistics and if you think about, how we're being impacted obviously copper-zinc and the resins that they're going to [Technical Issues] had been up pretty significantly. To get to your question specifically, if you break apart the impacts on the financial statements from either raw materials or transportation and logistics, the vast majority of the impact comes from the raw material basket. If you think about distribution and logistics, it's a relatively small part of our overall cost structure. That said, I guess I could repeat your statement, yeah, we do continue to expect inflation to be kind of mid-single digits for the full year and both segments high single digits in the second half of the year and as Keith alluded to, we've secured price increases across our product categories and we do have plans for further price increases to offset the persistent inflation that we've been experiencing. That said, we're not going to shy away, we're going to continue to implement cost productivity improvements across the enterprise as well and then work with both our customers and suppliers to continue to try to offset the inflation, so as we said earlier today in response to Steven's question, we do expect the price cost neutral as we exit 2021.

John Lovallo -- Bank of America -- Analyst

Okay, thank you guys.

Operator

Your next question will come from Michael Rehaut from JP Morgan. Your line is open.

Michael Rehaut -- JPMorgan -- Analyst

Thanks, good morning everyone, thanks for taking my question. I just wanted to make sure we're thinking about the, and I'm sorry to beat a dead horse here, but I think it's top of mind with investors and just trying to appreciate the timing differences around price cost and make sure we're thinking about it right, are you basically saying because earlier you said, OK the higher volume -- on the margin side, you have higher volumes that are offset by higher inflation. Are we to take that is kind of net inflation net of your incrementally expected cost increases -- I am sorry, price increases. In other words, it seems like in a perfect world, if you had higher inflation but you are putting through price increases to offset that, that should be a wash. So are we take that this as there is this continued lag in price cost that you still -- may be chasing at the wrong word and then potentially to the extent that you get a fuller benefit of the price increases in '22 that in and of itself to the extent that the inflation backdrop remains stable. That could actually turn into an incremental tailwind as you fully catch up to the inflation, is that a right way to think about it.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah, Mike, I think you're thinking about it the right way.

Michael Rehaut -- JPMorgan -- Analyst

All right, perfect. And then just more on the overall top line environment, if you could try to go into a little bit around point of sale and inventory levels. What we've heard so far is that from your competitors are, broadly in the industry that the demand backdrop is so robust or continuing to be so robust that the inventory levels have remained constrained. Has that been the case for your businesses in the first quarter, that you haven't been able to restock at any point and is this something that you would expect to perhaps happen in the coming quarters to the extent that you're able to continue to increase production.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah, Michael, the POS is strong and it's, as I mentioned, it's strong through the quarter and exiting the quarter and we feel really -- we feel really good about the POS and that's across really most of, not all of our categories. With regards to the inventory position, the supply chain has been tight. There is no question about it. We've had disruptions and hats off frankly to our -- to our operation team and teams are really across the world to be able to leverage our strengths and also our relationships to be and to work around-the-clock to move production around and to match production to specific demand [Technical Issues], so they've done a phenomenal job. Having said that, we're still working through some tightness and I would say probably, and think about it from a Q3 sort of perspective, that we will catch up and then start to replenish the inventories because our inventories in the channel or where we'd like them to be. So, yeah I think upside to some inventory still in the back half is a right way to think about it.

Michael Rehaut -- JPMorgan -- Analyst

Thank you.

Operator

Your next question will come from Ken Zener from KeyBanc. Your line is open.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Good morning, everybody.

Keith Allman -- President and Chief Executive Officer

Good morning Ken.

John Sznewajs -- Vice President and Chief Financial Officer

Good morning Ken.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

If you could talk about demand a little bit in the plumbing business relative to what you're seeing at retail versus the wholesale versus the new construction, if you could kind of parse that out, trying to think about DIY, plumbing as opposed to, and this is in the, for the US please. Yeah, trying to DIY, plumbing, and price points as opposed to the Pro which I think will benefit more as people are able, professionals able to get into the house and do larger renovation projects.

John Sznewajs -- Vice President and Chief Financial Officer

You know when you think about teasing out the market in terms of DIY and PRO our 2 segments. That's hardest to do in plumbing because of the nature of the channels and the fact that plumbing wholesale does have some DIY component to it, and that we just, it's not possible to get that kind of accurate data in terms of that, but we do know that we have a strong mix of DIY, excuse me of call it retail and wholesale and plumbing, over half our business is in wholesale and wholesale certainly skews more toward the PRO than DIY so [Speech Overlap] about the mix of that business in terms of being there to catch improvements in demand, be that on the PRO side or on the DIY side. We all know about the strength of DIY and we expect the PRO to start to come back as people are more comfortable, having Pros in their homes as vaccinations rollout. Specifically to your question of demand, it really has been broad-based across all channels, real good strength in e-commerce and continued strength in both plumbing wholesale as well as the retail where we lead in terms of share of shelf position, so that's been really -- that's been really good for us and international is a nice story. International, we talked about the strong growth rate there. Our position in Central Europe, China is doing very well, understanding that there was a relatively easy comp there. But all in, it's been pretty broad-based, and that all feeds into why we've raised our confidence level and our guide.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Right. Yeah, its nice and it's to me, you guys mentioned home prices, which is really homeowners equity, it seems as though your sales are tracking with the very high rate of appreciation of homes [Speech Overlap].

John Sznewajs -- Vice President and Chief Financial Officer

Strong correlation, strong real strong correlation between home price and existing home sales, no question about it.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Right. And it seems to me that, could you maybe give us a little context here for demand is high because prices are up assuming your guidance holds which is that you'll be cost neutral by the end of the year. It's certainly seems, gives us some of these input costs related to the Texas storm might be abating next year yet prices are high, and we all know there is a lag on demand from prices, what happens usually when -- when this type of context sets up because it seems like it could be [Phonetic] bonus for you, not asking for FY22, if you're able to pass through the cost do you usually get back costs, otherwise, it seems a higher volume perhaps lead to a margin adjustment as we look down the road, higher.

John Sznewajs -- Vice President and Chief Financial Officer

When you look longer-term through cycles of commodity increases and commodity decreases and it varies depending on the nature of the cost and we have inventory that needs, needs to hit the to hit the P&L, but fundamentally we use raw material cost inputs and that neutrality comes from real solid total cost productivity improvements, it comes from really watching our spend very closely and of course, price is part of that. Now in terms of the impact of how this could play out in future quarters or into next year, it's a real volatile environment, what we're focused on is delivering on what we say we're going to deliver on and ensuring that we continue to drive on the exit of next year -- of this year rather to price cost neutrality and that's what we're committing to.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Thank you.

Keith Allman -- President and Chief Executive Officer

Ken one thing I would point out is [Technical Issues] business, I'd say over time that will probably slightly price favorable in Plumbing just because Hansgrohe

Does a good job of going out annually with price increases.

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Thank you.

Operator

Your next question will come from Keith Hughes from Truist. Your line is open.

Keith Hughes -- Truist -- Analyst

Thank you, question is on PRO paint. I know it was weak in the quarter if you could talk about what you think is going on and what's caused in the quarter acceleration in that business and any kind of April view on that would be helpful as well.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah. Keith sorry about that, it's John. So yeah, you're right, PRO paint was a little bit weak in the first part of the quarter, we did talk about the difficult comp it faced and the fact that we saw some positive growth in the back half [Speech Overlap] quarter, getting a little feedback. So we do believe there is pent-up [Technical Issues] demand and the fact that people are getting more comfortable as the Pro contractors, we do think there is probably a little bit of a weather impact as well in the quarter, as the storm moved through Texas and much of the country in mid-February. And so, as soon as we saw that pass we started to see better growth in that business. And so if you look at, to the full, the back half of the year, we do continue to believe that we should see high single-digit growth as the consumers are really getting more and more comfortable having these contractors come into the home and do larger paint jobs.

Keith Hughes -- Truist -- Analyst

Okay, thank you. And then final question, we talked a lot about cost. If we look at price-cost you talking about your cost peaking in the 3rd quarter. If you look at price-cost when do you think that negative will peak as you head toward period in the years, 2nd quarter, 3rd quarter, 4th quarter any view will help.

Keith Allman -- President and Chief Executive Officer

Yeah, my guess Keith and again it all depends on some of the pricing conversations that we have, probably peaks in the 3rd quarter, and we'll continue to update that on our subsequent calls.

Keith Hughes -- Truist -- Analyst

Okay, thank you.

Operator

Your next question will come from Phil Ng from Jefferies. Your line is open.

Phil Ng -- Jefferies -- Analyst

Hey, good morning everyone. Congrats on a very strong quarter. Given the supply chain dynamics you called out great to see that it really didn't impact you much at all from a revenue perspective in 1Q, but will that have more of an impact in the second quarter as you kind of work down so that inventory you have. I'm particularly curious on any of your exposure where you're important product from Asia and any of the impact that you may be seeing on shortages from resin.

Keith Allman -- President and Chief Executive Officer

Putting comps aside, I am just talking about output and disruptions in terms of what we expect. We think it's getting better, it really feels like it's getting better, we're not through -- through at all yet in terms of the hard work that we need to do in terms of matching inventory to demand, matching production to demand and those sorts of things, still a little bit of tightness and timeliness and containers as we talked about, but it's getting better.

Phil Ng -- Jefferies -- Analyst

Okay, that's great. And then from a pricing standpoint, you know, we all have an appreciation with the pricing power you have in your core plumbing and paint business but curious if you're seeing price traction for your Kichler product and if your competitors have not, just because in -- in 18 there was a little more challenge in that front. And do you anticipate price cost neutrality as well as you kind of exit 2021 in Kichler.

John Sznewajs -- Vice President and Chief Financial Officer

Yes, yes. We're driving that, and that's something that we believe and across the board of Masco and yeah, that would be true of Kichler as well.

Keith Allman -- President and Chief Executive Officer

Kichler is doing well. The team is we committed to working that business and positioning and positioning it to return to growth '21, we're ahead of that plan. The team is doing well. We're seeing good continued solid demand, our new products are doing well on the structural cost alignments that we've talked about in past calls are bearing fruit and the team is doing a nice job.

Phil Ng -- Jefferies -- Analyst

Okay, super. That's really helpful.

Operator

Your next question will come from Susan Maklari from Goldman Sachs. Your line is open.

Susan Maklari -- Goldman Sachs -- Analyst

Thank you. Good morning. My first question is, you know you highlighted the strength that you saw in your e-commerce channels in plumbing in the quarter, can you give us a little more color on what exactly you're seeing there and how you're positioned there and anything that you're taking to kind of increase your exposure to that channel and kind of drive those sales going forward.

Keith Allman -- President and Chief Executive Officer

Sure. We expect to continue to grow obviously as consumers become more comfortable with online purchases in our space, and we also continue to expect rather to continue to gain share. We believe that we're the leader in plumbing in e-comm market and we've worked on a number of things to build and maintain that leaderships, product offering obviously is one, we have put our -- our best and brightest talent on this. We are working very hard across our business unit to leverage learnings quickly to leverage platform like product data management and IT space to leverage the sharing of ratings and reviews to really understand what it takes to be on that first page and to get that 2nd and 3rd click. We're working hard to understand how to drive digital content and 360 degree spends, we're doing a ton of stuff there and also [Technical Issues] capital, we made an acquisition of one of the leading digitally native brands in Kraus, and Kraus is a company that makes, I would say more modern design sinks and faucets and the like and we're learning a lot from them and we're helping them be all they can be as well. So a combination of capital deployment, talent, products, IT, leverage etc. and this is important for us and it's paying off and we've been working at this hard now for 5 years.

Susan Maklari -- Goldman Sachs -- Analyst

Okay, that's helpful color. And my next question is, when we think about the business,you're obviously operating at margins that are ahead of this target that you gave us at the Investor Day. Can you talk to just the longer-term sustainability of some of these trends that you're seeing and how you think about the longer-term margin of the business.

Keith Allman -- President and Chief Executive Officer

Yeah, we're really not changing our margin outlook for the long term. There is a lot of variability in these dynamic times, we think that our normal SG&A spend of around 18% to 19% is where this business should be for maximizing value creation and continuing to invest in growth, in our brands, etc. So no change to our margin outlook at this point, but certainly we have demonstrated and will continue to demonstrate solid drop down on our incremental volume.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah. Susan and I would remind you that our, the information that we gave out on our 2019 Investor Day had a lot of very different assumptions related to it. It was a very different environment. We assumed a much lower growth for the period. So it was, I would not consider those as our current guide for the long term of the business.

Susan Maklari -- Goldman Sachs -- Analyst

Okay.

Keith Allman -- President and Chief Executive Officer

I'm sorry if I missed that. We're talking about our markets this year.

John Sznewajs -- Vice President and Chief Financial Officer

Yeah. We know, I think the way we think about it now. Susan, again what we articulated on our Q4 call is that continue to challenge our businesses to grow above market and continue to have our businesses expand margin every year, and again it's not hundreds of basis points of margin expansion, but rather 10s of basis points of margin expansion.

Susan Maklari -- Goldman Sachs -- Analyst

Yeah. Okay, John. Thank you. That's helpful. Good luck.

Operator

Your next question will come from Truman Patterson from Wolfe Research. Your line is open.

Truman Patterson -- Wolfe Research -- Analyst

Hi, good morning everyone and thanks for taking my questions. First, I just wanted to dig in on the Decorative Architectural side, especially the DIY demand. Could you give anything full update. Are you seeing any deceleration or pretty much in line with what you'd expect seasonally and if I'm kind of parsing out the guidance, it looks like you all are expecting DIY to be down. The remainder of the year, but you know the commentary on the call so far has been, I'll just put it pretty optimistic. Just trying to understand some of the moving parts there and whether or not there is maybe a little bit of conservatism built in.

Keith Allman -- President and Chief Executive Officer

The DIY demand continues to be strong, obviously we've got tough comps coming up in the back half of the year, but in terms of the demand, the actual demand that we're seeing, it continues to be -- it continues to be strong. There's no question about it. Certainly the pandemic has increased the interest in people's homes and we don't view the vaccine, the rollout, as being a necessarily a switch that is flipped as it relates from the work from home -- relates to the work from home environment or the, the amount of time that people are spending in their homes, and clearly the millennial demographic and cohort has shown interest as we look at first time DIYers and we look at that cohort and we expect that to continue. So yes, we have, we have some tough comps coming up no question about it, but the demand remains strong.

Truman Patterson -- Wolfe Research -- Analyst

Okay, OK thanks for that. And then also in the Spa business, I believe you all said it was growing double-digits, so a nice improvement there, but can you just discuss how the backlog, the order backlog is looking and you all mentioned supply chain constraints throughout Mexico. Could you just give us a timeline when you somewhat expect that to be operating close or at full capacity.

Keith Allman -- President and Chief Executive Officer

Yeah, we're getting, we're getting better and we were starting to approach that capacity -- that full capacity, if you will, as we were bringing in our Mexican labor force to a greater degree and getting more output from that, but then we had these issues around resin and then there is tightness there and we've missed some production on some selected units that require certain type of blended resins. But the demand there continues to be extremely robust, and we have a very solid backlog that has not changed. And as we get through this short-term blip here from the polar vortex in Texas and the resin tightness, this business will start to quickly approach stated production.

Truman Patterson -- Wolfe Research -- Analyst

All right, thank you all and good luck on the quarter.

Keith Allman -- President and Chief Executive Officer

Thank you.

Operator

Your next question will come from Steven Ramsey from Thompson Research. Your line is open.

Steven Ramsey -- Thompson Research Group -- Analyst

Hi, good morning. One quick followup on the Spa business. In the full year guide, do you have Spa operating at full production and generating full margins for the year.

Keith Allman -- President and Chief Executive Officer

We're expecting strong double-digit growth for Watkins in '21.

Steven Ramsey -- Thompson Research Group -- Analyst

Okay, great. And then thinking about price-cost and getting to neutral or I guess surcharges a part of that is that being contemplated for pricing such as resins and this where price cost by product, you expect to be price cost neutral on all products.

Keith Allman -- President and Chief Executive Officer

So we have a number of levers that we can do to drive cost improvements and price cost neutrality, we view surcharges in the past and we were certainly contemplating and using some of those here as we sit today. In terms of saying that every -- every product will be price-cost neutral, there's just such variability in cost inputs depending on the type of specific product that I won't say that, but when you look across our business, we will exit this year price cost neutrality.

Steven Ramsey -- Thompson Research Group -- Analyst

Excellent. Thank you.

Operator

And your next question will come from Eric Bosshard from Cleveland Research. Your line is open.

Eric Bosshard -- Cleveland Research -- Analyst

Good morning.

Keith Allman -- President and Chief Executive Officer

Good Morning Eric.

Eric Bosshard -- Cleveland Research -- Analyst

Two things -- two things, first of all, can you give us a little bit more insight the deferred marketing spend, I think 40 million you've talked about. What is that made up of and also curious related to that or maybe a part of that is promotional investment on your part. And what you're seeing go on this year. What you're doing across your business sort of the retailers are asking for in regards to promotional activity.

John Sznewajs -- Vice President and Chief Financial Officer

Yes Eric. So it's a big basket of things that go into marketing so things -- things like trade shows that we obviously -- we had been pulled back and some of them are beginning to, going to come back online as people get back and some of it is advertising, some of it is personnel, some of it is investment in e-commerce and Keith referenced in response to an earlier question. So there is a variety of things that go into and there's also some growth initiatives to point to some promotional activity. This goes into that bucket as well. So it's a big basket as things go across the entire segment.

Eric Bosshard -- Cleveland Research -- Analyst

Okay and then just a follow-up your clarity on the Pro paint paths from here was helpful. On DIY, I appreciate that the businesses continue to be very strong and which is great to hear. But in terms of the growth of the DIY business now that you're running against these tough comparisons, what should we be expecting in terms of the growth out of that business as we move forward.

John Sznewajs -- Vice President and Chief Financial Officer

I probably think of it in that flattish range last year. [Speech Overlap].

Eric Bosshard -- Cleveland Research -- Analyst

Helpful. Thank you.

Operator

And your final question for the day will come from Mike Dahl of RBC Capital Markets, your line is open.

Mike Dahl -- RBC Capital Markets -- Analyst

Hi, thanks for squeezing me in. I have one more question on price productivity, I appreciate the sensitivity around the pricing side, but anything around just qualitatively at a high level when you think about covering the cost how much is price versus productivity into the pretty balances as it see more toward price, just any color there. And the second part would be you've already talked about some of the weight, you continue to generate cost productivity, but some costs are also going to return. So just that you've mentioned the levers that are left. Could you elaborate a little bit more on you've obviously done a great job on productivity, just where is the incremental productivity coming from.

John Sznewajs -- Vice President and Chief Financial Officer

Sure. So Mike, a couple of questions. You think about the weighting of price versus productivity in offsetting inflation, just given the nature of the rapid increase in the amount of inflation that we're seeing, internationally going to be more price and productivity to offset that or to get to price cost neutrality. In terms of our productivity measures. I'll start and maybe take it over to Keith to clarify a bit. Our teams have done a great job over multiple years, driving productivity within our operations. And it's not just on the plant floor, it's also in the administrative part of the operations and we challenge our teams every year to get more efficiency in a variety of ways and so we do TCP goals for total cost productivity goals for each of our businesses, Keith can give some examples.

Keith Allman -- President and Chief Executive Officer

Yeah, I think from a dollars and cents per [Technical Issues], the greatest productivity comes from volume leverage and when you look at our consistent and steady and repeatable dropdown, say it's 30% and incremental volume for Plumbing and maybe closer 25 in the deco segment, that conversion efficiency is very helpful to us. Obviously there is direct labor productivity, we have, that we have hired a lot of people and as those people become more familiar with our systems and how to work that naturally drives productivity that we're consistently and constantly looking for material substitution and value engineering where we can take a 4-part assembly and make it a 2-part machine or an injection molding that sort of thing. So it's really a combination of shop floor, labor productivity, working with our suppliers and making sure that we have the most cost-effective way to meet customer requirements. So we don't want to mess or miss any customer requirements. So it's really all part and parcel of the Masco Operating System with a good dose of volume leverage.

Mike Dahl -- RBC Capital Markets -- Analyst

That's great, very helpful. I'll leave it there, Thanks.

David Chaika -- Vice President, Treasurer and Investor Relations

That concludes today's call. I would like to thank all of you for joining us this morning and for your continued interest in Masco. As always, please feel free to contact me at 313-792-5500 if you have any further questions. Thank you. [Operator Closing Remarks]

Duration: 60 minutes

Call participants:

David Chaika -- Vice President, Treasurer and Investor Relations

Keith Allman -- President and Chief Executive Officer

John Sznewajs -- Vice President and Chief Financial Officer

Matthew Bouley -- Barclays -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

John Lovallo -- Bank of America -- Analyst

Michael Rehaut -- JPMorgan -- Analyst

Kenneth Zener -- Keybanc Capital Markets -- Analyst

Keith Hughes -- Truist -- Analyst

Phil Ng -- Jefferies -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

Truman Patterson -- Wolfe Research -- Analyst

Steven Ramsey -- Thompson Research Group -- Analyst

Eric Bosshard -- Cleveland Research -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

More MAS analysis

All earnings call transcripts

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