Masco delivered a clean beat and a third consecutive guidance raise. Adjusted earnings of $1.19 per share topped the $1.01 consensus by 17.8% and grew 22.7% year over year. Revenue of $1.966 billion beat expectations by 1.9% and rose 2.6%. The more important development is the source of the latest raise. Full-year adjusted EPS guidance moved to $4.65-$4.75 from $4.40-$4.60, and management attributed the increase to operating performance. The roughly $85 million net tariff refund that drove the prior raise was already in the numbers. That makes this a higher-quality upgrade. The central tension is that it arrives alongside flat demand, an implied fourth-quarter slowdown, and input-cost inflation that is accelerating into 2027.
The margin story is real. Adjusted gross margin expanded 250 basis points to 37.1%. Adjusted operating profit rose 13% to $351 million, and operating margin widened 160 basis points to 17.9%. Plumbing did nearly all the work. Segment sales rose 4%, and adjusted operating margin jumped 320 basis points to 19.1% on roughly 5% price and 2% North American volume growth.
The quality of the per-share beat still deserves some scrutiny. Adjusted net income grew about 15%, while diluted shares fell to 196 million from 209 million. Buybacks therefore supplied a meaningful share of the 23% EPS growth. Year to date, Masco has repurchased $852 million of stock against $788 million of operating cash flow and is working toward roughly $1 billion. To help fund this, the company drew a $300 million term loan, which lifted long-term debt to $3.25 billion and pushed shareholders' equity to a $193 million deficit. Separately, adjusted SG&A rose to 19.2% of sales from 18.4%, and corporate expense increased to $31 million from $20 million.
The call explained why the plumbing rebound should be read with some caution. North American plumbing grew 8% in local currency. That was a sharp swing from a 6% decline in the second quarter, and growth spanned trade, retail, and e-commerce with share gains in both dollars and units. However, management acknowledged easy comparisons against peak China tariff disruption a year ago. International plumbing fell 5% in local currency, or 1% excluding the Bristan divestiture, on tough European comparisons and continued weakness in China.
Decorative Architectural was flat. Pro paint grew mid-single digits again, while DIY declined low single digits, a weakness management tied to trough existing-home sales. Segment adjusted margin of 20.1% was essentially flat with last year but well below the 22.6% posted in the second quarter. Even so, management raised full-year decorative margin guidance to about 19.5% as restructuring savings beat plan. It also implied the segment will return to growth in the fourth quarter, which would be the first time since 2022.
The forward-looking picture is mixed. Full-year operating margin guidance rose again to 18%-18.5%, and plumbing sales are now expected toward the high end of low single digits. Overall sales guidance, however, remains low single digits. The implied fourth quarter points to slower sales and flat-to-down year-over-year margins, weighed by higher incentive compensation and medical costs. Input inflation in copper, oil-based products, and freight is now running mid-single digits, up from low single digits in the first half. Management expects it to flow through with a one- to two-quarter lag and would not rule out spillover into early 2027. Management's tone has shifted from "prudent" earlier in the year to "we have momentum," supported by new marketing and technology leadership and Home Depot partner awards for Delta and Behr. Yet the release itself still describes the near-term demand environment as challenged.
Investors entered the report more skeptical than they were last quarter. Earnings Whispers sentiment slipped from -0.09 to -0.23, a meaningful move deeper into negative territory. The stock has gone nowhere on balance. At $75.17 ahead of the report, shares were 0.9% below the open following the July release, although that flat result hides considerable volatility. The stock fell to an inter-earnings low of $66.26 on October 1, then rallied 13.5% in the weeks before the report. It peaked at $78.11 on October 22 and finished 3.8% below that high and 6.3% above its 200-day moving average. Momentum and AVWAP trend readings are positive, while sequential growth remains negative, which fits a business improving profitability faster than it is growing sales.
The bottom line is that Masco produced an operationally driven beat-and-raise with genuine plumbing margin expansion, which bears can no longer dismiss as a tariff-refund story. Bears still have legitimate ammunition. Demand is flat, comparisons were favorable, buybacks are amplifying EPS with borrowed money, and the implied fourth quarter points to slower sales and pressured margins as cost inflation builds. With the stock having rallied into the print against souring sentiment, the durability of margins into 2027 is now the key question.