Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.
Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearinghouses around the world. Now welcome Inside the ICE House, here's your host, Josh King, of Intercontinental Exchange.
Josh King:
As our listeners know well by now, Intercontinental Exchange or ICE as we call it around here, that's NYSE ticker symbol ICE, has made a $20 plus billion bet on the mortgage ecosystem with its acquisition of Ellie Mae in 2020 and Black Knight now just a couple of months ago.
To be honest, with 30-year fixed interest rates scratching 8%, 2023 was a challenging year for the real estate industry. But as ICE's Founder and CEO, Jeff Sprecher said on our third quarter earnings call back on November 2nd of last year, I'm going to quote Jeff here, "The same economic stress that exists in the current US mortgage market is in converse fueling growth on our commodity hedging and credit protection platforms, which benefited ICE's record third quarter earnings. We are positioning ourselves to transform the US mortgage market while it is under stress with a goal to create opportunities to spring-load our future growth and contribute to our all-weather earnings and dividend growth road map." So said Jeff. Spring-loading future growth. I'll hold my ICE shares, thank you very much.
I'm also keeping my eye on the major home builders, Toll Brothers, that's NYSE ticker symbol TOL, Lennar ticker symbol LEN, and KB Home, KBH, which had pretty spectacular years in 2023. As one account of Toll Brothers' fiscal fourth quarter stated, "Toll Brothers reported Tuesday earnings hitting an all-time high this year as interest rate hikes and high mortgage rates stifled the supply of existing homes boosting the market share for new homes." Now, Toll Brothers has a lot of building to do. They reported a backlog value of 6.95 billion with the average price in the backlog of 1.056 million for each of those homes. As Toll's CEO Doug Yearley said on his earnings call, I'm going to quote Doug here, "With resale inventories at historic lows, buyers continue to be drawn to new homes, and we expect lower rates with lower inflation to add to this already solid demand."
Now, according to the National Association of Realtors, there's currently a deficit in this country of 5.5 million homes. That's 5.5 million new kitchens, family rooms, and man caves to be built with exquisite cabinetry, one of the principle in-demand components. That all rings in I think as good news for our guest today, Dave Banyard, CEO of MasterBrand, NYSE ticker symbol MBC, the largest residential cabinet manufacturer in North America.
Our listeners may recall that back in September we welcomed to the podcast Nick Fink, CEO of Fortune Brands Innovations, that's ticker symbol FBIN, for his second go-round Inside the ICE House, which spun out MasterBrand into its own independent publicly traded company here on the New York Stock Exchange. The machinations that led to the former Fortune Brands & Home Security board to put Dave Banyard into the pilot seat of MasterBrand knew what they were doing, as Dave's a former Navy fighter pilot guiding the company now and its 14,000 employees into the future. In a minute, our conversation with Dave Banyard on the future of the American home. That's all coming up right after this.
Speaker 3:
Now a word from Stellantis, NYSE ticker STLA.
Speaker 4:
Their grandfather once crashed an auto show by driving through a plate glass window. On purpose. Their father was the most awarded SUV ever, and their crazy uncle raced sports cars and won. While the blood of their relatives still runs true, none of them can do what these can. Introducing the next generation of Jeep Grand Cherokee, available in two-row, three-row and 4xe. The legacy lives on.
Josh King:
Welcome back Inside the ICE House. Remember to subscribe wherever you listen to your podcasts and rate and review us on Apple Podcasts so people know where to find us.
Our guest today, Dave Banyard, is the President and CEO of MasterBrand Inc., NYSE ticker symbol MBC. He's been in the role since December 2022 when MasterBrand spun off from Fortune Brands Innovations, now NYSE ticker symbol FBIN. Prior to MasterBrand, Dave had experience at Myers Industries, that's MYE, Roper Technologies and at the Danaher Corporation, ticker symbol DHR. Prior to his corporate journey, Dave had an 11-year career in the United States Navy as a fighter pilot. Dave, thanks so much for joining us Inside the ICE House. Welcome back to the New York Stock Exchange.
Dave Banyard:
Thanks for having me.
Josh King:
Your memories of prior visits here?
Dave Banyard:
A little bit of a blur last year I will say, but great celebration with the team as we came together, not only for our investor day but then to ring the bell a couple days after we started trading regular way. We had a lot of fun last year in New York in December.
Josh King:
How's the last 12 months gone, would you say?
Dave Banyard:
Remarkably well, in a lot of ways. I get asked the question a lot from investors about how the first year is, and what really strikes me is how well the team acclimated to being on our own. We were part of a much larger company for a long period of time and to some extent you don't know how that's going to go. I think we were well-prepared, but it's been very smooth this year, and ultimately operationally we've done really well, and that's really what matters the most. We love executing well as a company, and it's been fun to watch the team execute this year.
Josh King:
Talking about the team executing, on Saturday I made the trip to Gillette Stadium for the 124th Army-Navy game. My son is a plebe in the class of '27 with Navy, so we took the family trip up north to support the Mids. I know that you've been in Manhattan over the last couple of days, but as a Navy guy yourself, were you able to head to Foxborough and take in the pageantry and atmosphere of America's game?
Dave Banyard:
I was not an Annapolis grad, so I don't have the same affinity for the Army-Navy game, but I do root for Navy obviously. It was a little slow on the offensive side, let's put it that way.
Josh King:
At least for the first three quarters. The final quarter showed a little life-
Dave Banyard:
They finally figured it out.
Josh King:
But Coach Newberry has also been in his role for about 12 months and he's figuring out his way, but a record of 5-7 probably will get the folks in Annapolis wanting to see how they can turn things around for next season.
Back in the day, Dave, you were a member of Strike Fighter Squadron 83 and Squadron 86, which fly F-35s now, but probably were F-18 Hornets back when you were in the cockpit. They did a spectacular fly over Gillette and their comrades in arms are now on station in the Middle East on the USS Gerald Ford CBN 78. How's the quality of America's naval aviator evolved since your time in service?
Dave Banyard:
It's an interesting question. I think ultimately it's a cadre of people who are very dedicated. They obviously want to serve this country and serve with distinction. Naval aviators are an interesting breed though because it's a very difficult job from start to finish, where if you're flying off an airfield, it's a fairly mundane part of the process to take off and land. When you're a naval aviator, it doesn't end until you are back aboard the ship and you're chained down on deck. You have to be on point all the time. It takes a certain kind of individual to really want to do that. I loved my time in the Navy. They're great people all the way from the folks that work on the flight deck all the way up to the folks that I flew with. I have a strong affinity for that group of people, and I think, I hope that they're still a very strong group of people and I'm sure they are.
Josh King:
Did you have any hairy moments trying to catch the tailhook?
Dave Banyard:
Every night landing is always difficult, I'll put it that way. I remember doing my last one and saying, "I'm glad I don't have to do this again."
Josh King:
Skipping now to present-day Dave, do you concur with Jeff Sprecher and Doug Yearley about the prospects of the housing market in 2024? What's your assessment of the industry today?
Dave Banyard:
I think it's interesting. The housing market, I'll comment mostly looking backwards. We haven't given any guidance yet for 2024, but I'd say the market after several years of what I'd call a wild ride in many ways, not only in terms of demand but also in terms of how to deliver that demand. It's been challenging, exciting, but also very different than normal. I'd say 2023, we've come back to normal in a lot of ways with the exception obviously of existing home turnover, which has been at historic lows over the past couple of months.
I think the market's behaving more normally, but there's a lot of interest in housing out there. I think people, as they feel wealthier, want to own their own home. It's part of the American dream, and I think you're seeing a lot of that, particularly in the companies that you highlighted in new construction where people really want to own their own home and take a lot of pride in that. There's a resilience underneath that that has powered through what is also a historic rise in interest rates, which is impressive to see. I'm optimistic about the American homeowner and the folks that want to buy homes because I think there's a lot of pride in that. I don't know if I would agree with the five million home deficit that you talked about, but it's still high. It's maybe three million, but there's a lot of need for housing out there.
Josh King:
For MasterBrand, what's the mix of supplying and outfitting new homes versus renovation and retrofit?
Dave Banyard:
About a third of our business is new construction, and we focus solely on single family new construction, not multifamily. Then the other two-thirds is repair and remodel.
Josh King:
Starting with the bell ringing last year, Dave, you've been in the unique position of now leading a public company instead of being part of the executive leadership team of a public company. How has that changed your job and your leadership style?
Dave Banyard:
I don't think it's changed my leadership style. That's been developed over years. It started with what I learned in the Navy and perhaps even before that. But I think in terms of my job, there's a lot more to do externally from an investor standpoint that I didn't have to do before. I think between myself and our CFO, Andi Simon, our jobs have changed the most. The nice part is everybody else in the company really hasn't had to change a lot, and they continue to do what they do really well, which is deliver for our customers every day. We were consistent about that throughout the transition.
Josh King:
How do you cotton to that work, you and Andi? I mean, you are here in New York probably paying visits to investors as well, and you have to get in front of the microphones every quarter and give the news good or bad.
Dave Banyard:
To me it's fun telling your story If you're having fun doing what you do, it's fun to tell your story about what you're doing. Obviously there's going to be some times when it's harder to tell that story, but I think it's a lot of fun to talk about what our team does because I think they do a phenomenal job at it, so that makes it a lot easier for me.
Josh King:
You grew up in New Jersey and studied economics at Princeton, and after getting your degree you decided to join the Navy. Princeton to the US military was also the route followed by the former Chairman of the Joint Chiefs, Mark Milley, a Tigers hockey player from my home State of Massachusetts. What inspired you to push off a potential corporate career and instead pursue military service?
Dave Banyard:
I think it was two things. I mean, I definitely had a desire to serve in some capacity serve our country. The reason I gravitated towards the Navy was I wanted to do it in a leadership position. I wanted to learn how to be a leader. The Navy training program, both with how you learn how to fly, but also how you learn how to be a leader, is very much a throw you into the fire and see how you do kind of learning evolution. You become a leader from day one.
People think my primary job was to be the pilot. That was a secondary job. My primary job was to lead in the squadron, and you get tested on that right out of the gate as an ensign. I'm leading 18-year-olds that just came out of high school. In fact, my first job was what's called First Lieutenant, which is essentially head janitor. I have to motivate these young kids that probably were told they were going to work on fighter jets and here we are at sea cleaning toilets. You learn a lot about yourself, you learn a lot about leadership. I like to say I've made every mistake in the book because I have, and I found that to be truly rewarding.
Josh King:
Was military part of your family heritage?
Dave Banyard:
My father was in the Navy. He was a doctor, and he did his medical training in the Navy. We had some history there, but it wasn't a huge part of it. To be honest it was something that I learned about myself through college. I don't think I could have been like your son. I probably wasn't suitable for Naval Academy service at age 17 when I graduated from high school.
Josh King:
Well, you're suitable for something. You're at Princeton. I mean, my dad went from Harvard to BU Medical School, served in the Air Force as part of his commitment in Wiesbaden Germany back in the late 1950s. But every time we sit here Inside the ICE House across from someone who's served, I always sort of am curious about how they got their decision. I can't remember exactly what year you got out of Princeton, but what were the geopolitical thoughts around then and what you were seeing in the world?
Dave Banyard:
Well, it was post-Desert Storm, so it was immediately after that that I started and it was also post-Soviet Bloc, the Wall coming down. I'd say it was an interesting time from the perspective of everyone felt that perhaps the world had opened up because there was no longer this Cold War going on. But then the threat of a variety of different things started popping up, and I think the first Gulf War, Desert Storm, was an example of that, and so I think it became more critical for certainly the carrier force that the U.S. has to be present all over the world, and that's what I did with my career.
Josh King:
Then certainly keeping peace in the Balkans and bringing the air war to bear from the Adriatic.
Dave Banyard:
Correct. Yeah, that was probably the first example of a littoral war that involved a lot of air power, not a lot of feet on the ground so to speak. It was an interesting time to be an aviator in that world.
Josh King:
You went to Top Gun previously based at Miramar, now at Naval Air Station Fallon in Nevada. Back on episode 35 of Inside the ICE House at the very beginning of our run almost six years ago, I spoke with then Cubic Corporation's CEO, Brad Feldmann, about the company behind the program. For those listeners who may only be familiar with Top Gun through the Tom Cruise movies, let's listen to the original 1986 film and hear Viper, played by Tom Skerritt, describe the training process in store for the pilots.
Tom Skerritt:
Gentlemen, you are the top 1% of all Naval aviators. The elite. Best of the best. We'll make you better. Fly at least two combat missions a day, 10 classes in between and evaluations of your performance. Now, in each combat sequence, you're going to meet a different challenge. Every encounter is going to be much more difficult. We're going to teach you to fly the F-14 right to the edge of the envelope faster than you've ever flown before. More dangerous.
Josh King:
We know that movies don't always get everything right. Little dramatization on Tom Skerritt's behalf there, but can you briefly describe what the regimen was like and how pilots are trained to do what they do at Top Gun?
Dave Banyard:
Yeah, we could probably spend an entire podcast picking apart the inaccuracies-
Josh King:
We have no time limit.
Dave Banyard:
Of Top Gun. I will say the second Top Gun movie was much more accurate in a lot of ways, but there's a lot of truth to what he says and how he describes it. The one thing that I think I want to make clear, the way he introduces it is not how we would talk. I think that what you saw when you operated in that world was that people that were in that did not refer to themselves as the elite. The folks that did that were probably not there. It was a very modest group of people that was very driven to be experts at every part of what we did. It was sort of a PhD in being a fighter pilot.
It was very difficult. A lot of long hours. We worked 12 plus hour days. You would fly maybe for an hour-and-a-half of that. The rest of the time was preparing for that flight, debriefing that flight, and the debriefs were excruciatingly detailed, and I use that word because at times it felt that way. Then the studying. I mean we became experts to a high level on every system, every weapon system, every tactic in the aircraft, and it was a building block approach. You start with one versus one and then you build your way up and by the time you're done, you're fighting eight airplanes versus many and all of that typically over the beautiful skies of Nevada. We had a lot of fun with it, but it was a lot of work.
Josh King:
If that was getting a PhD in naval aviation, for the last 365 days, you've probably been getting a PhD in being a CEO. Give us a state of the company over the last year as 2023 wraps up.
Dave Banyard:
Yeah, I think we've made a ton of progress this year, and it really started several years ago. I don't look at any given year as a point in time because you're on a journey when you're leading a company and when you're part of a company. We started this journey to really build our culture around continuous improvement four years ago. It's built around the principles of Lean. Lean's a very well-established tool. A lot of people talk about it, a lot of people use it. I see Lean as the best associate engagement tool.
Josh King:
Lean stands for?
Dave Banyard:
Lean manufacturing. It started with the Toyota production system.
Josh King:
Got it.
Dave Banyard:
I learned a lot about how to use Lean when I was at Danaher. It's kind of a fundamental part of the Danaher business system. The reason I say it's an associate engagement tool is because it empowers people, anyone in the company to make their work better. Really that's what's the basis of what Lean is. It's find the waste, make your work better.
This year was really a nice capstone in a lot of ways. Again, it's still a journey. We have a long way to go with a lot more to do, but this year, and I think a lot of our leadership team would say this, everyone seemed to figure out that they have the power to do the kinds of things that you can do with Lean. They don't have to look to me to say, go do this, and in the beginning it's a little bit of a you have to teach people, you have to lead them through it.
We're at the point now where a lot of people in the organization, in fact, most of the people in the organization, really understand how it works and they're empowered to go fix their part of the business that they work in, no matter how small that is. That means if they see some inefficiency or they see some waste or they're not happy with the way their work is set up, they have the power to change it. We saw a lot of that this year and that's what's driving a lot of our results this year because we are having a down year from a revenue standpoint, but we're driving higher profits. That's not because of an accident, it's because we've got this culture that's maniacal about finding improvement.
Josh King:
Maniacal about finding improvement. Back in September, we had Nick Fink Inside the ICE House, CEO of Fortune Brands Innovations. He of course discussed the other side of what he referred to as a separation, both before and after that event. Thinking back right before the separation, did Nick give you any advice or insight as you took the helm of MasterBrand and it became its own entity?
Dave Banyard:
Nick and I have known each other for a number of years, and so he still gives me advice, which is great. I really enjoy working with Nick, and he's a friend and a good colleague. The best advice that Nick's given me is be yourself. He's a model for that, and so it was fun to work for him and watch him do that. I enjoy watching other leaders work because that helps me become a better leader, and Nick's an example of that. He's very well grounded in who he is, and I like to model that.
Josh King:
Before we dive into MasterBrand's past, present, and future, why do you think people use MasterBrand initially and then subsequently come back to the company for whether it's the new home construction or the renovation and retrofit? What differentiates you and your family of brands from your competitors?
Dave Banyard:
Well, first we cover the broadest spectrum of product in the market. We can deliver everything from a very customized kitchen all the way down to a very simple, what we call stock cabinetry kitchen. There are others that have product in every one of those and everything in between, but we're the only one that has it all the way across the spectrum. Certainly as a channel partner that helps you. You can really offer your customers a broad range of product.
But for the consumer, the challenge with doing a kitchen remodel, particularly on the remodel side, is you don't always know what you want when you walk in the door. You have an idea of what you want to spend, but it's hard to figure out what this is all going to cost. We have the ability to help the consumer find the right price point, the right style, the right cabinets that they want regardless of what their budget is. If budget is the constraint, we can help them still get a beautiful kitchen at the price point that they need, and I think that's what really differentiates us the most.
Josh King:
Not really related to that, but I had an experience not long ago with California Closets and Home Depot talking about some closet renovations. I was frankly amazed by getting on the phone with them, them coming into my home with a laser measure or be able to take a laser picture of the space that they involve, come back to me on a one-on-one video call and be able to change finishes, change hardware, et cetera, and then give me the final price right in front of me. Sort of blew my mind. Are some of these technologies at play for you as well?
Dave Banyard:
It's not quite there today, but I think that's the other piece that I think differentiates us is service level is critical in any kind of building product because timing really matters. It matters for new construction. If they've put the floors in and they're ready to put cabinets in, they have to be there on time and ready to go. Same thing applies in a renovation project. If we've already ripped out your kitchen and you're cooking in the garage or on the grill-
Josh King:
I know some people who've done that. That's not a happy experience.
Dave Banyard:
It's not a happy experience, particularly this time of year. It's really critical that you're able to be on time and have good service. That is a challenge, and it's been a challenge over the past couple of years with availability of material, labor, all these challenges that everybody in the industry has seen. I think that's what we focus a lot of our time on is making sure that we, and they're basic things that a manufacturer should be good at, but I think you really have to be excellent at them.
Josh King:
If you really dive deep into the company, its history dates back to the mid-1950s with United Cabinet Incorporated. While it has a heritage of about 70 years, does it have the energy of an older company or is it more like a startup with it only being one year as an independent publicly traded firm?
Dave Banyard:
I don't know if I'd call us a startup, but I think we have a lot of energy around change, and we're aware that if you can't change with the world around you, you're going to be stuck where you've been. Lean and the tools we have as part of our culture are all really focused on how do you positively change things. Again, it's that empowerment. If you give people the freedom to make changes with some guide rules, of course ... I mean, you have to be careful in any situation where you're changing things, and then get people comfortable with change you'll be successful at moving forward.
I always ask the leadership of the company to reflect on, whether it be the last year or I often even refer further back to say, think about the changes that have occurred both in your style of leadership, how you're doing your daily work, how we're delivering for our customers, and think back to the way it was and where it is today. Oftentimes you don't see the change because it happens like boiling the frog. It sort of happens slowly over time, but if you reflect back over a longer period of time, you can really see it. I think if you interviewed anybody from the company, they would say that same thing.
Josh King:
You shared with us the experience of what it was like with one stripe on your shoulder as an ensign or advancing to a First Lieutenant and having 20 kids underneath you cleaning toilets on an aircraft carrier, but now you employ, Dave, a workforce of close to 14,000 across more than 20 manufacturing facilities and offices in North America. You also have, I guess, 4,500 dealers that include whether it's that local hardware store and Main Street as well as major retailers like Home Depot, ticker symbol HD, or Lowe's, ticker symbol LOW. What's the process in making sure every stakeholder involved, both employees and dealers, stay true to what I think you guys are calling the MasterBrand way?
Dave Banyard:
I think it starts with being clear in your communication and simple. Make it easy for people to understand. We envision ourselves, if we look to the future and who we are, we want to build great experiences together, and we piece those words together intentionally. Build. We're a company that builds things, and we think building is what we do and also what we put our product into is a building.
Then together as a big word in there and that we want to do this as a team, and it's a huge part of our culture to be team-based. I think if you went to any of the events in our organization, whether it be a review of a particular part of the business, whether it be an initiative to change something and fix a problem that we have in the business, you'll see all sorts of different functions showing up, and oftentimes it's going to be with a customer. If we know we have a particular issue with a customer, even including large customers like a Home Depot or a Lowe's, we include them in that process because we want the input from all the constituents that are involved in the problem to help solve the problem. That's the best way to solve a problem is to get all the inputs and then you really know what the problem is. Sometimes if you try to do it yourself, you're just going to come up with one idea, and it's probably not the right one.
Josh King:
Now, I went to the MasterBrand website and looked over the company's historical timeline from that beginning as United Cabinet Incorporated, its time under the Beatrice umbrella and its various spins and incorporation into Fortune, and now of course the separation into its own independent company. The portfolio that you currently have includes names like Aristocraft, Diamond, Fieldstone Cabinetry, Kemper, and Ultracraft among others. As the consumer, you can correct me if I'm wrong, I'm not really focused on the brand of the materials that come into my kitchen, but talk about your portfolio and what some of these names really represent when it's actually finished in the kitchen.
Dave Banyard:
I'll start with the brands themselves. The brands really have more recognition in the channel, so our dealers understand the brands. They're our advocate, if you will, to the consumer, and that includes the large retailers. It does start there. They understand the brands, and we position them in such a way that, for example, Omega and Fieldstone, Starmark are premium brands. They're going to be highly customizable, they're going to be more expensive. You wouldn't find those in the same store. You'd find those at different stores in the same region.
The brands do have some indication of both the customization as well as the price point that you're dealing with when you're looking at those cabinets. The nice part is part of our strategic initiatives over the past few years is to bring the manufacturing process to a more common ground so that if you're having a designer design in a particular brand and that consumer decides either that's too expensive or not quite what they want and they want to move up in category, there's a bit more seamless movement between those because they used to all be independent companies, they'd have their own factory, and that was the only place where those brands were built.
Today we can build multiple brands in multiple places. Helps us be closer to the customer first and foremost, but secondly, it helps the designer as they're trying to maneuver the consumer into the right category for their budget and for their taste. The higher-end brands, Ultracraft, you mentioned that Omega, Starmark and Fieldstone are the higher-end brands. Decora is also in that mix.
Then in the middle part, Schrock, Diamond and Kemper are really our middle, what we call semi-custom brands. Still some customization but a little less than the higher ones and associated lower price with that. Then finally you move down to Aristocraft, which is one of our very high-volume brands. Mainly deals with new construction, so a lot of new construction homes have Aristocraft cabinetry in them. There's some customization that we do for the builder when they have a large development and they want something particular. We'll do that in Aristocraft, but it's more of a stock product. Then lower than that, you have our Woodcutters, which is all of our vanities brands that we sell through the large retailers and so forth.
Josh King:
Before we get into our mid-show break, Dave, I just want to discuss MasterBrand's ESG efforts for a minute. Of the 15 members that comprise your executive management team and the board of directors, close to half I think are women or minorities. How does MasterBrand benefit from having different experiences and different opinions around the board table and in the leadership suite?
Dave Banyard:
Well, I think first and foremost, your leadership team should represent who you are and should represent your associate base. If you look at our broad population of associates, it's a pretty good representation of the demographic of the United States, and I wanted to make sure our leadership reflected that. We have outstanding leaders both on the board as well as on the executive team. In order to do that, you have to be intentional, and we were. I think in this industry more than 80% of the decision maker in a kitchen renovation are female. Having a bunch of men run a company where a lot of women are making the decision didn't make a lot of sense to me, and I think we have some great leadership on our team that help us with that perspective. But beyond that, I think it's still just good solid leadership is what matters the most, and that's what we look for in our executive team and our board.
Josh King:
As you're separating into a new independent publicly listed company, you've got to compose that board basically, I guess from scratch? How many members are there, and how did you go about compiling this group?
Dave Banyard:
We started with a small board. Two of the directors came from Fortune Brands, and they're still on the Fortune Brands Innovations board, and I think that's helpful to have continuity. There's some comfort there that they understand the company. Believe it or not, even though it's really just a wooden box, there's a lot of complexity to cabinets, so that was helpful to have a couple of directors that have been with the company for a while.
Then we wanted to go out and really seek out skills that would help us because I look at the board of directors as, obviously they have governance responsibilities and oversight responsibilities for the company, but I also want some strategic partners. People that can help expand our thinking, push us to go in directions that perhaps we hadn't thought of, and that's how we assembled the board. It's a small board today of five independents and myself as the sixth. I think we're very effective. When you're starting a new team it's helpful to be small. You get to know each other better, really establish ways of working, and then I think over time we can increase the size of the board as we need more and differentiated skills.
Josh King:
Dave, you announced last week that MasterBrand is going to be moving its corporate headquarters to Beachwood, Ohio, suburb of Cleveland. What prompted the leadership to choose that area, and what advantages does it provide to MasterBrand?
Dave Banyard:
Well, it started with we have several of the executive team live in that area, and so we have a nexus of leaders that live in the Cleveland area. Most of our HR team, our legal team is there among a few others. It started with that. We were attached to the corporate headquarters of Fortune Brands in Chicago, and obviously we had to leave our offices there and find something else, and so that was what started that. Then the State of Ohio and the City of Beachwood did a phenomenal job of giving us some incentives, and we found a great office and we're excited about what that'll bring to the community.
Josh King:
You've been in Beachwood for all of 12 months. Is it a priority for MasterBrand to give back to Beachwood and the surrounding areas to help them grow in years to come?
Dave Banyard:
Well, I look at it this way. We're a North American company, so we certainly do give back to the local communities. We're in quite a few of them around the country, over 20 locations throughout the United States, Mexico and Canada. We have some initiatives that are, I'd say more national based, so Habitat For Humanity is an example. We love what they do. Obviously it's right in our sweet spot of housing, but we think providing housing to people that can't afford it or helping people that are struggling with housing is a great thing that we can do not only with our resources but with our product. We're a Platinum Sponsor of the Carter Workweek at Habitat for Humanity. We helped build in one week, we built 27 houses. All the cabinets for that came from us, and a lot of our associates were there helping build, which is a phenomenal event. Unfortunately this year, Mrs. Carter passed very soon after the event. She was not in attendance this year, but the Carters have been wonderful sponsors of that program. That's part of what we do.
We also are big sponsors of the National Forest Foundation. Obviously we use a lot of wood in our product, but wood is a renewable resource, but you have to be intentional about that. The National Forest Foundation is in the process of planting 50 million trees over five years. They're well on their way for that, and we help them do that because we feel that not only is it good for our business, we want to have vibrant forests, but I think it's good for the environment, it's good for all of us. I'm a big outdoorsman and I love green space, and so we want to be a participant in that. We look nationally when it comes to giving back, and then every one of our locations has the ability to give back locally as well.
Josh King:
What's Dave Banyard's preferred activities in the outdoors?
Dave Banyard:
It depends on the season. We're going into ski season here, so we love skiing and believe it or not, you can have some great skiing very close to Cleveland in Upstate New York. It's about a two-and-a-half hour drive from Cleveland.
Josh King:
Yeah. What are your mountains?
Dave Banyard:
It's Holimont, which is in Ellicottville, New York, so 45 minutes southeast of Buffalo. You're not going to get huge-
Josh King:
You ever make it east to Windham?
Dave Banyard:
Once in a while. My kids are competitive skiers. My younger two are competitive skiers, so we've traveled all over the State of New York and then we have some competitions out West as well. But it's certainly not going to, 700 feet of vertical, it's not going to wow you there. But the conditions are great and the people are great so [inaudible 00:35:21].
Josh King:
We have 1800 feet of vertical in Windham, and my kids are competitive skiers. Well, you can always come and-
Dave Banyard:
Wow. Maybe I'll take you up on that.
Josh King:
Take some turns with us. We got eight inches of snow last night. Looking forward to getting up there this weekend.
Dave Banyard:
You're lucky. We had 55 and rain last weekend in New York, so it wasn't great.
Josh King:
After the break, Dave Banyard and I are going to discuss MasterBrand's third quarter earnings call this past November, as well as what the future looks like for the company, and that's all coming up right after this.
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Josh King:
Welcome back. If you were enjoying our conversation and want to hear more from guests like Dave Banyard of MasterBrand, NYSE ticker symbol MBC, remember to subscribe to Inside the ICE House Podcast wherever you listen to your audio shows and give us a five star rating if you would. Also, a review on Apple Podcasts would help a lot.
Dave, before the break, we were discussing MasterBrand's first year since the spinoff from Fortune Brands Innovation and your journey to becoming CEO. Let's discuss for a minute your third quarter earnings that took place in November. Adam Baumgarten of Zelman & Associates asked about the materials and freight costs and how they impacted the quarter. Now, for any of us who attempted a construction project during COVID, we remember the expensive prices on lumber and other wood products. Now that we have advanced past the pandemic, and you were mentioning some of your forestry efforts before the break, how have you seen prices change? Are you still dealing with inflation and higher than expected costs on all the materials that you use?
Dave Banyard:
I think through Q3 we saw continued sequential decline in input costs pretty much across the board with the exception of freight, particularly outbound freight, which is often based on the price of diesel at a given time and the labor costs that have increased in that particular part of our supply chain. But generally speaking, I'd say commodity costs are back to normal. Some of them are not still below what they were pre-COVID, but probably if you stacked up inflation over several years, it's probably more normal inflation. But the hyperinflation that we were seeing, it's probably not technically correct to call it that, but it felt like that on certain things like ocean freight have gone away. That's back to normal. In a lot of ways, I was highlighting earlier with the market feels more normal, I'd say the supply chain feels more normal now than it did a year ago.
Josh King:
I mean, were you looking at the same stacking up of container ships off the port of Long Beach and sort of sweating the bullets of how am I going to get those materials off the ships?
Dave Banyard:
Well, do you remember the one that got jammed in the Suez Canal? We had-
Josh King:
That was yours?
Dave Banyard:
We had 10 containers on that ship.
Josh King:
Oh my God.
Dave Banyard:
Yeah. Yes, it was a daily activity for our team. I mean, we have a great logistics team, and my hat's off to them because they were in firefight mode for pretty much two years straight and really had to be creative to figure out how to get this all done. Redirecting to different ports, you had the Long Beach challenge for a period of time there, you had one of our ships stuck in-
Josh King:
The Suez.
Dave Banyard:
The Suez Canal, which was bizarre. I've been through that Canal several times. It was a very challenging period for that, and the costs were ridiculous, but we made it through, and I think we're in better place now.
Josh King:
Now I think back to 2020, 2021, and my family's all sequestered Upstate and we look around and we say it's time to do some repairing and remodeling of this old home because maybe out of a lot of reasons, but just like I need something to do here. I need something to take my time and focus. How are you seeing that change as people are back into offices, back to work, a little less time to focus on changing around their kitchens?
Dave Banyard:
I think there's two dynamics that we've seen this year and done a lot of work in the market to understand better. I think first and foremost to your point about decisions people were making back during COVID, what we looked at is that the decision timeline was much shorter, and there's a couple of reasons for that. One is inflation is coming at you, so people tend to buy ahead of inflation. That's a normal human reaction to prices going up. The impetus to pull the trigger, if you will on a project was I should do this or else it's going to be twice as expensive in a year.
The other part was with all the labor challenges out there that didn't just affect us, it affected all the trades, so in order to get a job done, that lead time was extended, including the lead time for our product. As with most cabinet manufacturers and most building products, lead times got extended. What normally, when you're doing a kitchen renovation, you take 12 to 18 months to make the decision. It takes a while to get your style right, how we're going to do this. Maybe you want to re-lay out the kitchen, you want to do something different, you're going to research new appliances, all these other things you have to do. People do that over time, and it's normally a 12 to 18-month process. What we saw during COVID was people were making those decisions less than six months for those reasons that I was highlighting.
They still were getting their kitchen around the same time because the lead times were long, but the decision process was much shorter. That's extended back out to normal now. This year people are taking that 12 to 18 months. If you think about that dynamic, you have this air pocket of orders that people are thinking about ordering, but two years ago they would've made the decision already and they're still thinking through that process. That's one part of it.
I think the other factor this year in particular is that it's probably the first year in the last four that people felt full freedom of movement, and a lot of people took bigger vacations this year than they did in prior years, and those are dollars for most people that are going ... They're not doing both a kitchen and a big vacation in a given year. In fact, most of us probably aren't. I'm sure we lost dollars to those big vacations this year. Hopefully they went on their vacation and were thinking about renovating a kitchen, and so we'll see them next year. That's our hope.
Josh King:
We talked a little bit about technology earlier and Nick Fink and I ... Nick Fink is a geek for technology ... He could talk endlessly about Moen faucets and everything else that is into managing water in the home. You mentioned that there were various tech-enabled initiatives and the goal to, I'm going to quote you here, "improve the overall efficiency and cost of the processes that exist today in manufacturing." Can you walk us through what some of those tech-enabled initiatives are, and how the goal of improving efficiency is going to be achieved?
Dave Banyard:
Yeah, I think this is something that's different between us and Fortune Brands. Fortune Brands is investing in digital products, putting the digitization inside the product. You're not really going to do that with kitchen cabinets because it's a product that you're going to probably have in your house for 10 to 15 years. There's nothing to digitize there. What we're focused on is digitizing processes, and that goes from the consumer all the way back to our manufacturing and our supply chain processes. There's a lot of underlying infrastructure that you need to have in place in terms of the systems that you have within a company to be able to have the data talk to each other. We're working on a lot of that stuff. We were brought together by acquisitions, so we have a lot of legacy systems, technical debt that we need to work through.
But specific to your question, on the plant floor, we have a lot of automation in the true sense of how people think of automation, where there's machines that you put an input in and out spits a finished product. It's not a finished cabinet, but it's a finished component of a cabinet. Most of our component manufacturing is automated like that. What's not automated are a lot of the decisions that need to be made. If you can imagine ... You've probably never been in a cabinet manufacturing company, but every kitchen is made in order, and so you're making a white kitchen followed by perhaps a black kitchen or a blue kitchen. There's a lot of decisions that need to be made along the manufacturing process and a lot of complexity inside that because the whole kitchen has a variety of different sizes of doors, drawers, et cetera, and all that has to arrive at the assembly line in the right order with 100% perfect quality and all that stuff to make the whole thing work. It's really kind of a just-in-time type of model.
There's a ton of decisions that are made along the way. Wood is a natural product. Sometimes you don't see the defect until you've sanded and then the defect presents itself. You've already put a lot of value into that product at that point. You've got to go back and start over again. The communication of all that is very challenging. One of the things we implemented was RFID, not super groundbreaking technology. It's very well established and that's what we like. We like something that's proven, but putting an RFID tag on every component that we manufacture helps us see where in the plant it is. If you say, for example, the thing I just talked about where you put a door into the sander and all of a sudden a natural defect reveals itself, or if you drop a door, it's wood, it's going to become damaged, which happens once in a while. There's a signal now that the assembly line knows that that door is being reprocessed, and they'll know when it's showing up.
In the past, that would be a human walking across the plant trying to communicate with somebody who's really busy and perhaps it gets missed, and so then you have a bunch of material waiting to be assembled and you're missing a piece, and so it's not as efficient. Things like RFID help us be more efficient with decision-making in a plant. That also helps with training for the associates on the plant floor. If you have a new employee and they don't understand how that works, they're going to be lost for a period of time. This takes those kinds of decisions away. We're still going to have labor required to assemble our cabinets. Because of the variability of the types of products you make, you kind of have to have labor involved. But we want that labor to be as efficient and empowered from decision-making process as we can make it.
Josh King:
Yeah, I invested in RFID firms maybe 20 years ago when it was the new new thing. But talking about automating decisions now, Dave, and staying with the idea of new technology, we've talked a lot on previous episodes about AI and its emergence. Does it play a role or have any impact on MasterBrand? Can it in any way be used to achieve that efficiency goal to bring down costs in some way moving forward?
Dave Banyard:
You're trying to goad me into being top CEO buzzword for 2023.
Josh King:
Well, let's give it a shot.
Dave Banyard:
No, look, AI, we're learning a lot about it, and what's impressive to me having followed it for several years is how quickly it's moved up the curve in 2023. I think you have to understand what it can do. I look at AI as a tool for discovering a lot of different inefficiencies within the organization, and we're starting to look at it that way and how can it help us with, again, like you said, decision-making that's out there. We're starting to look at it. We just put in RFID, so that's pretty whiz-bang for us so you got to give us a little time to figure out AI.
Josh King:
It's no secret that the cost to own a home has increased significantly. After purchase a younger home buyer than me might not have the same spare income to afford an interior remodel or to do a complete redoing of a kitchen, for example. How is that impacting current demand, and what's your outlook for how it could influence in the future, the next generation of folks who are looking more closely at their disposable income?
Dave Banyard:
Our goal with that is to help find the right spot for every consumer, and that's what our broad product portfolio allows us to do. To us, it's less of a can you do it, it's what can you do. We'll try to find the right product that accomplishes hopefully what you're trying to accomplish. I think you can do a beautiful kitchen for a lot less today than I think you could do it 20 years ago, believe it or not, even with all the inflation. That's because we have a wider variety of products that can fit whatever that consumer can come with in terms of affordability. Our goal is to help them see that and help them envision what their kitchen might look like and get them there by getting them into the right price point. It's not going to work for everybody, but I think we have a broad product portfolio that allows us to meet them where they need to be.
Josh King:
As we begin to wrap up, you and I started our conversation talking about those chaotic early days right after the separation, and you and your team coming to the New York Stock Exchange to celebrate MasterBrand becoming an independent company, and we've talked about the 12-month journey. Looking back at the first year, what's been the biggest challenge do you think, and maybe some of the challenges that you didn't necessarily expect to see when you took the helm?
Dave Banyard:
Probably the biggest challenge ... I wouldn't pin it on being a separate public company or not. I think whenever you're trying to drive forward as a company strategically into different directions, which we're doing with technology, it's always hard to change old habits. I'm always focused on culture and how change flows through an organization. I think we've started doing more with technology this year and the pace of that starts picking up and it's a different pace than people are used to working in. To me that's always the challenge is how do you manage that change in a controlled enough way that people feel comfortable with it. I think that probably would've happened whether we had spun off or not, but I think that's what always is top of mind for me is how do I get the organization moving in the right direction at the right pace.
Josh King:
I know you want to avoid giving guidance or spilling any beans before your next quarterly call, but looking ahead first to the short term broadly, and you don't have to give me any numbers, but generally, how does 2024 look different for MasterBrand than the company looked in 2023? Are there any big new innovations or focuses coming up over the next year that we should keep an eye out for?
Dave Banyard:
I think our biggest new innovation, and it's on the tech front, is we've launched a new customer portal. Again, part of our technology initiatives are around making information flow more seamlessly, make decisions more seamlessly. Our customers are going to have a new tool in 2024, which is we think going to really help eliminate the friction that happens. I don't mean friction in that we don't like each other as partners, but the friction of information flow and making the job of the designer, making the job of the customer easier to see where their orders are, when the timing is of things. We had a spoke system before that. It was good when it was developed, but it's outdated, and it's hard to change because we built it ourselves.
We've used more modern technology now that's adaptable, and we love interacting with our customers on that because they'll give us feedback on what they like. The beauty of this new portal is we can change things much quicker and we'll have quarterly outputs of change to the system, much like you have with any app that you use and continue to improve and make that interaction with our customers much more seamlessly. Also helps us because avoids probably what are things that our customer service team shouldn't be paying attention to like simple questions that can be answered in a more automated way.
Josh King:
Looking farther out, I think about after 10 or 12 years replacing the lumber of my deck and the folks who come over to look at it and say, well, you should really look at more composite materials. If you're looking, Dave, out five or 10 years, how do you see what you guys do evolving in terms of technology materials and what the home buyer, home renovator is going to be getting from MasterBrand?
Dave Banyard:
Yeah. I think materials is an interesting question because there are cabinet companies that have used, if you've seen outdoor furniture, there's a lot of that kind of alternate material being used to build what looks like a wood unit. I think the challenge is when it really comes down to it, the adaptability of those materials is different from wood.
Cabinet is like a piece of furniture. People want to customize certain elements of it, the design profile of the door. Those materials don't lend themselves today to doing that. We're not going to invent that change, but there may be someone that's working on that. There are companies that, for outdoor cabinets, as an example, use those kinds of polymer materials to make them. You just don't have the design flexibility that you have with wood. I mean, that's one of the beautiful things of wood is you can do almost anything with it, so that has to occur before I think it'll take on any kind of broad acceptance.
But what you see today, there are a lot of materials that are being applied in terms of laminates, how you can make a cabinet look a certain way using laminates. That's an innovation that's happened over the last maybe 20 years. That may continue to develop to a point where you can use different materials underneath that to manufacture cabinets.
But otherwise, I think evolution-wise, our view is it's more about driving consumers to say, this is a project that I want to take on. If you've ever done a kitchen renovation, you know it's difficult. We want to make that easier and encourage more people to do it because of that.
Josh King:
As we sit here in the library of the New York Stock Exchange in middle of December, I imagine that Dave Banyard, like so many CEOs is thinking about getting behind the computer and authoring a message to your 14,000 employees as you turn the page from 2023 to 2024. A guy like Larry Fink at BlackRock is thinking about a big letter to shareholders that will make a lot of news come January when he heads to the World Economic Forum in Davos, but on a much different kind of level. Dave Banyard might be sitting in his study thinking about this journey that you've been on for the last 12 months and where you and your colleagues are going to go for the next 12 months. If you were looking at your screen right now with a message to your team, what were some of the things that you'd say?
Dave Banyard:
I think tremendous pride, how proud I am of what they've accomplished this year and how easy it's seemed. That doesn't come by accident. That comes from a lot of hard work, and I'm just tremendously proud of the organization and how they've continued to develop and really stepped into leadership roles in a way that I don't know that they thought was possible. But it's a lot of fun to watch. That's the best part of my job is to see how people in our organization have gravitated to being leaders and driving forward. It's been a lot of fun.
Josh King:
Pride in the organization. Well, speaking on behalf of Lynn Martin, the President of the New York Stock Exchange, we are enormously proud to have you and your team listed, MasterBrand, to the New York Stock Exchange, and always welcome you into our building for another visit. Thanks so much for coming Inside the ICE House.
Dave Banyard:
Yeah, I really appreciate it.
Josh King:
That's our conversation for this week. Our guest was Dave Banyard, President and CEO of MasterBrand Inc. That's NYC ticker symbol MBC. If you like what you heard, please rate us on Apple Podcasts so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show or hear from a guest like Dave Banyard, please make sure to leave us a review. Email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Lance Glinn with production assistance, editing and engineering from Ken Abel. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next [inaudible 00:55:14].
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Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
