PDF 699 KB - Masco Corporation

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PDF 699 KB - Masco Corporation

First Quarter 2011

Masco Earnings Presentation

Tuesday, April 26, 2011

8:00 a.m. ET

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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.

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Q1 2011 Overview

• Net sales decreased 4% to $1.8 billion, reflecting:


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

• Excluding business rationalization charges, gains from financial investments and

adjusting for a normal tax rate of 36%, (loss) income, as reconciled, was $(.05) per

common share compared to $.03 per common share in the first quarter of 2010

• Loss as reported, was $(.13) per common share compared to $(.02) per common

share in the first quarter of 2010

• Results, as reported, include gains from financial investments of $17 million pre-tax

• Gross profit margins, as adjusted, decreased 140 basis points to 25.3% compared to

the first quarter of 2010

• Working capital, as a percent of sales, improved to 15.5% compared to 16.3%

$1.5 Billion of Cash at March 31, 2011

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Q1 2011 Profit

Reconciliation

($ in Millions) Q1 2011 Q1 2010

Sales $ 1,772 $ 1,852

Gross Profit – As Reported $ 425 $ 492

Rationalization Charges 24 3

Gross Profit – As Adjusted $ 449 $ 495

Gross Margin - As Reported 24.0% 26.6%

Gross Margin - As Adjusted 25.3% 26.7%

Operating Income – As Reported $ 21 $ 78

Rationalization Charges 32 14

Operating Profit – As Adjusted $ 53 $ 92

Operating Margin - As Reported 1.2% 4.2%

Operating Margin - As Adjusted 3.0% 5.0%

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Q1 2011 EPS

Reconciliation

($ in Millions) Q1 2011 Q1 2010

(Loss) Income before Income Taxes – As Reported $ (21) $ 22

Rationalization charges 32 14

Gains from financial investments (17) -

(Loss) Income before Income Taxes – As Adjusted (6) 36

Tax at 36% rate benefit (expense) 2 (13)

Less: Net income attributable to non-controlling interest (12) (11)

Net (Loss) Income – as adjusted $ (16) $ 12

(Loss) Earnings per common share – as adjusted $ (0.05) $ 0.03

Shares 349 350

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Cabinets and Related Products

Financial Performance Q1 2011

Commentary

($ in Millions)

1 st QTR

3 Months Ended

3/31/11

3/31/11

vs.

3/31/10

3/31/2011 3/31/2010 $ %

Net Sales $307 $403 ($96) (24%)

Operating (Loss)* $(29) $(4) $(25) N/A

Operating Margin (9.4%) (1.0%)

Decremental

Margin

(26%)

Brands

• Excluding sales related to planned product

exits, sales were down 13%

• Decremental margin reflects:

−Volume

−Under-absorption of fixed costs

−Less favorable price/commodity

relationships

−Items above were partially offset by the

benefits associated with business

rationalizations and other cost savings

initiatives

*Excludes business rationalization charges of $21M & $11M in the first quarter of 2011 & 2010, respectively. See

Analyst Package for GAAP reconciliation.

®

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Cabinets and Related Products

Q1 2011 Update

• Benefitting from the North American cabinet integration

− Gaining share, sequentially first quarter of 2011 versus fourth quarter of 2010

− New dealers are being added rapidly

• Reduced dealer set-up time

• Over 300 dealers have added a Masco Cabinetry brand since April 2010

• Countertop model continuing to gain traction

• Exit of ready-to-assemble cabinetry to be completed by the end of

second quarter of 2011

• European markets continue to be challenging

• Lowered fixed costs by approximately $180 million since 2006

• Segment break-even sales estimated at $1.6 billion

With housing starts at ~1.1 – 1.3 million, and a normalized repair and remodel

environment, segment is expected to return to double-digit margins

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Plumbing Products

Financial Performance Q1 2011

($ in Millions)

1 st QTR

3 Months Ended

3/31/11

3/31/11

vs.

3/31/10

3/31/2011 3/31/2010 $ %

Net Sales $710 $663 $47 7%

Operating Profit* $90 $85 $5 N/A

Operating Margin 12.7% 12.8%

Incremental

Margin

11%

Commentary

Brands

• Increased sales volume in North America and

from global expansion

• Incremental margin lower due to:

−Less favorable price/commodity

relationships

−Less favorable product mix

*Excludes business rationalization charges of $6M & $1M in the first quarter of 2011 & 2010, respectively. See

Analyst Package for GAAP reconciliation.

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Plumbing Products

Q1 2011 Update

• Continue to invest in brand building, innovation and design

• Gaining share in faucets at wholesale and retail

• Innovative technology is resonating with the consumer

− Touch 2 O ® technology is launching in lavatory faucets in April 2011

• Global expansion model is well-developed at Hansgrohe and is

being applied at Delta Faucet

• Extending the Delta brand to adjacent product categories, including

tub and shower bathing systems

• In recognition of the effectiveness of the marketing and

communications campaign for Touch 2 O ® products, Delta Faucet is a

2011 finalist for the Effie Award, the most prestigious honor in

advertising

• Hansgrohe has again received the Product Design Award from the

Federal Republic of Germany, a prestigious award in the field of

design in Germany

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Installation and Other Services

Financial Performance Q1 2011

($ in Millions)

1 st QTR

3 Months Ended

3/31/2011

3/31/11

vs.

3/31/10

3/31/2011 3/31/2010 $ %

Net Sales $254 $273 $(19) (7%)

Operating (Loss)* $(38) $(40) $2 N/A

Operating Margin (15.0%) (14.7%)

Decremental

Margin

N/A

Commentary

Businesses

• Lower sales volume due to decline in new home

construction market

• Improvement in operating loss due to:

−Benefits associated with business

rationalizations and other cost savings

initiatives

Contractor

Distributor

Framing

Contractor

*Excludes business rationalization charges of $2M in both the first quarters of 2011 & 2010. See Analyst Package for

GAAP reconciliation.

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Installation and Other Services

Q1 2011 Update

• Continuing to improve our insulation position

− Added salespeople

− Expanded strategic relationship with Owens Corning

• Gaining share, sequentially first quarter of 2011 versus fourth quarter of 2010

• Continued retrofit sales gains in 2011

• ERP system will be fully implemented by the end of the second quarter of 2011

− Poised to deliver significant benefits to our customers

− Establishing a lean culture to achieve additional cost savings

• Leveraging expanded footprint at Service Partners

• Lowered fixed costs in excess of $180 million

• Segment break-even estimated at 700,000 to 750,000 housing starts

With housing starts at ~1.1 – 1.3 million, segment is expected to

return to high single-digit margins

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Decorative Architectural Products

Financial Performance Q1 2011

($ in Millions)

1 st QTR

3 Months Ended

3/31/2011

3/31/11

vs.

3/31/10

3/31/2011 3/31/2010 $ %

Net Sales $375 $389 $(14) (4%)

Operating Profit* $70 $87 $(17) N/A

Operating Margin 18.7% 22.4%

Decremental

Margin

( 121%)

Commentary

Brands

• Decline in sales volume of paints and stains and

builders’ hardware (principally due to the loss of

Wal-Mart business)

• Decremental margin due to:

−Volume

−Program costs related to new opportunities

−Less favorable price/commodity

relationships

• Successfully managing tight supply of

raw materials

*Excludes business rationalization charges of $1M for the first quarter of 2011. See Analyst

Package for GAAP reconciliation.

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Decorative Architectural Products

Q1 2011 Update

• Leveraging our resources to expand top-line growth

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

− Launched the Kilz ® Pro-X coatings line program in first quarter of 2011

with all The Home Depot stores to be set by the end of the second

quarter of 2011

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

low VOC formula

− Committed resources to facilitate international expansion of our paint

business

• Behr has once again achieved #1 rankings in a recent leading

consumer study

• Based on 2011 Harris poll, Kilz ranked highest among paint brands

for the second year in a row

• Behr increased its share across all DIY architectural coatings

categories *

• Aggressively pursuing new business in bath and cabinet hardware

* Source: TraQline

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Other Specialty Products

Financial Performance Q1 2011

($ in Millions)

1 st QTR

3 Months Ended

3/31/2011

3/31/11

vs.

3/31/10

3/31/2011 3/31/2010 $ %

Net Sales $126 $124 $2 2%

Operating (Loss) $(10) ($6) $(4) N/A

Operating Margin (7.9%) (4.8%)

Decremental

Margin

N/A

Commentary

Brands

• Sales increases primarily a result of share gains,

geographic expansion and new products

• Increased operating loss due to:

−New product launch and geographic

expansion costs

−Unfavorable price/commodity relationships

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Other Specialty Products

Q1 2011 Update

• Milgard Manufacturing continuing to gain share in the Western

United States housing market in the first quarter of 2011

• Milgard Manufacturing is expanding into new geographies including

Texas and Western Canada

• U.K. Window Group continuing to gain share in the first quarter of

2011

• Arrow Fastener is reinventing their core product line with the launch

of the R.E.D. tool line

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Q1 2011 Working Capital

15.5%

16.3%

50

51

Working Capital % of Sales

Accounts Receivable Days

55

53

57

49

Inventory Days

Q1 -2011 Q1 - 2010

Accounts Payable Days

Q1 - 2011 Q1 -2010

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Wrap-Up Comments

• Anticipate slow start but improving market conditions in 2011

− 2011 total housing starts forecast – up approximately 10%

− Expect modest improvement in repair and remodel activity

• Will continue to focus on what we can control to improve execution and

strengthen our brands




Embed Masco Business System across Masco

Continue to invest in innovation

Aggressively manage our fixed cost structure

• Since 2006, ~$500 million gross reduction

• Operational priorities



Installation business

Masco Cabinetry integration / strategy

• We believe long-term fundamentals for our markets continue to be positive

• We expect to outperform the recovery and create significant value for our

shareholders as the housing industry recovers

We believe we can achieve low double-digit to mid-teen margins in

a market recovery at $10-$12 billion of sales

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Questions & Answers

18


Appendix

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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 March 31, 2011

Approximately $1 billion of borrowing availability on the line today

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Outstanding Debt Maturities

March 31, 2011

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

$1,200

Zero Coupon

($ In Millions)

Fixed

$800

$400

$0

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

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Q1 2011 Results (As Reported)

($ In Millions) Net Sales Change in Sales Operating Margin*

Q1 2011 Q1 2010 2011 vs. 2010 Q1 2011 Q1 2010

Cabinets and Related Products $307 $403 (24%) (16.3%) (3.7%)

Plumbing Products 710 663 7% 11.8% 12.7%

Installation and Other Services 254 273 ( 7%) ( 15.7%) (15.4%)

Decorative Architectural Products 375 389 ( 4%) 18.4% 22.4%

Other Specialty Products 126 124 2% (7.9%) (4.8%)

Total $1,772 $1,852 ( 4%) 3.0% 5.8%

North America $1,333 $1,430 (7%) .8% 4.5%

International 439 422 4% 9.6% 10.4%

Total $1,772 $1,852 (4%) 3.0% 5.8%

* Operating margin is before general corporate expense, net. See Analyst Package for GAAP reconciliation.

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Q1 2011 Gross Profit/SG&A

First Quarter

$425

24.0%

$492

26.6%

($ in Millions)

• Gross profit negatively impacted by:




Increased rationalization charges

Less favorable relationship between

selling prices and commodity costs

Lower sales volume

Gross Profit / Margin

$404

22.8%

$414

22.4%

• SG&A as a percent of sales increased

due to:



Lower sales volume

Increased advertising and trade show

expenses

SG&A as a % of Sales

Q1 - 2011 Q1 - 2010

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

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Q1 2011 Segment Rationalization Charges

($ in Millions)

Severance

Rationalization Charges - Q1 2011

Plant

Closures

ERP

RTA Exit

Total -

Q1 2011

Q1 2010

Total -

Q1 2010

Cabinets and Related Products $ - $ (2) $ - $ (19) $ (21) $ (11)

Plumbing Products - (6) - - (6) (1)

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

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

Other Specialty Products - - - - - -

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

Total Q1 2011 $ (1) $ (10) $ (2) $ (19) $ (32) $ (14)

Total Q1 2010 $ (3) $ (8) $ (3) $ - $ (14)

Change $ 2 $ (2) $ 1 $ (19) $ (18)

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Cabinets & Related Products

Q1 2011 Segment Dynamics

Drivers of Q1 2011 Sales Decline

Product

Exit

Reduced

Activity Currency Total

North America $53 $27 $-- $80

International --- 15 1 16

$53 $42 $1 $96

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2011 Estimate - Other Financial Data

($ in Millions)

2011 Estimate 2010 Actual

Rationalization Charges* ~ $65 $208

Tax Rate** ~ 60% 32%

Interest Expense ~ $250 $251

General Corp. Expense ~ $140 $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.

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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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