Q1 2014 earnings presentation

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  • 1. First Quarter 2014 Earnings Presentation MASCO CORPORATION April 25, 2014
  • 2. 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,” “will,” “should,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” “forecast,” 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, uncertainty in the international economy, shifts in consumer preferences and purchasing practices, our ability to improve our underperforming businesses, and our ability to maintain our competitive position in our industries. These and other factors are discussed in detail in Item 1A, “Risk Factors” in our most recent 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 Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company's filings with the SEC and is available on Masco’s Web Site, www.masco.com. 2
  • 3. Masco Q1 2014 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Outlook Keith Allman • Q&A 3
  • 4. Key Messages Today North American sales driven by new products and programs, coupled with new home construction and repair and remodel activity Focus on execution dampened impact of weather in much of North America International sales strengthened by new products and strong execution in an improving environment 4
  • 5. 2014 Priorities Grow share of market-leading brands Focus on execution to drive profitable growth in cabinets and installation Further penetrate international markets Accelerate customer-focused innovation pipeline Strengthen the balance sheet, including reducing debt by $300-500 million by 2016 Drive operational leverage through focus on cost containment 5
  • 6. Masco Q1 2014 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Outlook Keith Allman • Q&A 6
  • 7. Ten Consecutive Quarters of Sales and Profit Growth 7 *See Appendix for GAAP reconciliation. Quarter Highlights • 10th consecutive quarter of top and bottom line growth • North American sales increased 3%; international sales increased 7% in local currency • Execution helped mitigate the effects of weather in much of North America ($ in Millions) First Quarter 2014 Revenue Change $1,965 5% Adjusted Operating Profit* Y-O-Y Change $157 12% Adjusted Operating Margin* Y-O-Y Change 8.0% 50 bps Adjusted EPS* $0.15
  • 8. Continued Improvement in Operating Margins 8 Y-O-Y Change in Operating Profit $17M *See appendix for GAAP reconciliation.
  • 9. P L U M B I N G P R O D U C T S 9 International Drives Sales and Profit Growth *Excluding business rationalization charges of $2 million and $1 million in the first quarters of 2014 and 2013, respectively. ($ in Millions) First Quarter 2014 Revenue Change $800 5% Adjusted Operating Profit* Y-O-Y Change $121 39% Adjusted Operating Margin* Y-O-Y Change 15.1% 370 bps Quarter Highlights • New product success continues • International sales increased mid-single-digit percentage in local currency • Strong sales to wholesale/trade
  • 10. D E C O R AT I V E A R C H I T E C T U R A L P R O D U C T S 10 Pro Sales Continue to Expand ($ in Millions) First Quarter 2014 Revenue Change $441 2% Operating Profit Y-O-Y Change $76 (15%) Operating Margin Y-O-Y Change 17.2% (340) bps Quarter Highlights • New products and Pro initiative continue to drive gallon growth • Share gains and volume growth in builders’ hardware • Margins adversely impacted by ~$5 million due to timing of advertising costs
  • 11. C A B I N E T S A N D R E L AT E D P R O D U C T S 11 Business Stabilization Work Continues *Excluding business rationalization charges of $3 million and $4 million in the first quarters of 2014 and 2013, respectively. ($ in Millions) First Quarter 2014 Revenue Change $237 --% Adjusted Operating Loss* Y-O-Y Change $(9) N/M Adjusted Operating Margin* Y-O-Y Change (3.8%) (380) bps Quarter Highlights • Mid-single-digit percentage sales growth in the builder and dealer channels • Continued traction with customer-focused new products • Margins adversely impacted by: • ERP optimization • Plant closure and weather inefficiencies
  • 12. I N S TA L L AT I O N A N D O T H E R S E R V I C E S 12 Strong Growth Despite Difficult Weather Conditions ($ in Millions) First Quarter 2014 Revenue Change $335 7% Operating Loss Y-O-Y Change $(4) --% Operating Margin Y-O-Y Change (1.2%) 10 bps Quarter Highlights • Sales growth driven by improvement in residential new home construction, commercial and distribution channels • Profit impacted by multi-family mix, investments to grow the business and weather inefficiencies
  • 13. O T H E R S P E C I A LT Y P R O D U C T S 13 Share Expansion Drives Strong Growth *Excluding business rationalization charge of $3 million in the first quarter of 2013. ($ in Millions) First Quarter 2014 Revenue Change $152 13% Adjusted Operating Profit* Y-O-Y Change $5 150% Adjusted Operating Margin* Y-O-Y Change 3.3% 180 bps Quarter Highlights • Share expansion drives mid-teens-percentage sales growth in North America and International windows • Milgard ERP implementation continues
  • 14. Strong Balance Sheet Balance Sheet Liquidity as of 3/31/2014 Cash and cash investments $0.9B Short-term bank deposits $0.3B Total $1.2B Q1 2014 Accomplishments • Working capital as a percent of sales improved to 13.3% in Q1 2014, compared to 14.2% in Q1 2013 14
  • 15. Masco Q1 2014 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Outlook Keith Allman • Q&A 15
  • 16. Outlook 16 • Velocity of global economic recovery • Consumer confidence • Commodity volatility • Housing affordability/ financing costs/mortgage availability • Share gains in all channels • Continued international market penetration • New product adjacencies • Operating leverage • Improving repair and remodel demand, including big ticket items • Continued growth/demand in new home construction • Strong liquidity RISKS OPPORTUNITIES
  • 17. Q&A
  • 18. Appendix
  • 19. Appendix – Profit Reconciliation – First Quarter ($ in Millions) Q1 2014 Q1 2013 Sales $ 1,965 $ 1,876 Gross Profit – As Reported $ 547 $ 508 Rationalization Charges 4 6 Gross Profit – As Adjusted $ 551 $ 514 Gross Margin - As Reported 27.8% 27.1% Gross Margin - As Adjusted 28.0% 27.4% Operating Profit – As Reported $ 152 $ 132 Rationalization Charges 5 8 Operating Profit – As Adjusted $ 157 $ 140 Operating Margin - As Reported 7.7% 7.0% Operating Margin - As Adjusted 8.0% 7.5% 19
  • 20. Appendix – EPS Reconciliation – First Quarter 20 (in Millions, Except per Common Share Data) Q1 2014 Q1 2013 Income from Continuing Operations before Income Taxes – As Reported $ 93 $ 85 Rationalization charges 5 8 Gains from financial investments, net - (3) Equity investments loss (earnings),net 2 (6) Income from Continuing Operations before Income Taxes – As Adjusted $ 100 $ 84 Tax at 36% rate (36) (30) Less: Net income attributable to noncontrolling interest 12 9 Net Income, as adjusted $ 52 $ 45 Income per common share, as adjusted $ 0.15 $ 0.13 Average Diluted Shares Outstanding 354 352
  • 21. ($ in Millions) 2014 Estimate 2013 Actual Rationalization Charges1, 3 ~ $10 $48 Tax Rate ~ 17% 26% Interest Expense ~ $225 $235 General Corp. Expense2 ~ $130 $134 Capital Expenditures ~ $200 $126 Depreciation & Amortization3 ~ $175 $186 Shares Outstanding 352 million 352 million 2014 Guidance Estimates 1. Based on 2014 business plans. 2. Includes rationalization expenses of $3M for the year ended December 31, 2013. 3. Includes accelerated depreciation of $13M for the year ended December 31, 2013 and estimated accelerated depreciation for the year ended December 31, 2014 of ~$1M. Such expenses are also included in the rationalization charges. 21
  • 22. 2013 Segment Mix* R&R = % of sales to repair and remodel channels NC = % of sales to new construction channels NA = % of sales within North America Int’l = % of sales outside North America *Based on Company estimates. Business Segment Plumbing Products Installation and Other Services Decorative Architectural Products $3.2B $1.4B $1.9B Revenue 2013 % of Total 39% 23% 17% $8.2B 100%Total Company Other Specialty Products $0.7B 9% R&R% vs. NC NA% vs. Int’l 82% 59% 99% 100% 18% 100% 74% 76% 72% 81% Cabinets and Related Products $1.0B 12% 57% 93% 22
  • 23. 2013 International Revenue Split* *Based on Company estimates. International Sales Accounted for ~20% of Total 2013 Masco Sales 23% 7% 6% 31% 9% 14% 10% UK Northern Europe Southern Europe Central Europe Eastern Europe Emerging markets Other 23