First Quarter 2013 Earnings Presentation
- 1. First Quarter 2013 Masco Earnings Presentation
- 2. Safe Harbor Statement 2 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.
- 3. Masco Q1 2013 Results – Agenda 3 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
- 4. Key Messages Today 4 Continued margin expansion Sales growth driven by increased North American new home construction activity Cabinet segment improves profitability to break-even Continued weakness in the Eurozone
- 5. Strategy Execution Highlights Q1 2013 5 Expand market leadership Reduce costs Improve underperforming businesses 1 2 3 Strengthen balance sheet 4 • Continued success with new product and program introductions at retail with Plumbing and Decorative Architectural Products • Additional greenfield locations added in Installation and Other Services • Continued commitment to cost control • Total cost productivity savings driven by lean and sourcing efforts • Cabinetry segment achieves break-even profitability on an adjusted basis • Continued improvement in operating performance at Installation and Other Services • Successfully negotiated a new five year unsecured $1.25B revolving credit facility • Strong working capital management
- 6. Masco Q1 2013 Results – Agenda 6 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
- 7. Best First Quarter Operating Margin Since 2007 7 ($ in Millions) First Quarter 2013 Revenue Growth $1,876 4% Adjusted Operating Profit* Y-O-Y Change $140 $22 Adjusted Operating Margin* Y-O-Y Change 7.5% 100 bps Adjusted EPS* $0.13 Quarterly Highlights • North American sales increased 6%; International sales decreased 2% in local currency • Sales growth driven by increased sales in new home construction and retail • Adjusted operating profit up 19%, benefitting from operating leverage and continued cost control *See appendix for reconciliation to GAAP information.
- 8. $118M $11M $6M $5M $140M Q1 2012 Operating Profit* Net Price/Commodity Net Volume/Mix Profit Improvement & All Other Net Q1 2013 Operating Profit* Commitment to Cost Control and Leverage on Increased Volume Favorably Impacting Margins 8 Y-O-Y Change in Operating Profit $22M *See appendix for reconciliation
- 9. Plumbing Products: Strong Performance in North America Partially offset by International 9 Quarterly Highlights • North American faucet and toilet sales increased mid-teens percent • North American sales growth partially offset by lost bathware business and sales declines in European markets • Margins impacted by an unfavorable commodity hedge, unfavorable mix and incremental marketing costs ($ in Millions) First Quarter 2013 Revenue Growth $762 3% Adjusted Operating Profit* Y-O-Y Change $87 ($19) Adjusted Operating Margin* Y-O-Y Change 11.4% (290) bps *Excluding business rationalization charges of $1 million and $9 million in the first quarters of 2013 and 2012, respectively.
- 10. Decorative Architectural Products: Weather Impacts Core Paint Sales Comparables; Direct to Pro and Expansion into Mexico Continue to Grow 10 Quarterly Highlights • Weather negatively impacts core paint business comparables • Behr Pro, Behr’s expansion into Mexico, and retail sales of Builder’s Hardware continue to grow • Margins positively impacted by the anniversary of pricing actions and reduced program costs ($ in Millions) First Quarter 2013 Revenue Growth $432 0% Operating Profit Y-O-Y Change $89 $16 Operating Margin Y-O-Y Change 20.6% 380 bps
- 11. Cabinets and Related Products: Segment Breaks Even; Profitable in North America 11 Quarterly Highlights • North American sales increased 5% driven by new home construction • Retail pricing and promotional strategies positively impacting results • Excludes Danish RTA business, which is in discontinued operations ($ in Millions) First Quarter 2013 Revenue Y-O-Y Change $236 4% Adjusted Operating Profit* Y-O-Y Change $ - $14 Adjusted Operating Margin* Y-O-Y Change 0% 610 bps *Excluding business rationalization charges of $4 million and $2 million in the first quarters of 2013 and 2012, respectively.
- 12. Installation and Other Services: Continued Positive Momentum on Top and Bottom Line 12 Quarterly Highlights • Sales growth driven by higher volumes in residential new home construction partially offset by the mix shift in starts composition • Installation sales to residential new home construction increased ~30% • Margin improvement driven by operating leverage and continued cost control ($ in Millions) First Quarter 2013 Revenue Growth $312 12% Operating Loss Y-O-Y Change ($4) $10 Operating Margin Y-O-Y Change (1.3%) 370 bps
- 13. Other Specialty Products: Strong Performance Reflects Share Gains and Profit Improvement 13 Quarterly Highlights • North American window sales increased ~20% • Sales growth driven by increased new home construction and repair & remodel sales, new product introductions and share gains • Margin improvement driven by operating leverage and continued cost control ($ in Millions) First Quarter 2013 Revenue Y-O-Y Change $134 8% Adjusted Operating Profit* Y-O-Y Change $2 $7 Adjusted Operating Margin* Y-O-Y Change 1.5% 550 bps *Excluding business rationalization charges of $3 million in the first quarter of 2013.
- 14. Strengthening the Balance Sheet • Continued strong working capital execution • We successfully entered into a new five year $1.25 billion unsecured revolving credit facility 14 $1.0 billion of cash as of 3/31/2013
- 15. Masco Q1 2013 Results – Agenda 15 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
- 16. Delivering on 2013 Priorities - Q1 Highlights Investment in strategic growth initiatives Geographic expansion Total cost productivity Reduce debt by ~$200M Cabinet profit improvement Profitably grow Installation Grow share of key brands 16 Successfully launch new products and programs
- 17. 2013 Outlook Risks Opportunities • European economic uncertainty • Mix shifts • Commodity volatility • Improving demand in new home construction • Successful new product and program launches at retail • Share gains at retail and with big builders • Strong liquidity • Capitalize on operating leverage 17
- 18. Q&A
- 19. Appendix
- 20. Appendix – Profit Reconciliation – First Quarter 20 ($ in Millions) Q1 2013 Q1 2012 Sales $ 1,876 $ 1,806 Gross Profit – As Reported $ 508 $ 484 Rationalization charges 6 10 Gross Profit – As Adjusted $ 514 $ 494 Gross Margin - As Reported 27.1% 26.8% Gross Margin - As Adjusted 27.4% 27.4% Operating Profit – As Reported $ 132 $ 109 Rationalization charges 8 11 Charge (income) for litigation settlements, net - (2) Operating Profit – As Adjusted $ 140 $ 118 Operating Margin - As Reported 7.0% 6.0% Operating Margin - As Adjusted 7.5% 6.5%
- 21. Appendix – EPS Reconciliation – First Quarter 21 (in Millions) Q1 2013 Q1 2012 Income from Continuing Operations before Income Taxes – As Reported $ 79 $ 60 Rationalization charges 8 11 Charge (income) for litigation settlements, net - (2) Gain from financial investments, net (3) (16) Income from Continuing Operations before Income Taxes – As Adjusted $ 84 $ 53 Tax at 36% rate benefit (expense) (30) (19) Less: Net income attributable to non-controlling interest 9 11 Net Income, as adjusted $ 45 $ 23 Income per common share, as adjusted $ 0.13 $ 0.07 Shares Outstanding 352 350
- 22. ($ in Millions) 2013 Estimate1 2012 Actual Rationalization Charges ~ $40 $78 Tax Rate ~ 25% 198% Interest Expense ~ $240 $254 General Corp. Expense2 ~ $130 $126 Capital Expenditures ~ $165 $119 Depreciation & Amortization3 ~ $200 $214 Shares Outstanding for EPS 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. Such expenses are also included in the rationalization charges. 22
- 23. 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 23 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
- 24. 2012 Masco International Revenue Split* 24 *Based on company estimates 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