Q3 2013 Earnings Presentation

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  • 1. Third Quarter 2013 Masco Earnings Presentation
  • 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 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. 2 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.
  • 3. Masco Q3 2013 Results – Agenda Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A 3
  • 4. Key Messages Today New home construction and improved repair and remodel activity drive North American Sales; International sales continue growth momentum New product introductions in Paint and Plumbing drive consumer demand and sales growth Cabinets and Installation deliver significant year-over-year improvement Operating leverage and cost control improves profitability; Best return on sales since Q3 2007 4
  • 5. Strategy Execution Highlights Q3 2013 1 Expand market leadership • Investments in innovation drive continued success of new product and program introductions • Strong performance by all brands in all channels 2 Reduce costs • Continued commitment to cost control results in SG&A leverage and margin improvement 3 Improve underperforming businesses • Cabinetry increases top and bottom line growth momentum • Installation capitalizes on strategic growth with new home construction, commercial, distribution and retrofit channels 4 Strengthen balance sheet 5 • Strong working capital management • Retired $200M debt maturity
  • 6. Masco Q3 2013 Results – Agenda Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A 6
  • 7. Double Digit Sales Growth for Two Consecutive Quarters ($ in Millions) Third Quarter 2013 Revenue $2,150 Growth Adjusted Operating Profit* Y-O-Y Change 12% $222 $74 Adjusted Operating Margin* 10.3% Adjusted EPS* $0.27 Y-O-Y Change 260 bps *See appendix for GAAP reconciliation Quarter Highlights • • Sales growth driven by new products at retail and new home construction • Continued cost containment drives 140 bps improvement in SG&A • 7 North American sales increased 13%; International sales increased 5% in local currency Operating profit expansion reflects favorable operating leverage
  • 8. Double Digit Margins for the First Time Since Q3 2007 Y-O-Y Change in Operating Profit $74M 8 *See appendix for GAAP reconciliation
  • 9. Plumbing Products: Strong Growth Momentum Continues ($ in Millions) Third Quarter 2013 Revenue $820 Adjusted Operating Profit* $124 Growth 11% Y-O-Y Change Adjusted Operating Margin* Y-O-Y Change $43 15.1% 410 bps *Excluding business rationalization charges of $6 million in each of the third quarters of 2013 and 2012. Quarter Highlights • • North American sales growth partially offset by lost bathware business • 9 North American faucet and toilet sales growth percentage in the midteens Margins impacted by improved International results, favorable price/commodity relationship, and total cost productivity efforts
  • 10. Decorative Architectural Products: New Product Introductions Drive Top Line ($ in Millions) Third Quarter 2013 Revenue $522 Operating Profit $93 Growth Y-O-Y Change Operating Margin Y-O-Y Change 9% ($3) 17.8% (220) bps Quarter Highlights • • 10 New product introductions, Pro, and International drove gallon growth percentage in the low-teens Margins impacted by increased volume, which was more than offset by an unfavorable price/commodity relationship; and increased advertising and promotions of ~$10 million to drive gallon growth
  • 11. Cabinets and Related Products: Volume Growth in All Sales Channels; Strong Operating Leverage ($ in Millions) Revenue Growth Third Quarter 2013 $262 15% Adjusted Operating Profit* $1 Y-O-Y Change Adjusted Operating Margin* Y-O-Y Change $21 0.4% 920 bps *Excluding business rationalization charges of $3 million and $8 million in the third quarters of 2013 and 2012, respectively. Quarter Highlights • • Growth driven by increased sales in all channels, including direct to builder, dealer, and retail • Margins positively impacted by reduced promotional activity and productivity improvements; partially offset by negative mix • 11 North American cabinet sales grew 20%, excluding countertops Excludes Danish RTA business, which is in discontinued operations
  • 12. Installation and Other Services: Continued Execution Drives Top and Bottom Line Growth ($ in Millions) Third Quarter 2013 Revenue $370 Adjusted Operating Profit* $19 Growth Y-O-Y Change Adjusted Operating Margin* Y-O-Y Change 19% $20 5.1% 540 bps *Excluding business rationalization charges of $1 million in each of the third quarters of 2013 and 2012. Quarter Highlights • • 12 Sales growth driven by higher volumes in residential new home construction, commercial, distribution, and retrofit channels Margin improvement driven by operating leverage and productivity improvements
  • 13. Other Specialty Products: Strong Performance Reflects Window Share Gains ($ in Millions) Third Quarter 2013 Revenue $176 Adjusted Operating Profit* $16 Growth 13% Y-O-Y Change Adjusted Operating Margin* Y-O-Y Change $- 9.1% (120) bps *Excluding business rationalization charge of $1 million and change in warranty estimate of $12 million in the third quarter of 2012. Quarter Highlights • • Sales growth driven by increased new home construction and repair & remodel activity, and new product introductions • 13 North American window sales growth percentage in the mid-teens Benefit of increased sales volume offset by mix and other costs, including ERP system implementation
  • 14. Strengthening the Balance Sheet • Retired $200M debt maturity in August with existing cash • Working capital as a percent of sales improved to 12.1% in Q3 2013, compared to 14.8% in Q3 2012 Balance Sheet Liquidity as of 9/30/2013 Cash and cash investments Short-term bank deposits $0.3B Total 14 $1.0B $1.3B
  • 15. Masco Q3 2013 Results – Agenda Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A 15
  • 16. Delivering on 2013 Priorities – Q3 Highlights Cabinet profit improvement Profitably grow Installation Successfully launch new products and programs Reduce debt by ~$200M Investment in strategic growth initiatives Grow share of key brands Total cost productivity Geographic expansion 16
  • 17. Outlook Risks Opportunities • Velocity of U.S. economic recovery • Improving repair and remodel demand • Consumer confidence • Continued growth in new home construction • Global economic uncertainty • Mix shifts • Commodity volatility • Successful new product and program launches at retail • Share gains at retail and with big builders • Strong liquidity • Capitalize on operating leverage 17
  • 18. Q&A
  • 19. Appendix – Profit Reconciliation – Third Quarter ($ in Millions) Q3 2013 Q3 2012 Sales $ 2,150 $ 1,913 Gross Profit – As Reported $ 607 $ 500 6 Gross Profit – As Adjusted $ 10 - Rationalization charges Other Specialty Products - warranty 12 613 $ 522 Gross Margin - As Reported 28.2% 26.1% Gross Margin - As Adjusted 28.5% 27.3% Operating Profit – As Reported $ Rationalization charges 212 $ 108 10 27 Other Specialty Products - warranty - 12 Charge for litigation settlements, net - 1 Operating Profit – As Adjusted $ 222 $ 148 Operating Margin - As Reported 5.6% Operating Margin - As Adjusted 19 9.9% 10.3% 7.7%
  • 20. Appendix – EPS Reconciliation – Third Quarter (in Millions) Income from Continuing Operations before Income Taxes – Q3 2013 As Reported Q3 2012 $ $ Rationalization charges 154 51 10 27 Gain from financial investments, net - (2) Charge for litigation settlements, net - 1 Other Specialty Products - warranty - 12 Income from Continuing Operations before Income Taxes – As Adjusted $ Tax at 36% rate benefit (expense) 164 $ 89 (59) 11 Less: Net income attributable to non-controlling interest (32) 9 Net Income, as adjusted $ 94 $ 48 Income per common share, as adjusted $ 0.27 $ 0.14 Average Diluted Shares Outstanding 20 352 350
  • 21. 2013 Guidance Estimates ($ in Millions) 2013 Estimate 2012 Actual Rationalization Charges1, 3 ~ $55 $78 Tax Rate ~ 25% 198% Interest Expense ~ $240 $254 General Corp. Expense2 ~ $130 $126 Capital Expenditures ~ $125 $119 Depreciation & Amortization3 ~ $190 $214 352 million 349 million Shares Outstanding 1 – 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 and estimated accelerated depreciation for the year ended December 31, 2013 of ~$15M. Such expenses are also included in the rationalization charges. 21
  • 22. Segment Mix Full Year 2012 Estimate Business Segment Revenue 2012 % of Total R&R% vs. NC NA% vs. Int’l Plumbing Products $3.0B 40% 82% 59% Decorative Architectural Products $1.8B 24% 99% 100% Cabinets and Related Products $0.9B 12% 69% 92% Installation and Other Services $1.2B 16% 16% 100% Other Specialty Products $0.6B 8% 75% 75% 73% 80% Total company 22 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 $7.5B 100%
  • 23. 2012 Masco International Revenue Split* 6% 15% 26% 11% Other United Kingdom Northern Europe Southern Europe Central Europe Eastern Europe 34% 3% 5% Emerging Markets International Sales Accounted for ~20% of Total 2012 Masco Sales 23 *Based on company estimates