Q3 2013 Earnings Presentation

Third Quarter 2013 Masco Earnings Presentation

Presenter

Presentation Notes

Safe Harbor Statement

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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. 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.

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.

http://www.masco.com/

Masco Q3 2013 Results – Agenda

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Topic

• Summary of Results Tim Wadhams

• Financial/Operations Review John Sznewajs

• Outlook Tim Wadhams

• Q&A

Key Messages Today

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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

Operating leverage and cost control improves profitability; Best return on sales since Q3 2007

Cabinets and Installation deliver significant year-over-year improvement

Strategy Execution Highlights Q3 2013

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Expand market leadership

Reduce costs

Improve underperforming businesses

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2

3

Strengthen balance sheet

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• Investments in innovation drive continued success of new product and program introductions

• Strong performance by all brands in all channels

• Continued commitment to cost control results in SG&A leverage and margin improvement

• Cabinetry increases top and bottom line growth momentum

• Installation capitalizes on strategic growth with new home construction, commercial, distribution and retrofit channels

• Strong working capital management

• Retired $200M debt maturity


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Topic




• Q&A

Double Digit Sales Growth for Two Consecutive Quarters

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($ in Millions) Third Quarter

2013

Revenue Growth

$2,150 12%

Adjusted Operating Profit* Y-O-Y Change

$222 $74

Adjusted Operating Margin* Y-O-Y Change

10.3% 260 bps

Adjusted EPS* $0.27

Quarter Highlights

• North American sales increased 13%; International sales increased 5% in local currency

• Sales growth driven by new products at retail and new home construction

• Continued cost containment drives 140 bps improvement in SG&A

• Operating profit expansion reflects favorable operating leverage

*See appendix for GAAP reconciliation

Double Digit Margins for the First Time Since Q3 2007

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Y-O-Y Change in Operating Profit $74M

*See appendix for GAAP reconciliation

Plumbing Products: Strong Growth Momentum Continues

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Quarter Highlights

• North American faucet and toilet sales growth percentage in the mid-teens

• North American sales growth partially offset by lost bathware business

• Margins impacted by improved International results, favorable price/commodity relationship, and total cost productivity efforts


2013

Revenue Growth

$820 11%


$124 $43


15.1% 410 bps

*Excluding business rationalization charges of $6 million in each of the third quarters of 2013 and 2012.

Decorative Architectural Products: New Product Introductions Drive Top Line

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Quarter Highlights

• 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


2013

Revenue Growth

$522 9%

Operating Profit Y-O-Y Change

$93 ($3)

Operating Margin Y-O-Y Change

17.8% (220) bps

Presenter

Presentation Notes

Cabinets and Related Products: Volume Growth in All Sales Channels; Strong Operating Leverage

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Quarter Highlights

• North American cabinet sales grew 20%, excluding countertops

• 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

• Excludes Danish RTA business, which is in discontinued operations


2013

Revenue Growth

$262 15%


$1 $21


0.4% 920 bps

*Excluding business rationalization charges of $3 million and $8 million in the third quarters of 2013 and 2012, respectively.

Presenter

Presentation Notes

Installation and Other Services: Continued Execution Drives Top and Bottom Line Growth

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Quarter Highlights

• 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


2013

Revenue Growth

$370 19%


$19 $20


5.1% 540 bps

*Excluding business rationalization charges of $1 million in each of the third quarters of 2013 and 2012.

Other Specialty Products: Strong Performance Reflects Window Share Gains

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Quarter Highlights

• North American window sales growth percentage in the mid-teens

• Sales growth driven by increased new home construction and repair & remodel activity, and new product introductions

• Benefit of increased sales volume offset by mix and other costs, including ERP system implementation


2013

Revenue Growth

$176 13%


$16 $-


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.

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

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Balance Sheet Liquidity as of 9/30/2013

Cash and cash investments $1.0B

Short-term bank deposits $0.3B

Total $1.3B


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Topic




• Q&A

Delivering on 2013 Priorities – Q3 Highlights

Investment in strategic growth initiatives

Geographic expansion

Total cost productivity

Reduce debt by ~$200M

Cabinet profit improvement

Profitably grow Installation

Grow share of key brands

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Successfully launch new products and programs

Outlook

Risks Opportunities

• Velocity of U.S. economic recovery

• Consumer confidence

• Global economic uncertainty

• Mix shifts

• Commodity volatility

• Improving repair and remodel demand

• Continued growth in new home construction

• Successful new product and program launches at retail

• Share gains at retail and with big builders

• Strong liquidity

• Capitalize on operating leverage

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Q&A

Appendix – Profit Reconciliation – Third Quarter

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($ in Millions) Q3 2013 Q3 2012 Sales $ 2,150 $ 1,913

Gross Profit – As Reported $ 607 $ 500 Rationalization charges 6 10 Other Specialty Products - warranty - 12 Gross Profit – As Adjusted $ 613 $ 522 Gross Margin - As Reported 28.2% 26.1% Gross Margin - As Adjusted 28.5% 27.3%

Operating Profit – As Reported $ 212 $ 108

Rationalization charges 10 27 Other Specialty Products - warranty - 12 Charge for litigation settlements, net - 1

Operating Profit – As Adjusted $ 222 $ 148 Operating Margin - As Reported 9.9% 5.6% Operating Margin - As Adjusted 10.3% 7.7%

Presenter

Presentation Notes

Added and deleted categories

Appendix – EPS Reconciliation – Third Quarter

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(in Millions) Q3 2013 Q3 2012

Income from Continuing Operations before Income Taxes – As Reported $ 154 $ 51

Rationalization charges 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 $ 164 $ 89

Tax at 36% rate benefit (expense) (59) (32)

Less: Net income attributable to non-controlling interest 11 9

Net Income, as adjusted $ 94 $ 48

Income per common share, as adjusted $ 0.27 $ 0.14

Average Diluted Shares Outstanding 352 350

Presenter

Presentation Notes

Added and deleted categories

($ 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

Shares Outstanding 352 million 349 million

2013 Guidance Estimates

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.

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Segment Mix Full Year 2012 Estimate

Business Segment

Cabinets and Related Products

Plumbing Products

Installation and Other Services

Decorative Architectural Products

$0.9B

$3.0B

$1.2B

$1.8B

Revenue 2012 % of Total

40%

24%

12%

16%

$7.5B 100% Total company

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Other Specialty Products $0.6B 8%

R&R% vs. NC NA% vs. Int’l

82% 59%

99% 100%

69% 92%

16% 100%

75% 75%

73% 80%

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

2012 Masco International Revenue Split*

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International Sales Accounted for ~20% of Total 2012 Masco Sales

6%

26%

3% 5%

34%

11%

15%

Other

United Kingdom

Northern Europe

Southern Europe

Central Europe

Eastern Europe

Emerging Markets