View Presentation (PDF 729 KB) - Masco Corporation

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View Presentation (PDF 729 KB) - Masco Corporation

Second Quarter 2011

Masco Earnings Presentation

Tuesday, July 26, 2011

8:00 a.m. ET

1


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. Forwardlooking

statements can be identified by words such as “believe,” “anticipate,” “appear,” “may,” “will,” “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 the Masco Business System and other initiatives. 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 forwardlooking

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 these 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


Q2 2011 Overview






Net sales decreased 1% to $2.0 billion, reflecting:


Lower sales volume related to Cabinets, including planned product exits, Installation

and Decorative Architectural Products

Excluding business rationalization charges, gains and impairments from financial

investments, and adjusting for a normal tax rate of 36%, income, as reconciled, was $.05

per common share compared to $.16 per common share in the second quarter of 2010

Income as reported, was $.02 per common share compared to $.01 per common share in

the second quarter of 2010

Results, as reported, include gains from financial investments of $33 million pre-tax in the

second quarter of 2011 and impairment charges for financial investments of $33 million pretax

in the second quarter of 2010

Gross profit margins, as adjusted, decreased 150 basis points to 26.9% compared to the

second quarter of 2010

Working capital, as a percent of sales, improved to 15.6%

$1.6 Billion of cash at June 30, 2011

3


Q2 2011 Profit

Reconciliation

($ in Millions) Q2 2011 Q2 2010

Sales $ 2,022 $ 2,048

Gross Profit – As Reported $ 532 $ 546

Rationalization Charges 11 36

Gross Profit – As Adjusted $ 543 $ 582

Gross Margin - As Reported 26.3% 26.7%

Gross Margin - As Adjusted 26.9% 28.4%

Operating Income – As Reported $ 91 $ 119

Rationalization Charges 15 51

Litigation Charge 5 -

Operating Profit – As Adjusted $ 111 $ 170

Operating Margin - As Reported 4.5% 5.8%

Operating Margin - As Adjusted 5.5% 8.3%

4


Q2 2011 EPS

Reconciliation

($ in Millions) Q2 2011 Q2 2010

Income before Income Taxes – As Reported $ 58 $ 16

Rationalization Charges 15 51

Litigation Charge 5 -

Financial Investment Gains (33) -

Impairment of Financial Investments - 33

Income before Income Taxes – As Adjusted 45 100

Tax at 36% rate benefit (expense) (16) (36)

Less: Net income attributable to non-controlling interest (12) (9)

Net Income – as adjusted $ 17 $ 55

Earnings per common share – as adjusted $ 0.05 $ 0.16

Shares 349 349

5


Cabinets and Related Products

Financial Performance Q2 2011

($ in Millions)

2 nd QTR

3 Months Ended

6/30/11

vs.

6/30/10

6/30/2011 6/30/2010 $ %

Net Sales $330 $400 $(70) (18%)

Operating (Loss) Profit* $(21) $6 $(27) N/A

Operating Margin (6.4%) 1.5%

Decremental Margin (39%)

Commentary

Brands

Excluding sales related to planned product

exits, sales were down ~6%

Margins impacted by:

−Volume

−Under-absorption of fixed costs

−Unfavorable price/commodity relationship

−Increased promotional costs

®

*Excludes business rationalization charges of $6M & $43M in the second quarter of 2011 & 2010, respectively.

See Analyst Package for GAAP reconciliation.

6


Cabinets and Related Products

Q2 2011 Update








Benefitting from the North American cabinet integration

− Over 400 dealers have committed to the addition of a Masco Cabinetry brand since

April 2010

− On track to achieve $35-$40 million of savings by end of 2012

Completed common architecture program

Countertop model continuing to gain traction

− Driving higher attachment rates

Idled Los Lunas, New Mexico manufacturing facility

Completed exit of ready-to-assemble cabinetry

KraftMaid Cabinetry ranked “Highest in Customer Satisfaction with Cabinets” by

J.D. Power and Associates 2011 U.S. Kitchen Cabinet Satisfaction Study SM

European markets continue to be challenging

Lowered fixed costs by approximately $180 million since 2006

7


Plumbing Products

Financial Performance Q2 2011

($ in Millions)

2 nd QTR

3 Months Ended

6/30/11

vs.

6/30/10

6/30/2011 6/30/2010 $ %

Net Sales $761 $682 $79 12%

Operating Profit* $100 $92 $8 N/A

Operating Margin 13.1% 13.5%

Incremental

Margin

10%

Commentary

Increased sales volume due to:

−Hansgrohe ® and Delta ® brands gaining

share

−Positive impact of currency translation

Brands

Margins impacted by:

−Unfavorable price/commodity relationship

−Unfavorable mix

−Investment to support strategic growth

initiatives

*Excludes business rationalization charges of $5M & $6M in the second quarter of 2011 & 2010, respectively. See

Analyst Package for GAAP reconciliation.

8


Plumbing Products

Q2 2011 Update

Continue to invest in brand building, international growth, innovation

and design

Strong performance in the U.S. with Delta ® , Peerless ® , and Brizo ®

brands

− Gaining share at wholesale and retail

Innovative technology is resonating with the consumer

− Touch 2 O ® technology launched with lavatory faucets in Q2

Extending the Delta ® brand to adjacent product categories, including

tub and shower bathing systems

Gaining share in hot tubs and spas with our HotSpring ® and

Caldera ® brands

Delta Faucet won the 2011 Silver Effie Award, a prestigious

advertising award, in recognition of the effectiveness of the

marketing and communications campaign for Touch 2 O ® products

9


Installation and Other Services

Financial Performance Q2 2011

($ in Millions)

2 nd QTR

3 Months Ended

6/30/11

vs.

6/30/10

6/30/2011 6/30/2010 $ %

Net Sales $294 $309 $(15) (5%)

Operating (Loss)* $(24) $(21) $(3) N/A

Operating Margin (8.2%) (6.8%)

Decremental

Margin

(20%)

Commentary

Businesses

Lower sales volume due to decline in new home

construction starts:

−7% decline in 90 day lagged housing starts

Contractor

Distributor

Framing

Contractor

Margins impacted by:

−Investment to support strategic growth

initiatives

−Under-absorption of fixed costs

*Excludes business rationalization charges of $2M in both the second quarter of 2011 & 2010. See Analyst

Package for GAAP reconciliation.

10


Installation and Other Services

Q2 2011 Update

Continued retrofit sales gains in 2011

Sequential share gains from Q1 2011

Increasing strategic alliances with big builders

Fully implemented ERP system and realizing initial benefits

Benefitting from a lean culture that we expect will drive additional

cost savings

Lowered fixed costs in excess of $180 million since 2006

11


Decorative Architectural Products

Financial Performance Q2 2011

($ in Millions)

2 nd QTR

3 Months Ended

6/30/11

vs.

6/30/10

6/30/2011 6/30/2010 $ %

Net Sales $492 $505 $(13) (3%)

Operating Profit $90 $109 $(19) N/A

Operating Margin 18.3% 21.6%

Decremental Margin (146%)

Commentary

Brands

Decline in sales volume of paints and stains and

builders’ hardware (including the loss of Wal-Mart

business)

Continued commodity cost pressure

Margins impacted by:

−Volume

−Timing of advertising spend

−Program costs related to new opportunities

−Investment in Direct to Pro ® and international

expansion

12


Decorative Architectural Products

Q2 2011 Update

Leveraging our resources to expand top-line growth

− Direct to Pro ® program with The Home Depot continues to gain traction

− Kilz ® Pro-X coatings line set in all The Home Depot stores in Q2

− Continue to upgrade core Premium Plus ® paint line by introducing new

low VOC formula

− Continue our focus on the international expansion of our paint business

Liberty launching new programs at retail in bath and cabinet

hardware

13


Other Specialty Products

Financial Performance Q2 2011

($ in Millions)

2 nd QTR

3 Months Ended

6/30/11

vs.

6/30/10

6/30/2011 6/30/2010 $ %

Net Sales $145 $152 $(7) (5%)

Operating Profit $-- $11 $(11) N/A

Operating Margin --% 7.2%

Decremental Margin (157%)

Commentary

Sales declines reflect:

−Lower repair & remodel activity

−Significant decline in western U.S. new

home construction starts

Brands

Margins impacted by:

−Volume

−Under-absorption of fixed costs

−Investment to support strategic growth

initiatives

14


Other Specialty Products

Q2 2011 Update

Milgard Manufacturing continuing to gain share in the western United

States

Milgard Manufacturing is expanding into new geographies, including

Texas and western Canada

U.K. Window Group continuing to gain share

Arrow Fastener is reinventing their core product line with the launch

of the R.E.D. and Elite tool lines

− Gaining share with domestic and international retailers

15


Q2 2011 Working Capital

15.6%

16.1%

50

50

Working Capital % of Sales

Accounts Receivable Days

59

55

59

51

Inventory Days

Q2 -2011 Q2 - 2010

Accounts Payable Days

Q2 - 2011 Q2 -2010

16


Wrap-Up Comments


Market conditions continue to be challenging

− 2011 total housing starts forecast projected to be flat with 2010



Repair and remodel activity still slow for larger projects

Will continue to focus on what we can control




Improve execution through the Masco Business System

Continue to invest in innovation, leadership brands and global expansion

Aggressively manage our fixed cost structure




Since 2006, ~$500 million gross reduction

Operational priorities


Installation and Cabinets

We are confident in the long-term fundamentals for our markets and as such have

continued to invest in:





Increasing our penetration in the North American Cabinet Dealer channel

Increasing our penetration with the professional painter

Launching new programs this year in Plumbing, Cabinets and Builders’ Hardware

Developing international opportunities for Paint and Plumbing

17


Questions & Answers

18


Appendix

19


Masco Credit Facility

$1.25 billion line established in June 2010 (amended in February

2011) with two financial covenants

− Total debt to adjusted total capitalization threshold (65%)

− Interest coverage (adjusted EBITDA/Interest Expense)

In compliance with all covenants and had no borrowings outstanding

at June 30, 2011

Approximately $1 billion of borrowing availability on the line today

20


$1,200

$800

$400

$0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Outstanding Debt Maturities

June 30, 2011

($ In Millions)

Zero Coupon Fixed

2032

2033

2034

2035

2036

Zero Coupon Notes have a put date of July 20, 2011.

21


Q2 2011 Results (As Reported)

Change in

Net Sales Operating Margin *

Sales

Q2 2011 Q2 2010

Q2 2011 vs.

Q2 2010 Q2 2011 Q2 2010

Cabinets and Related Products $ 330 $ 400 -18% -8.2% -9.3%

Plumbing Products 761 682 12% 12.5% 12.6%

Installation and Other Services 294 309 -5% -8.8% -7.4%

Decorative Architectural Products 492 505 -3% 18.3% 21.6%

Other Specialty Products 145 152 -5% 0.0% 7.2%

Total Segment* $ 2,022 $ 2,048 -1% 6.5% 7.1%

North America $ 1,563 $ 1,659 -6% 5.6% 6.9%

International 459 389 18% 9.8% 8.2%

Total Segment - Reported $ 2,022 $ 2,048 -1% 6.5% 7.1%

* Operating margin is before general corporate expense, net and $5M charge for litigation related to Other Specialty Products segment. See Analyst

Package for GAAP reconciliation.

22


Q2 2011 Gross Profit/SG&A

Second Quarter

$532

26.3%

$546

26.7%

($ in Millions)


Gross profit negatively impacted by:



Increased material costs as a

percentage of sales

Lower sales volume

Gross Profit / Margin

$441

21.8%

$427

20.8%

SG&A as a % of Sales

Q2 - 2011 Q2 - 2010

(SG&A includes General Corp. Expense in 2011 and 2010).


SG&A as a percent of sales increased

due to:





Legal settlement

Increased advertising and promotional

expenses

Under-absorption of fixed costs

Increased expenses to support

strategic initiatives

23


Q2 2011 Segment Rationalization Charges

($ in Millions)

Severance

Rationalization Charges - Q2 2011

Plant

Closures

ERP

RTA Exit

Total -

Q1 2011

Q2 2010 2011 YTD 2010 YTD

Total -

Q2 2010

Total

YTD - 2011

Total

YTD - 2010

Cabinets and Related Products $ - $ (3) $ - $ (3) $ (6) $ (43) $ (27) $ (54)

Plumbing Products - (5) - - (5) (6) (11) (7)

Installation and Other Services - - (2) - (2) (2) (4) (4)

Decorative Architectural Products - - - - - - (1) -

Other Specialty Products - - - - - - - -

Corp. / Other (1) (1) - - (2) - (4) -

Total Q2 2011 $ (1) $ (9) $ (2) $ (3) $ (15) $ (51) $ (47) $ (65)

Total Q2 2010 $ (6) $ (11) $ (2) $ (32) $ (51)

Change $ 5 $ 2 $ - $ 29 $ 36

24


Cabinets & Related Products

Current Segment Dynamics

Drivers of Q2 Sales Decline

Product

Exit

Reduced

Activity Currency Total

North America $49 $22 $-- $71

International --- 8 (9) (1)

$49 $30 $(9) $70

25


2011 Estimate - Other Financial Data

($ in Millions)

2011 Estimate 2010 Actual

Rationalization Charges* ~ $65 $208

Tax Rate** ~ 70% 32%

Interest Expense ~ $250 $251

General Corp. Expense ~ $135 $110

Capital Expenditures ~ $190 $137

Depreciation & Amortization ~ $260 $279

Outstanding Shares 349 million 349 million

*Based on current business plans.

**Tax rate for 2010 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge

for goodwill and other intangible assets.

26


Segment Mix Full-Year 2010 - Estimate

Segment International North America

Cabinets and

Related Products

Plumbing

Products

Installation and

Other Services

Decorative

Architectural

Products

Other Specialty

Products

New

Construction

25% 75% 25% - 30%

40% 60% 20% - 25%

-- 100% 90+%

-- 100%


Masco International Revenue Split*

6%

6%

9%

7%

11%

36%

Central Europe

United Kingdom

Emerging Markets

Eastern Europe

Northern Europe

North America

Southern Europe

25%

*Based on company estimates as of 12/31/2010.

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“Highest in Customer Satisfaction with Cabinets”

KraftMaid Cabinetry received the highest numerical score among cabinetry brands in the

proprietary J.D. Power and Associates 2011 US Kitchen Cabinet Satisfaction Study SM .

Study based on responses from 1,207 consumers measuring 7 companies and measures

opinions of consumers who purchased kitchen cabinets within the previous 12 months.

Proprietary study results are based on experiences and perceptions of consumers

surveyed in March-April 2011. Your experiences may vary. Visit jdpower.com

J.D. Power and the J.D. Power award are the marks of J.D. Power and Associates.

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