JP Morgan 2013 final

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  • 1. Masco IR PresentationMay 2013
  • 2. Safe Harbor Statement2Written and oral statements made in this presentation that reflect our views about our futureperformance constitute "forward-looking statements" under the Private Securities Litigation ReformAct of 1995. Forward-looking statements can be identified by words such as “believe,” “anticipate,”“appear,” “may,” “will,” “should,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” “forecast,”and similar references to future periods. These views involve risks and uncertainties that aredifficult to predict and, accordingly, our actual results may differ materially from the resultsdiscussed in our forward-looking statements. We caution you against relying on any of theseforward-looking statements. Our future performance may be affected by our reliance on newhome construction and home improvement, our reliance on key customers, the cost and availabilityof raw materials, uncertainty in the international economy, shifts in consumer preferences andpurchasing practices, our ability to improve our underperforming businesses, and our ability tomaintain our competitive position in our industries. These and other factors are discussed in detailin Item 1A, “Risk Factors” in our Annual Report on Form 10-K, as well as in our Quarterly Reportson Form 10-Q and in other filings we make with the Securities and Exchange Commission. Ourforward-looking statements in this presentation speak only as of the date of this presentation.Factors or events that could cause our actual results to differ may emerge from time to time, and itis not possible for us to predict all of them. Unless required by law, we undertake no obligation toupdate publicly any forward-looking statements as a result of new information, future events orotherwise.Certain of the financial and statistical data included in this presentation and the relatedmaterials are non-GAAP financial measures as defined under Regulation G. The Company believesthat non-GAAP performance measures and ratios used in managing the business may provideattendees of this presentation with additional meaningful comparisons between current results andresults in prior periods. Non-GAAP performance measures and ratios should be viewed in additionto, and not as an alternative for, the Companys reported results under accounting principlesgenerally accepted in the United States. Additional information about the Company is contained inthe Companys filings with the SEC and is available on Masco’s web site, www.masco.com.
  • 3. I N V E S T M E N T T H E S I SStrong Fundamentals - Positioned for Growth3The strengthsThe growthThe strategyThe company
  • 4. Masco at a GlanceRevenue % renovation vs. new construction 73%Employees 30,000Market capitalization >$6.0BDividend yield 2.9%Revenue $7.5BCumulative free cash flow last 3 years ~$1B42012Cash at 12/31/2012 $1.4B
  • 5. Masco – Strong Brands with Industry Leading PositionsBusiness SegmentCabinets andRelated ProductsPlumbingProductsInstallation andOther ServicesDecorativeArchitecturalProducts$0.9B$3.0B$1.2B$1.8BRevenue 2012 % of Total38%24%12%16%$7.5B 100%Total company5Other SpecialtyProducts $0.6B 7%R&R% vs. NC NA% vs. Int’l82% 59%99% 100%69% 92%16% 100%75% 75%73% 80%R&R = % of sales to repair and remodel channelsNC = % of sales to new construction channelsNA = % of sales within North AmericaInt’l = % of sales outside North America
  • 6. Masco – Unique Scope and Scale6manufacturer of faucets in the worldLargestnon-commodity supplier to The Home DepotLargestsupplier to Lowe’s Kitchen and Bath segmentLargestsupplier of architectural coatings to theU.S. DIY marketLargestinstaller of insulation products for the new homeconstruction marketLargestWe believe we are the……
  • 7. I N V E S T M E N T T H E S I SStrong Fundamentals - Positioned for Growth7The strengthsThe growthThe strategyThe company
  • 8. Masco’s Strategic Initiatives8Positionedfor Growth• Leverage brands• Innovative productsExpand marketleadership• Total cost productivity• Drive lean benefitsReduce costs• Return Cabinets toprofitability• Drive profitability andgrowth in InstallationImproveunderperformingbusinesses123• Debt reduction• Strong liquidityStrengthenBalance Sheet4
  • 9. 1 . E X P A N D M A R K E T L E A D E R S H I PKey Brands Gaining Share since 2010Examples Gaining Share• Delta®, Peerless®, and Brizo® brands in U.S.• International plumbing growth with Hansgrohe• Decorative Architectural: Behr® #1 DIY Paint atThe Home Depot, Direct to Pro® service growth,Kilz Pro line• Other Specialty: Milgard® windows outperformingmarket, UK growing share• Masco Contractor Services gaining share withinsulation, retrofit and commercial channels9• Merillat® and Quality® cabinet brands gaining sharewith builders
  • 10. 2 . R E D U C E C O S T SSignificant Progress Lowering Cost Structure  Higher MarginsCumulative Gross Fixed CostReductionsHeadcount Reductionsof ~50%~$100M~$600M2006 201262,50030,0002006 2012Includes 33 closed / mothballed facilities10
  • 11. 3 . I M P R O V E U N D E R P E R F O R M I N G B U S I N E S S E SImproved Profitability and Positioned for GrowthCabinets New North American management team in place in 2012 Achieved break-even profitability on an adjusted basis in Q1 2013 Disposition of Danish ready-to-assemble cabinet business in process Revenue ~$250M and operating loss of ~$30MInstallation Continued penetration of retrofit and commercial channels Further cost reductions from lean, ERP leverage, supplychain Achieved profitability in Q4 201211
  • 12. 4 . S T R E N G T H E N B A L A N C E S H E E TDeclining Debt to Capitalization Ratio1287%45%-55%2012Year EndFuture Target• $400M reduction in 2012• Planned reduction of$200M in 2013• Valuation Allowance of~$630 million on DeferredTax Assets is expected to bereversed when our U.S.businesses return tosustained profitability
  • 13. I N V E S T M E N T T H E S I SStrong Fundamentals - Positioned for Growth13The strengthsThe growthThe strategyThe company
  • 14. Broad distribution3Industry innovator2Market-leading brands1Masco Business System4Strong financial position5Key Strengths we are Leveraging14
  • 15. S T R E N G T H 1 : M A R K E T L E A D I N G B R A N D SUnparalleled Brand Strength15Installation &Other ServicesPlumbingProductsCabinets & RelatedProductsDecorativeArchitectural ProductsOther SpecialtyProducts
  • 16. S T R E N G T H 2 : I N D U S T R Y I N N O V A T O RSignificant New Product Introductions – Last 3 Years30%*Examples of New Products/TechnologiesExistingProducts20122011201070%Milgard Essence™WindowsArrowR.E.D.ACE® Salt WaterSanitizing System2012 Revenues16BehrProTMMasco Cabinetry’sProCisionTM Process* Percentage of 2012 gross sales of manufactured products attributable to new products introduced in trailing 36 monthsKilz PRO-XTMDelta ToiletsPaint & Primer in Onewith Advanced StainBlocking FormulaKraftMaid Vanities
  • 17. S T R E N G T H 3 : B R O A D D I S T R I B U T I O NWinning with Winning CustomersBroad PortfolioBig Box Retailers Homebuilders Wholesalers / Dealers• Exclusive products andservices for the direct tobuilder channel• A leading insulationcontractor in the US• Dedicated customer-specific serviceorganizations with over750 field serviceemployees• Extensive trainingprograms for branch andshowroom associates• Superior dealer supportthrough display andtechnology expertise• Premier brands  drive traffic17
  • 18. Customer focusLeanQualityTalentInnovationS T R E N G T H 4 : M A S C O B U S I N E S S S Y S T E M SA Continuous Improvement Culture– At the Center of Our Success18MBS
  • 19. S T R E N G T H 5 : S T R O N G F I N A N C I A L P O S I T I O NStrong Liquidity and Improving Balance SheetStrong Liquidity(as of 3/31/2013)• Cash and equivalents of ~$1.0B• Successfully entered into a new fiveyear $1.25 billion unsecuredrevolving credit facility• A strong free cash flow business– ~$1B last 3 years– Maintenance capex of~$100M annually19• Paid down $400M in 2012• Plan to reduce debt in 2013 by $200MDeclining Debt toCapitalization Ratio87%45%-55%2012Year EndFuture Target• Valuation Allowance of ~$630 million onDeferred Tax Assets is expected to bereversed when our U.S. businesses returnto sustained profitability
  • 20. I N V E S T M E N T T H E S I SStrong Fundamentals - Positioned for Growth20The strengthsThe growthThe strategyThe company
  • 21. Positioned for Growth21Leveraged to the recoveryContinued brand leverage and share expansionContinued cost position improvementDisciplined capital deployment1234
  • 22. 1. Leveraged to the Recovery12%6%4%6%10-14%2006Last Peak2010 2011 2012 3-5 YearsAdjusted Operating Margin*22Reflects• lower fixed cost baseof >$600M (gross)• driving lean principlesacross the company30% margin on incremental volumeHousingstarts 2.1M 0.6M 0.6M ~1-1.5M*See Appendix slide 32 for GAAP reconciliation0.7M
  • 23. 2. Initiatives to Leverage Brands and Expand ShareGeographicExpansionCabinetsand RelatedProductsPlumbingProductsInstallationand OtherServicesDecorativeArchitecturalProductsOtherSpecialtyProductsProductIntroductionsExtendCategoriesStrengthenBrand Loyalty23
  • 24. 3. Continue to Improve Cost Position~$195M*of Total CostProductivityin 201224 * GrossSourcingLeanInitiativesDriven by: Driven by:Distribution& LogisticsActions Taken InPrior Years• Plant Closures• HeadcountReductions• SystemImplementations
  • 25. 4. Disciplined Capital DeploymentInvest in the Business• Maintenance capex: $100M annuallyStrong CashFlow GenerationFinancial Flexibility• Target 45%-55% debt tocapitalization vs. ~87%Dividend• Maintain dividend yield ~2%Acquisitions• Potential acquisitions (<$100M) insupport of international expansion25
  • 26. Delivering on 2013 PrioritiesInvestment in strategic growth initiativesGeographic expansionTotal cost productivityReduce debt by ~$200MCabinet profit improvementProfitably grow InstallationGrow share of key brands26Successfully launch new products and programs
  • 27. Masco 3-5 Years Out – A “Normal” Housing Market27• Estimate revenues of ~$10-12B, margin of 10-14%• Positioned for Growth• Optimized portfolio with a strong balance sheet• International expansion• Positive return from assets employed in– Cabinets– Installation
  • 28. W H Y I N V E S T I N M A S C OStrong Fundamentals - Positioned for Growth28Executing initiatives to improve performance• Continuing to reduce fixed costs, expand share andimprove underperformersThe StrategyBuilding on market-leading positions• Best brands, innovative products, lean practices,strong financial positionThe StrengthsWell-positioned for growth• Lower cost structure  higher margins, leveragedto recoveryThe Growth
  • 29. Appendix
  • 30. Best First Quarter Operating Margin Since 200731($ in Millions)First Quarter2013RevenueGrowth$1,8764%Adjusted Operating Profit*Y-O-Y Change$140$22Adjusted Operating Margin*Y-O-Y Change7.5%100 bpsAdjusted EPS* $0.13Quarterly Highlights• North American sales increased 6%; International salesdecreased 2% in local currency• Sales growth driven by increased sales in new home constructionand retail• Adjusted operating profit up 19%, benefitting from operatingleverage and continued cost control*See appendix for reconciliation to GAAP information.
  • 31. Appendix – Profit Reconciliation – First Quarter32($ in Millions) Q1 2013 Q1 2012Sales $ 1,876 $ 1,806Gross Profit – As Reported $ 508 $ 484Rationalization charges 6 10Gross Profit – As Adjusted $ 514 $ 494Gross Margin - As Reported 27.1% 26.8%Gross Margin - As Adjusted 27.4% 27.4%Operating Profit – As Reported $ 132 $ 109Rationalization charges 8 11Charge (income) for litigation settlements, net - (2)Operating Profit – As Adjusted $ 140 $ 118Operating Margin - As Reported 7.0% 6.0%Operating Margin - As Adjusted 7.5% 6.5%
  • 32. Appendix – EPS Reconciliation – First Quarter33(in Millions) Q1 2013 Q1 2012Income from Continuing Operations before Income Taxes – As Reported $ 79 $ 60Rationalization charges 8 11Charge (income) for litigation settlements, net - (2)Gain from financial investments, net (3) (16)Income from Continuing Operations before Income Taxes – As Adjusted $ 84 $ 53Tax at 36% rate benefit (expense) (30) (19)Less: Net income attributable to non-controlling interest 9 11Net Income, as adjusted $ 45 $ 23Income per common share, as adjusted $ 0.13 $ 0.07Shares Outstanding 352 350
  • 33. ($ in Millions) 2013 Estimate1 2012 ActualRationalization Charges ~ $40 $78Tax Rate ~ 25% 198%Interest Expense ~ $240 $254General Corp. Expense2 ~ $130 $126Capital Expenditures ~ $165 $119Depreciation & Amortization3 ~ $200 $214Shares Outstanding for EPS 352 million 349 million2013 Guidance Estimates1 – Based on current business plans.2 – Excludes rationalization expenses of $14M for the year ended December 31, 2012.3 – Includes accelerated depreciation of $28M for the year ended December 31, 2012. Such expenses are alsoincluded in the rationalization charges.34
  • 34. Segment Mix Full Year 2012Business SegmentCabinets andRelated ProductsPlumbingProductsInstallation andOther ServicesDecorativeArchitecturalProducts$0.9B$3.0B$1.2B$1.8BRevenue 2012 % of Total40%24%12%16%$7.5B 100%Total company35Other SpecialtyProducts $0.6B 8%R&R% vs. NC NA% vs. Int’l82% 59%99% 100%69% 92%16% 100%75% 75%73% 80%R&R = % of sales to repair and remodel channelsNC = % of sales to new construction channelsNA = % of sales within North AmericaInt’l = % of sales outside North America
  • 35. 2012 Masco International Revenue Split*36 *Based on company estimatesInternational Sales Accounted for ~20%of Total 2012 Masco Sales6%26%3%5%34%11%15%OtherUnited KingdomNorthern EuropeSouthern EuropeCentral EuropeEastern EuropeEmerging Markets