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First Quarter 2012 Masco Earnings Presentation May 1, 2012
First Quarter 2012 Masco Earnings Presentation
May 1, 2012
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, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through business rationalizations and other initiatives. 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.
Masco Q1 2012 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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• Sales driven by demand growth in key channels
• Continued progress on strategic initiatives
• Margin improvement reflects operating leverage, execution on pricing and total cost productivity
Masco’s Strategic Initiatives
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Outperform the
recovery
• Leverage brands
• Innovative products Expand market leadership
• Total cost productivity
• Drive lean benefits Reduce costs
• Focus on Cabinets, Installation
• Return to profitability
Improve underperforming businesses
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2
3
• Debt reduction
• Strong liquidity
Strengthen Balance Sheet
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Strategy Execution Highlights Q1 2012
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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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• Increased international project work in Plumbing
• Strong residential new construction, retrofit and commercial channel growth in Installation Services
• New product introductions in Decorative Architecture
• Profit improvement initiatives positively impacting margins
• Significant reduction in first quarter losses in our Cabinet and Installation segments; on target for full year improvement
• Debt offering
Masco Q1 2012 Results – Agenda
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Topic
• Summary of Results Tim Wadhams
• Financial/Operations Review John Sznewajs
• Outlook Tim Wadhams
• Q&A
Improved Results Impacted by Increased Demand and Execution
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($ in Millions) First Quarter
2012
Revenue Growth
$1,875 7 %
Adjusted Operating Profit* Y-O-Y Change
$112 $54
Adjusted Operating Margin* Y-O-Y Change
6.0% 270 bps
Adjusted EPS* $0.05
*As reported operating profit $102M; operating margin 5.4%; EPS $.11 per common share, see appendix for reconciliation
Q1 2012 Operating Profit Reflects Successful Price/ Commodity Management and Profit Improvement Activities
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$58M
$18M
$22M
$14M $112M
Q1 2011Adjusted Operating
Profit*
Net Volume /Mix
Net Price /Commodity
Profit Improvement & All Other Net
Q1 2012Adjusted Operating
Profit*
Y-O-Y Change in Operating Profit $54M
*See appendix for reconciliation
Plumbing Products:
Strong Performance in North America; International Sales Mix Impacting Margin
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Highlights
• Top line growth driven by increased sales in retail, trade, and international channels
• International growth and consumer preference in emerging markets unfavorably impacting mix
• Unfavorable currency impact driven by conversion from the Euro
• Favorable price/commodity impact including positive hedge
($ in Millions) First Quarter
2012
Revenue Growth
$742 5%
Adjusted Operating Profit* Y-O-Y Change
$106 $16
Adjusted Operating Margin* Y-O-Y Change
14.3% 160 bps
*Excludes business rationalization charges of $9M and $6M in the first quarter of 2012 and 2011, respectively.
Decorative Architectural Products:
Top Line Growth, Sequential Margin Improvement
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Highlights
• Sales driven by Behr Pro business growth, favorable weather, and strong retail channel activity
• Margins impacted by the timing of price increases, commodity costs and strategic growth spend
• New product introductions
($ in Millions) First Quarter
2012
Revenue Growth
$434 16%
Adjusted Operating Profit* Y-O-Y Change
$73 $3
Adjusted Operating Margin* Y-O-Y Change
16.8% (190) bps
*Excludes business rationalization charges of $1M in the first quarter of 2011.
Cabinets and Related Products:
Profit Improvement Initiatives Continue Positive Trend
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Highlights
• N.A. Builder and countertop sales growth offset by continued aggressive promotional activity at retail
• Profit improvement initiatives reflected in margin improvement
($ in Millions) First Quarter
2012
Revenue Y-O-Y Change
$297 (3%)*
Adjusted Operating Loss** Y-O-Y Change
$(20) $9
Adjusted Operating Margin** Y-O-Y Change
(6.7%) 270 bps
*Excluding sales related to the planned exit of certain product lines and the effect of currency, first quarter sales increased 1% compared to 2011 **Excludes business rationalization charges of $3M and $21M in the first quarter of 2012 and 2011, respectively.
Installation and Other Services:
Strong Execution Reflected in Top & Bottom Line Performance
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Highlights
• Strong growth in residential new construction, distribution, retrofit and commercial channels as well as insulation sales
• Profit improvement initiatives reflected in margin improvement
($ in Millions) First Quarter
2012
Revenue Growth
$278 18%
Adjusted Operating Loss* Y-O-Y Change
$(14) $19
Adjusted Operating Margin* Y-O-Y Change
(5.0%) 900 bps
*Excludes business rationalization charges of $2M in the first quarter of 2011.
Other Specialty Products:
2011 Plant Closures Improve Margins
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Highlights
• Reduced revenues were due to the exit of select U.S. Window markets in late 2011, which offset U.K. new home construction growth and increased tool sales at retail
• Profit improvement initiatives reflected in margin improvement
($ in Millions) First Quarter
2012
Revenue Y-O-Y Change
$124 (2%)
Adjusted Operating Loss Y-O-Y Change
($5) $5
Adjusted Operating Margin Y-O-Y Change
(4.0%) 390 bps
Strengthening the Balance Sheet
• Debt Offering – In March 2012, Masco issued $400M of 5.95% Notes due March, 2022
– Effective interest rate of 6.5% includes impact of swap termination
– The Notes were issued in anticipation of our debt maturity in July 2012 of $745M
• Working Capital as a percent of sales improved to 14.7% in Q1 2012 compared to 15.5% in Q1 2011
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$1.8 billion of cash as of 3/31/2012
Masco Q1 2012 Results – Agenda
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Topic
• Summary of Results Tim Wadhams
• Financial/Operations Review John Sznewajs
• Outlook Tim Wadhams
• Q&A
Delivering on 2012 Priorities – Q1 Highlights
Investment in strategic growth initiatives
Geographic expansion
Total cost productivity
Reduce debt by ~$400M/refinance $400M
Cabinet profit improvement
Installation profit improvement
Grow share of key brands
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Successfully launch new products and programs
Outlook into 2012
Tailwinds Headwinds
• Solid 1Q 2012 performance –off to a good start
• Successful price increases in key businesses
• Major restructuring activities complete
• Debt offering
• Improving demand in residential new construction & repair and remodel
• Competitive promotional environment for Cabinets
• International expansion cost and mix impact
• Commodity cost volatility
• Composition of new housing starts
• European Economies
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Q&A
Appendix
Appendix – Profit Reconciliation
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($ in Millions, except EPS) Q1 2012 Q1 2011
Sales $ 1,875 $ 1,753
Gross Profit – As Reported $ 485 $ 425
Rationalization Charges 11 24
Gross Profit – As Adjusted $ 496 $ 449
Gross Margin - As Reported 25.9% 24.2%
Gross Margin - As Adjusted 26.5% 25.6%
Operating Profit – As Reported $ 102 $ 26
Rationalization Charges 12 32
Litigation (Income) Charge (2) -
Operating Profit – As Adjusted $ 112 $ 58
Operating Margin - As Reported 5.4% 1.5%
Operating Margin - As Adjusted 6.0% 3.3%
Appendix – EPS Reconciliation
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(in Millions) Q1 2012 Q1 2011
Income (Loss) from Continuing Operations before Income
Taxes – As Reported $ 53 $ (16)
Rationalization Charges 12 32
Litigation (Income) Charge (2) -
Financial Investment (Income) Expense (16) (17)
Income (Loss) from Continuing Operations before Income
Taxes – As Adjusted 47 (1)
Tax at 36% rate benefit (expense) (17) 0
Less: Net income attributable to non-controlling interest 11 12
Net Income (Loss) – as adjusted $ 19 $ (13)
Income (Loss) per common share – as adjusted $ 0.05 $ (0.04)
Shares 350 349
2012 Outlook – Cabinets Estimated Improvement *As communicated 2/14/2012
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(in Millions) Sales Operating Profit
2011 Total Segment $1,230 ($115)
Less: 2011 International1
($370) ($40)
2011 North America Cabinet Actual $860 ($75)
Product Exit (10) $13
2011 N.A. Operating Loss ($62)
2012 Profit Improvements, Net2
$30
2012 Revenue Opportunities, Net2
$30 $10
2012 N.A. Cabinet Estimate $880 ($22) 1Uncertain economic environments, identified cost reductions of ~$7M net in 2012
2Management estimates
*Assumptions: • Reflects a flat retail and housing start environment of 600k starts with
constant mix • Every 50k increase in lagged US starts = ~$25M in revenues (assuming
constant mix) which converts to ~$8-$10M in profits
Opportunities: • Adding new dealers and additional brands with existing dealers in 2011 starting to show solid results • New 2011 vanity/top programs at retail now generating growth opportunities • New 2011 kitchen countertop program at retail expanding throughout the East Coast
2012 Outlook – Installation Estimated Improvement *As communicated 2/14/2012
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(in Millions) Sales Operating Profit
2011 Total Segment $1,077 ($71)
2011 Branch Closures ($30) $6
2011 Adjusted Segment $1,047 ($65)
2012 Profit Improvements, Net1
$20
2012 Revenue Opportunities, Net1
$40 $10
2012 Installation Segment Estimate $1,087 ($35) 1Management Estimates
Opportunities: • Segment continues to add profitable retrofit and residential/commercial business • Further cost reductions from lean implementation, ERP leverage, vendor partnership and supply
chain benefits
*Assumptions • Reflects a flat housing start environment of 600k starts with constant mix • Every 50k increase in lagged US starts = ~$50M in revenues (assuming constant mix) which converts to ~$12M-$15M in profits
($ in Millions) 2012 Estimate 2011 Actual
Rationalization Charges* ~ $20 $121
Tax Rate** ~ 50% 18%
Interest Expense ~ $250 $254
General Corp. Expense ~ $140 $118
Capital Expenditures ~ $180 $151
Depreciation & Amortization
~ $220 $263***
Outstanding Shares 348 million 348 million
2012 Guidance Estimates
*Based on current business plans. **Tax rate for 2011 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge for goodwill and other intangible assets. ***2011 includes $58M of accelerated depreciation, which is also included in the rationalization charges.
