Masco Presents at J.P. Morgan Homebuilders and Products Conference
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Masco Presents at J.P. Morgan Homebuilders and Products Conference

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  • Please replace multicolored room picture in the upper right hand corner with the picture named “Behr Hallway”. This picture should be switched with that file anywhere it appears in the presentation.
  • Added the word “Cumulative” for free cash flow.
  • Please change the order to be by sizeChanged the picture for Decorative Architectural Products please adjustWe’d also like an additional slide created that looks exactly the same but includes our geographic mix and NHC/RR by segment. Please add these categories
  • Can you please adjust the side bars on all the pages so that the black line that appears on the right side is either eliminated or also included on the left side. We replaced the cabinet picture with one of our window pics. Please adjust so that it’s the right size/format etc.
  • Changed the last bulletChanged the cabinet picture to a window picture needs adjustment
  • Changed the cabinet picture please adjust
  • Readjusted and put the brands in the appropriate segments.
  • We’d like to use this format but can you please change it so that Lean is in the center and innovation is in the upper right hand?
  • Changed a couple pictures please adjust accordingly
  • Changed picture please adjust
  • Order segments by sizeWe’d like to change the second category so that it reflects something to the effect “Strengthen current position with our customers or core product expansion”. We’re not sure what the appropriate wording should be. If you could help us with thatChanged the Decorative Architectural Products picture
  • Added a bullet under the first category
  • Added and deleted categories
  • Added additional bulletsPlease add graphics etc. to slide reflecting message
  • Added and deleted categories
  • Added and deleted categories
  • Please change the order to be by sizeChanged the picture for Decorative Architectural Products please adjustWe’d also like an additional slide created that looks exactly the same but includes our geographic mix and NHC/RR by segment. Please add these categories

Masco Presents at J.P. Morgan Homebuilders and Products Conference Masco Presents at J.P. Morgan Homebuilders and Products Conference Presentation Transcript

  • J.P. MorganHomebuilding and Building Products Conference May 16, 2012
  • Safe Harbor Statement Written and oral statements made in this presentation that reflect our views about our future performance constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “believe,” “anticipate,” “appear,” “may,” “should,” “will,” “forecast”, “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by our reliance on new home construction and home improvement, our reliance on key customers, the cost and availability of raw materials, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through business rationalizations and other initiatives. These and other factors are discussed in detail in Item 1A, “Risk Factors” in our Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. Our forward-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 it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. Certain of the financial and statistical data included in this presentation and the related materials are non- GAAP financial measures as defined under Regulation G. The Company believes that non-GAAP performance measures and ratios used in managing the business may provide attendees of this presentation with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, the Companys reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Companys filings with the SEC and is available on Masco’s Web Site, www.masco.com.2
  • INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth3
  • Masco at a Glance 2011 Revenue $7.5B Revenue % renovation vs. new construction 75% Cumulative free cash flow last 3 years ~$1B Employees 31,000 Market capitalization >$4.0B Dividend yield 2.9% Cash at 12/31/2011 $1.7B4
  • Masco – Strong Brands with Market Leading Positions B USINESS S EGMENT R EVENUE 2011 % OF T OTAL L EADING P OSITIONS  #1 worldwide in faucets, Plumbing fittings, showerheads Products $2.9B 39%  #1 in spas Decorative Architectural $1.7B 22%  #1 DIY paint and stain Products Cabinets  #1 & #2 U.S. kitchen and and Related $1.2B 17% bath cabinetry brands Products Installation  #1 insulation and product and Other $1.1B 14% installation for homebuilders Services Other  #1 windows and patio doors Specialty $0.6B 8% in western US and UK Products Total company $7.5B 100%5
  • Masco – Unique Scope and Scale We believe we are the……. Largest manufacturer of faucets in the world Largest manufacturer of kitchen cabinets in the world Largest non-commodity supplier to The Home Depot Largest supplier to Lowe’s Kitchen and Bath segment supplier of architectural coatings to the Largest U.S. DIY market installer of insulation products for the new home Largest construction market6
  • INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth7
  • Strategic Initiatives to Improve Performance 1 Expand market • Leverage brands leadership • Innovative products 2 • Supply chain savings Reduce costs • Drive lean benefits Outperform the 3 recovery • Focus on Cabinets, Improve Installation underperforming businesses • Return to profitability 4 Strengthen • Debt reduction Balance Sheet • Strong liquidity8
  • 1. EXPAND MARKET LEADERSHIP Key Brands Gaining Share since 2010 Examples Gaining Share • Delta®, Peerless®, and Brizo® brands in U.S. • International plumbing growth with Hansgrohe • Decorative Architectural: Behr® #1 ranking, Direct to Pro® service growth, Kilz Pro line • Other Specialty: Milgard® windows outperforming market, UK growing share • Masco Contractor Services gaining share with insulation, retrofit and commercial channels • Merillat® and Quality® cabinet brands gaining share with builders9
  • 2. REDUCE COSTS Significant Progress Lowering Cost Structure  Higher Margins Cumulative Gross Fixed Cost Headcount Reductions Reductions of ~50% $540M $560M 62,500 32,500 31,000 ~$100M 2007 2010 2011 2006 2010 2011 Includes 28 closed / mothballed facilities10
  • 3. IMPROVE UNDERPERFORMING BUSINESSES Laser Focus on Achieving Breakeven Cabinets  Executing wide range of sales initiatives • Countertops and Vanities Program • Increased Dealer penetration  Expect ~$50M operating profit improvement in 2012 Installation  Continued penetration of retrofit and commercial channels  Further cost reductions from lean, ERP leverage, supply chain  Expect ~$30M operating profit improvement in 2012  Estimated breakeven lowered to ~700,000 housing starts11
  • 4. STRENGTHEN BALANCE SHEET Declining Debt to Capitalization Ratio 84% 45%-55% • Planned reduction of $400M in 2012 2011… Future Target12
  • INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth13
  • Key Strengths we are Leveraging 1 Market-leading brands 2 Industry innovator 3 Broad distribution 4 Masco Business System 5 Strong financial position14
  • STRENGTH 1: MARKET LEADING BRANDS Unparalleled Brand Strength Cabinets & Related Plumbing Decorative Other Specialty Products Products Architectural Products Products Installation & Other Services15
  • STRENGTH 2: INDUSTRY INNOVATOR Significant New Product Introductions – Last 3 Years Examples of New Products/Technologies 2009 2010 2011 2011 Revenues Behr Premium Arrow BehrProTM Plus Ultra R.E.D. 70% 30%* Existing Touch2O® Essence Kilz PRO-XTM Products Technology Windows Hansgrohe’s Axor® ACE® Salt Water Masco Cabinetry’s Urquiola Sanitizing System ProCisionTM Process16 * Percentage of 2011 gross sales of manufactured products attributable to new products introduced in trailing 36 months
  • STRENGTH 3: BROAD DISTRIBUTION Broad Distribution Across Multiple Channels Broad Portfolio Big Box Retailers Homebuilders Wholesalers / Dealers • Dedicated customer- • Exclusive products and • Extensive training specific service services for the direct to programs for branch and organizations with over builder channel showroom associates 1,000 field service • A leading insulation • Superior dealer support employees contractor in the US through display and technology expertise • Premier brands  drive traffic17
  • STRENGTH 4: MASCO BUSINESS SYSTEMS A Continuous Improvement Culture – At the Center of Our Success Customer focus Innovation MBS Lean Talent Quality 18
  • STRENGTH 5: STRONG FINANCIAL POSITION Strong Liquidity and Improving Balance Sheet Strong Liquidity Declining Debt to (as of 3/31/2012) Capitalization Ratio 84% • Cash and equivalents of ~$1.8B 45%-55% • Borrowing availability of ~$780M • A strong free cash flow business – ~$1B last 3 years – Maintenance capex of ~$110M annually 2011 Future Target Year End • $745M of debt due in June 2012 • Refinanced $400M through debt offering in March 201219
  • INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth20
  • Positioned to Outperform in the Recovery 1 Leveraged to the recovery 2 Continued brand leverage and share expansion 3 Continued cost position improvement 4 Disciplined capital deployment21
  • 1. Leveraged to the Recovery Adjusted Operating Margin* 10-14% 12% Reflects • lower fixed cost base of >$560M (gross) 6% • driving lean principles 4% across the company 2006 2010 2011 3-5 Years Last Peak Housing starts 2.1M 0.6M 0.6M ~1-1.5M 30% margin on incremental volume22 *See Appendix slide 31
  • 2. Initiatives to Leverage Brands and Expand Share Product Strengthen Extend Geographic Introductions Brand Loyalty Categories Expansion Plumbing Products Decorative Architectural Products Cabinets and Related Products Installation and Other Services Other Specialty Products23
  • 3. Continue to Improve Cost Position Driven by: Driven by: Sourcing ~$150M* Actions Taken In Lean Prior Years Initiatives of Total Cost • Plant Closures Productivity • Headcount Distribution Reductions in 2012 • System & Logistics Implementations24 * Gross
  • 4. Disciplined Capital Deployment Invest in the Business • Maintenance capex: $110M annually Financial Flexibility • Target 45%-55% debt to Strong Cash capitalization vs. ~84% Flow Generation Dividend • Maintain dividend yield ~2% Acquisitions • Potential acquisitions (<$100M) in support of international expansion Maintain high cash balance ~$1B until markets firm up25
  • 2012 Priorities Cabinet profit improvement Installation profit improvement Successfully launch new products in Paint & Builders Hardware Reduce debt by ~$400M/refinance $400M Investment in strategic growth initiatives Grow share of key brands Total cost productivity Geographic expansion26
  • Masco 3-5 Years Out – A “Normal” Housing Market • Estimate revenues of ~$10-12B, margin of 10-14% • Growth outperforming the industry • International expansion • Positive return from assets employed in – Cabinets – Installation • Optimized portfolio with a strong balance sheet27
  • WHY INVEST IN MASCO Strong Fundamentals - Positioned to Outperform Executing initiatives to improve performance The Strategy • Continuing to reduce fixed costs, expand share and improve underperformers Building on market-leading positions The Strengths • Best brands, innovative products, lean practices, strong financial position Well-positioned to outperform The Growth • Lower cost structure  higher margins, leveraged to recovery28
  • Appendix
  • Operating Profit Reconciliation Twelve Months Ended December 31, 2011 2010 2006 Sales $ 7,467 $ 7,486 $ 12,390 Operating (loss) profit , as reported $ (295) $ (463) $ 1,115 Rationalization charges 121 208 47 Impairment of goodwill and other intangible assets 494 698 317 Litigation charge 9 - - Operating profit, as adjusted $ 329 $ 443 $ 1,479 Operating margin, as reported -4.0% -6.2% 9.0% Operating margin, as adjusted 4.4% 5.9% 11.9% As adjusted for impairment charges for goodwill and other intangible assets and business rationalization charges.31
  • 2012 Outlook – Cabinets Estimated Improvement (in Millions) Sales Operating Profit 2011 Total Segment $1,230 ($115) 1 Less: 2011 International ($370) ($40) 2011 North America Cabinet Actual $860 ($75) Product Exit (10) $13 2011 N.A. Operating Loss ($62) 2 2012 Profit Improvements, Net $30 2 2012 Revenue Opportunities, Net $30 $10 2012 N.A. Cabinet Estimate $880 ($22) 1 Uncertain economic environments, identified cost reductions of ~$7M net in 2012 2 Management estimates Opportunities: • Adding new dealers and additional brands with existing dealers in 2011 starting to show solid results • New 2011 vanity/top programs at retail now generating growth opportunities • New 2011 kitchen countertop program at retail expanding throughout the East Coast *Assumptions: • Reflects a flat retail and housing start environment of 600k starts with constant mix • Every 50k increase in lagged US starts = ~$25M in revenues (assuming32 constant mix) which converts to ~$8-$10M in profits
  • 2012 Outlook – Installation Estimated Improvement (in Millions) Sales Operating Profit 2011 Total Segment $1,077 ($71) 2011 Branch Closures ($30) $6 2011 Adjusted Segment $1,047 ($65) 1 2012 Profit Improvements, Net $20 1 2012 Revenue Opportunities, Net $40 $10 2012 Installation Segment Estimate $1,087 ($35) 1 Management Estimates Opportunities: • Segment continues to add profitable retrofit and residential/commercial business • Further cost reductions from lean implementation, ERP leverage, vendor partnership and supply chain benefits *Assumptions • Reflects a flat housing start environment of 600k starts with constant mix • Every 50k increase in lagged US starts = ~$50M in revenues (assuming constant mix) which converts to ~$12M-$15M in profits33
  • Q1 2012 - Improved Results Impacted by Increased Demand and Execution First Quarter ($ in Millions) 2012 Revenue $1,875 Growth 7% Adjusted Operating Profit* $112 Y-O-Y Change $54 Adjusted Operating Margin* 6.0% Y-O-Y Change 270 bps Adjusted EPS* $0.05 *As reported operating profit $102M; operating margin 5.4%; EPS $.11 per common share, see slides 35 & 36 for reconciliation.34
  • Q1 2012 – Profit Reconciliation ($ in Millions, except EPS) Q1 2012 Q1 2011 Sales $ 1,875 $ 1,753 Gross Profit – As Reported $ 485 $ 425 Rationalization Charges 11 24 Gross Profit – As Adjusted $ 496 $ 449 Gross Margin - As Reported 25.9% 24.2% Gross Margin - As Adjusted 26.5% 25.6% Operating Profit – As Reported $ 102 $ 26 Rationalization Charges 12 32 Litigation (Income) Charge (2) - Operating Profit – As Adjusted $ 112 $ 58 Operating Margin - As Reported 5.4% 1.5% Operating Margin - As Adjusted 6.0% 3.3%35
  • Q1 2012 – EPS Reconciliation (in Millions) Q1 2012 Q1 2011 Income (Loss) from Continuing Operations before Income Taxes – As Reported $ 53 $ (16) Rationalization Charges 12 32 Litigation (Income) Charge (2) - Financial Investment (Income) Expense (16) (17) Income (Loss) from Continuing Operations before Income Taxes – As Adjusted 47 (1) Tax at 36% rate benefit (expense) (17) 0 Less: Net income attributable to non-controlling interest 11 12 Net Income (Loss) – as adjusted $ 19 $ (13) Income (Loss) per common share – as adjusted $ 0.05 $ (0.04) Shares 350 34936
  • Outlook into 2012 Tailwinds Headwinds • Solid 1Q 2012 performance – • Competitive promotional off to a good start environment for Cabinets • Successful price increases in • International expansion cost key businesses and mix impact • Major restructuring activities • Commodity cost volatility complete • Composition of new • Debt offering housing starts • Improving demand in • European Economies residential new construction & repair and remodel37
  • 2012 Guidance Estimates ($ in Millions) 2012 Estimate 2011 Actual Rationalization Charges* ~ $20 $121 Tax Rate** ~ 50% 18% Interest Expense ~ $250 $254 General Corp. Expense ~ $140 $118 Capital Expenditures ~ $180 $151 Depreciation & ~ $220 $263*** Amortization Outstanding Shares 348 million 348 million*Based on current business plans.**Tax rate for 2011 excludes the valuation allowance on the Federal deferred income tax assets and theimpairment charge for goodwill and other intangible assets.***2011 includes $58M of accelerated depreciation, which is also included in the rationalization charges.
  • Segment Mix Full Year 2011 Estimate Business Segment Revenue 2011 % of Total RR% vs. NC NA% vs. Int’l Plumbing Products $2.9B 39% 80% 55% Decorative Architectural $1.7B 22% 95% 100% Products Cabinets and Related Products $1.2B 17% 75% 75% Installation and Other Services $1.1B 14% 20% 100% Other Specialty Products $0.6B 8% 75% 75% Total company $7.5B 100% 70% 76%39
  • 2011 Masco International Revenue Split* International Sales Accounted for ~24% of Total 2011 Masco Sales40 *Based on company estimates