What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-10 compared with 2025-02-11 · 45 added, 60 removed, 245 unchanged (30% of the section changed)

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We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives.

We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders.

We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and customer service and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders.

We continue to leverage the Masco Operating System, our methodology to drive growth and productivity, and continuous improvement initiatives across our enterprise to identify additional opportunities to improve our business operations.

From time to time, we may take actions to drive efficiency in the business focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions and other cost savings initiatives.

From time to time, we take actions to drive efficiency in the business focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions and other cost savings initiatives.

In the fourth quarter of 2025, we began implementing various restructuring actions to further streamline our business, reduce headcount, and optimize operations.

In connection with these actions, we incurred charges of approximately $18 million in the fourth quarter of 2025, and we expect to incur approximately $50 million in additional charges in 2026.

Additionally, subsequent to December 31, 2025, we announced that we will implement an internal reorganization resulting in the integration of our Liberty Hardware (“Liberty”) business, a distributor of cabinet and other hardware and shower doors, into our Delta Faucet business.

As a result of the integration, beginning with our Quarterly Report on Form 10-Q for the period ending March 31, 2026, Liberty will be included in our Plumbing Products segment rather than our Decorative Architectural Products segment.

Recent Trends

Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for our products.

We also have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation.

We aim to offset the potential unfavorable impact of our elevated costs and lower demand for our products with productivity improvements, pricing, and other initiatives.

We have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation.

Additionally, we have been experiencing, and may continue to experience, significantly higher costs to us, principally in our Plumbing Products segment, due to the recently enacted tariffs, particularly those related to China.

We seek to mitigate the impact of higher tariffs and other unfavorable impact to our costs over time with pricing, cost savings initiatives, sourcing changes, and other activities.

Consumer demand for our products, however, could further diminish if consumer confidence erodes and the price of our products and other consumer goods increases.

Consolidated Results of Operations

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Net sales, as reported $ 7,562 $ 7,828 (3) %

Acquisitions (58) —

Divestitures — (178)

Net sales, excluding acquisitions and divestitures 7,770 7,895 (2) %

Net sales, excluding divestitures 7,562 7,650 (1) %

Currency translation (45) —

Net sales, excluding acquisitions, divestitures and the effect of currency translation $ 7,802 $ 7,895 (1) %

Our net sales for 2024 were $7,828 million, which decreased two percent compared to 2023.

Excluding acquisitions, divestitures, and the effect of currency translation, net sales decreased one percent.

Our net sales for 2024 decreased primarily due to lower sales volume of North America plumbing products, lower net selling prices of decorative architectural products, and unfavorable sales mix of plumbing products which each decreased sales by one percent.

These amounts were partially offset by higher net selling prices of plumbing products which increased sales by one percent.

Net sales, excluding divestitures and the effect of currency translation $ 7,517 $ 7,650 (2) %

Our net sales for 2025 were $7,562 million, which decreased three percent compared to 2024.

Excluding divestitures and the effect of currency translation, net sales decreased two percent.

Our net sales for 2025 decreased primarily due to lower sales volume across the entire company which decreased sales by four percent, partially offset by higher net selling prices of plumbing products which increased sales by two percent.

RESULTS OF OPERATIONS

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Impairment charge for other intangible assets

Insurance settlement

— (40) (100) %

Operating profit, excluding rationalization charges, impairment charge, and insurance settlement

Operating profit, excluding rationalization charges and impairment charge

$ 1,272 $ 1,372 (7) %

Operating profit margin, as reported 16.5 % 17.4 % (90) bps

Operating profit margin, excluding rationalization charges, impairment charge, and insurance settlement

Operating profit margin, excluding rationalization charges and impairment charge

16.8 % 17.5 % (70) bps

Our gross profit for 2024 was $2,831 million, which remained flat compared to 2023.

Gross profit was negatively impacted by one percent due to the non-recurrence of the receipt of an insurance settlement payment in 2023, as well as unfavorable sales mix, and one percent each due to lower sales volume and unfavorable foreign currency translation.

These amounts were mostly offset by cost savings initiatives and one percent due to higher net selling prices.

Our selling, general and administrative expenses for 2024 were $1,468 million, which remained flat compared to 2023.

Selling, general and administrative expenses were positively impacted by one percent each due to the divestiture of Kichler in the third quarter of 2024 and lower sales commissions, mostly offset by two percent due to higher employee-related costs.

Our operating profit for 2024 was $1,363 million, which increased one percent, and was positively impacted by the non-recurrence of an impairment charge for other intangible assets in 2023.

Our gross profit for 2025 was $2,679 million, which decreased five percent, and was negatively impacted by higher commodity and tariff costs, four percent due to lower sales volume, two percent due to the divestiture of our Kichler Lighting ("Kichler") business, as well as an increase in other expenses (including inventory-related reserves).

These amounts were partially offset by five percent due to higher net selling prices of plumbing products, as well as cost savings initiatives.

Our selling, general and administrative expenses for 2025 were $1,426 million, which decreased three percent, and were positively impacted by three percent due to the divestiture of Kichler and one percent due to lower employee-related costs, partially offset by one percent due to unfavorable foreign currency translation.

Our operating profit for 2025 was $1,248 million, which decreased eight percent, and was negatively impacted by decreased gross profit and an impairment charge for other intangible assets, partially offset by lower selling, general and administrative expenses.

OTHER INCOME (EXPENSE), NET

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$ (114) $ (202) 44 %

Other, net included a loss on the sale of Kichler Lighting ("Kichler") of $88 million, inclusive of costs to sell, for the year ended December 31, 2024.

Other, net included a loss on the sale of Kichler of $88 million, inclusive of costs to sell, for the year ended December 31, 2024.

Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2025 and 2024:

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Effective tax rate (24.4) % (24.7) % 30 bps

Our 2023 income tax expense included a $29 million state income tax benefit, net of federal expense, from the recognition of certain state deferred tax assets due to a legal restructuring of certain U.S.

businesses that occurred in early 2024.

This state income tax benefit did not recur in 2024.

Refer to Note P to the consolidated financial statements for additional information.

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Business Segment Results

The following table sets forth our net sales and operating profit information by Business Segment, dollars in millions.

The following tables set forth our net sales and operating profit information by Business Segment, dollars in millions.

Year Ended December 31, Percent Change

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Plumbing Products

Net sales in the Plumbing Products segment were flat in 2024.

In local currencies (including sales in currencies outside their respective functional currencies), net sales increased one percent in 2024.

Higher net selling prices increased sales by two percent and the acquisition of Sauna360 Group Oy ("Sauna360") in 2023 increased sales by one percent.

These increases were mostly offset by lower sales volume and unfavorable sales mix which each decreased sales by one percent.

Net sales in the Plumbing Products segment increased three percent in 2025.

In local currencies (including sales in currencies outside their respective functional currencies), net sales increased two percent in 2025.

Net sales increased three percent due to higher net selling prices, partially offset by one percent due to lower sales volume.

Operating Results

Operating profit in the Plumbing Products segment in 2024 was positively impacted by cost savings initiatives and higher net selling prices, partially offset by higher commodity costs, unfavorable sales mix, lower sales volume and higher employee-related costs.

Operating profit in the Plumbing Products segment in 2025 was negatively impacted by higher commodity and tariff costs, an increase in other expenses (including inventory-related reserves), lower sales volume, unfavorable sales mix, an increase in strategic growth investments, and higher marketing costs, partially offset by higher net selling prices, cost savings initiatives, and the gain on the sale of a building.

Decorative Architectural Products

Net sales in the Decorative Architectural Products segment decreased five percent in 2024, primarily due to the divestiture of Kichler in the third quarter of 2024, lower net selling prices across the segment and lower sales volume of builders' hardware products, partially offset by higher sales volume of paints and other coating products.

Net sales in the Decorative Architectural Products segment decreased 14 percent in 2025, primarily due to lower sales volume which decreased net sales by eight percent and the divestiture of Kichler which decreased net sales by six percent.

Operating Results

Operating profit in the Decorative Architectural Products segment in 2024 was negatively impacted by lower net selling prices and the non-recurrence of the receipt of an insurance settlement payment in 2023, partially offset by cost savings initiatives, the non-recurrence of an other intangible asset impairment charge in 2023 and lower sales commissions.

Operating profit in the Decorative Architectural Products segment in 2025 was negatively impacted by lower sales volume and higher commodity and tariff costs, partially offset by cost savings initiatives and lower marketing costs.

Liquidity and Capital Resources

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Our capital allocation strategy includes reinvesting in our business, maintaining an investment grade credit rating, maintaining a relevant dividend and deploying excess free cash flow to share repurchases or acquisitions.

We had cash and cash investments of approximately $634 million at both December 31, 2024 and 2023.

We had cash and cash investments of approximately $647 million and $634 million at December 31, 2025 and 2024, respectively.

Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.

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Capital expenditures for 2025 were $156 million, compared with $168 million for 2024.

The decrease in capital expenditures in 2024 was primarily due to capacity expansion plans in our Plumbing Products and Decorative Architectural Products segments in 2023.

The decrease in capital expenditures in 2025 was primarily due to a capacity expansion investment in our Decorative Architectural Products segment in 2024.

For 2026, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $190 million.

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We were in compliance with all covenants and no borrowings were outstanding under our 2022 Credit Agreement as of December 31, 2025.

Short-term Borrowings

On May 9, 2023, our Hansgrohe SE subsidiary entered into €70 million ($77 million) of short-term borrowings to support working capital needs.

The loans contained no financial covenants and the entire balance was repaid as of December 31, 2023.

364-day Term Loan

On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan (the "term loan") due April 26, 2023 with a syndicate of lenders.

The term loan and commitments thereunder were subject to prepayment or termination at our option and the loans bore interest at SOFR plus a spread adjustment and 0.70%.

The covenants, including the financial covenants, were substantially the same as those in the 2022 Credit Agreement.

We repaid $300 million during 2022 and the remaining $200 million upon the maturity of the term loan on April 26, 2023.

Corporate Development Strategy

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We will continue to review all of our businesses to determine which businesses, if any, may not align with our long-term growth strategy.

In the third quarter of 2023, we acquired all of the share capital of Sauna360 for approximately €124 million ($136 million), net of cash acquired.

Sauna360 has a portfolio of products that includes traditional, infrared, and wood-burning saunas as well as steam showers.

In the third quarter of 2024, we sold our Kichler business, a provider of decorative residential and light commercial lighting products, ceiling fans, and LED lighting systems, for consideration of $125 million, net of cash disposed, and subject to final closing adjustments.

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At December 31, 2025, we had $325 million remaining under the 2022 authorization.

Effective February 10, 2026, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2022.

Consistent with past practice and as part of our long-term capital allocation strategy, outside of any potential acquisitions, we anticipate using approximately $600 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation programs) in 2026.

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Total cash dividends paid was $261 million in 2025.

As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.31 per share in the first quarter of 2025 with the intention to increase the annual dividend 7 percent to $1.24 per share.

As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.32 per share in the first quarter of 2026 with the intention to increase the annual dividend three percent to $1.28 per share.

Other Liquidity and Capital Resource Activities

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Dividends paid to noncontrolling interest (45) (37)

Proceeds from short-term borrowings — 77

Payment of short-term borrowings — (77)

Payment of term loan — (200)

Proceeds from the exercise of stock options 6 79

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Capital expenditures (156) (168)

Acquisition of businesses, net of cash acquired

Proceeds from disposition of business, net of cash disposed 126 —

Acquisition of business, net of cash acquired

Proceeds from disposition of:

Business, net of cash disposed — 126

Property and equipment 14 1

Effect of exchange rate changes on cash and cash investments 25 (9)

Other, net (3) (5)

Cash (decrease) increase $ (1) $ 182

Cash increase (decrease) $ 14 $ (1)

Our working capital days were as follows:

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Operating Activities

Net cash provided by operations was $1,075 million, primarily driven by operating profit, partially offset by changes in working capital.

Net cash provided by operations was $1,022 million, primarily driven by operating profit and the change in deferred taxes as a result of the cash tax benefit associated with immediate expensing of qualified fixed assets and research and development expenditures from the enactment of the One Big Beautiful Bill Act, partially offset by changes in working capital.

Financing Activities

Net cash used for financing activities was $1,017 million, primarily due to $751 million for the repurchase and retirement of our common stock, $254 million for the payment of cash dividends, $37 million for dividends paid to noncontrolling interest, $35 million for employee withholding taxes paid on stock-based compensation, and $15 million for the purchase of the remaining equity interest in Easy Sanitary Solutions B.V.

These uses of cash were partially offset by $79 million of proceeds from the exercise of stock options.

Net cash used for financing activities was $888 million, primarily due to $571 million for the repurchase and retirement of our common stock, $261 million for the payment of cash dividends, and $45 million for dividends paid to noncontrolling interest.

Investing Activities

Net cash used for investing activities was $50 million, primarily driven by $168 million of capital expenditures, partially offset by $126 million of proceeds from the sale of Kichler.

Net cash used for investing activities was $144 million, primarily driven by $156 million of capital expenditures.

Commitments and Contingencies

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Amounts include finance lease obligations.

(B) Includes purchase commitments for vendor contracts and contracts for the purchase of renewable energy credits and transferable tax credits.

(B) Includes purchase commitments for vendor contracts and contracts for the purchase of renewable energy certificates and transferable tax credits.

Excludes contracts that do not require volume commitments and open or pending purchase orders.

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If the carrying amount of an other indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized to the extent that an other indefinite-lived intangible asset's recorded carrying value exceeds its fair value, not to exceed the carrying amount of the other indefinite-lived intangible asset.

In the fourth quarter of 2024, we estimated that the future discounted cash flows projected for all of our other indefinite-lived intangible assets were greater than the carrying values.

Accordingly, we did not recognize any impairment charges for other indefinite-lived intangible assets.

A 10 percent decrease in the estimated fair value of our other indefinite-lived intangible assets would have resulted in a $1 million impairment of one of our other indefinite-lived intangible assets.

In the fourth quarter of 2025, we recognized a $5 million non-cash impairment charge related to a registered trademark within our Decorative Architectural Products segment due to the loss of a customer in our paint applicator business.

As of December 31, 2025, the impaired other indefinite-lived intangible asset had a remaining net carrying value of $2 million.

A 10 percent decrease in the estimated fair value of our other indefinite-lived intangible assets would not have resulted in an additional impairment, except for the previously mentioned registered trademark.

Refer to Note H for additional information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis