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Deutsche Bank Global Industrial and Basic
Materials Conference
June 13, 2012
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,” “should,” “will,” “forecast”, “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 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.
Safe Harbor Statement
2
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
3
The strengths
The growth
The strategy
The company
Masco at a Glance
Revenue % renovation vs. new construction 75%
Employees 31,000
Market capitalization >$4.0B
Dividend yield 2.9%
Revenue $7.5B
Cumulative free cash flow last 3 years ~$1B
4
2011
Cash at 12/31/2011 $1.7B
Masco – Strong Brands with Market Leading Positions
BUSINESS SEGMENT
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
$1.2B
$2.9B
$1.1B
$1.7B
REVENUE 2011 % OF TOTAL
39%
22%
17%
14%
$7.5B 100% Total company
5
Other Specialty Products
$0.6B 8%
LEADING POSITIONS
#1 & #2 U.S. kitchen and bath cabinetry brands
#1 worldwide in faucets, fittings, showerheads
#1 in spas
#1 insulation and product installation for homebuilders
#1 DIY paint and stain
#1 windows and patio doors in western US and UK
Masco – Unique Scope and Scale
6
manufacturer of faucets in the world Largest
manufacturer of kitchen cabinets in the world Largest
non-commodity supplier to The Home Depot Largest
supplier to Lowe’s Kitchen and Bath segment Largest
supplier of architectural coatings to the U.S. DIY market
Largest
installer of insulation products for the new home construction market
Largest
We believe we are the…….
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
7
The strengths
The growth
The strategy
The company
Strategic Initiatives to Improve Performance
8
Outperform the
recovery
• Leverage brands
• Innovative products
Expand market leadership
• Supply chain savings
• Drive lean benefits Reduce costs
• Focus on Cabinets, Installation
• Return to profitability
Improve underperforming businesses
1
2
3
4
Strengthen Balance Sheet
• Debt reduction
• Strong liquidity
1 . E X P A N D M A R K E T L E A D E R S H I P
Key Brands Gaining Share since 2010
Examples Gaining Share
• Delta®, Peerless®, and Brizo® brands in U.S.
• International plumbing growth with Hansgrohe
• Decorative Architectural: Behr® #1 ranking, Direct to Pro® service growth, Kilz Pro line
• Other Specialty: Milgard® windows outperforming market, UK growing share
• Masco Contractor Services gaining share with insulation, retrofit and commercial channels
9
• Merillat® and Quality® cabinet brands gaining share with builders
2 . R E D U C E C O S T S
Significant Progress Lowering Cost Structure Higher Margins
Cumulative Gross Fixed Cost Reductions
Headcount Reductions of ~50%
~$100M
$540M $560M
2007 2010 2011
62,500
32,500 31,000
2006 2010 2011
Includes 28 closed / mothballed facilities 10
3 . I M P R O V E U N D E R P E R F O R M I N G B U S I N E S S E S
Laser Focus on Achieving Breakeven
Cabinets
Executing wide range of sales initiatives
• Countertops and Vanities Program
• Increased Dealer penetration
Expect ~$50M operating profit improvement in 2012
Installation
Continued penetration of retrofit and commercial channels
Further cost reductions from lean, ERP leverage, supply chain
Expect ~$30M operating profit improvement in 2012
Estimated breakeven lowered to ~700,000 housing starts
11
4 . S T R E N G T H E N B A L A N C E S H E E T
Declining Debt to Capitalization Ratio
12
84%
45%-55%
2011Year End
Future Target
• Planned reduction of $400M in 2012
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
13
The strengths
The growth
The strategy
The company
Broad distribution 3
Industry innovator 2
Market-leading brands 1
Masco Business System 4
Strong financial position 5
Key Strengths we are Leveraging
14
S T R E N G T H 1 : M A R K E T L E A D I N G B R A N D S
Unparalleled Brand Strength
15
Installation & Other Services
Plumbing Products
Cabinets & Related Products
Decorative Architectural Products
Other Specialty Products
S T R E N G T H 2 : I N D U S T R Y I N N O V A T O R
Significant New Product Introductions – Last 3 Years
30%*
Examples of New Products/Technologies
Existing Products
2011 2010 2009
70%
Touch2O®
Technology
Behr Premium Plus Ultra
Essence Windows
Arrow R.E.D.
ACE® Salt Water Sanitizing System
2011 Revenues
16
Hansgrohe’s Axor® Urquiola
BehrProTM
Masco Cabinetry’s ProCisionTM Process
* Percentage of 2011 gross sales of manufactured products attributable to new products introduced in trailing 36 months
Kilz PRO-XTM
S T R E N G T H 3 : B R O A D D I S T R I B U T I O N
Broad Distribution Across Multiple Channels
Broad Portfolio
Big Box Retailers Homebuilders Wholesalers / Dealers
• Exclusive products and services for the direct to builder channel
• A leading insulation contractor in the US
• Dedicated customer-specific service organizations with over 1,000 field service employees
• Extensive training programs for branch and showroom associates
• Superior dealer support through display and technology expertise
• Premier brands drive traffic
17
Customer focus
Lean
Quality Talent
Innovation
S T R E N G T H 4 : M A S C O B U S I N E S S S Y S T E M S
A Continuous Improvement Culture – At the Center of Our Success
18
MBS
S T R E N G T H 5 : S T R O N G F I N A N C I A L P O S I T I O N
Strong Liquidity and Improving Balance Sheet
Strong Liquidity (as of 3/31/2012)
• Cash and equivalents of ~$1.8B
• Borrowing availability of ~$780M
• A strong free cash flow business
– ~$1B last 3 years
– Maintenance capex of ~$110M annually
19
• $745M of debt due in June 2012 • Refinanced $400M through debt offering
in March 2012
Declining Debt to Capitalization Ratio
84%
45%-55%
2011Year End
Future Target
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
20
The strengths
The growth
The strategy
The company
Positioned to Outperform in the Recovery
21
Leveraged to the recovery
Continued brand leverage and share expansion
Continued cost position improvement
Disciplined capital deployment
1
2
3
4
1. Leveraged to the Recovery
12%
6%
4%
10-14%
2006Last Peak
2010 2011 3-5 Years
Adjusted Operating Margin*
22
Reflects
• lower fixed cost base of >$560M (gross)
• driving lean principles across the company
30% margin on incremental volume
Housing starts 2.1M 0.6M 0.6M ~1-1.5M
*See Appendix slide 31
2. Initiatives to Leverage Brands and Expand Share
Geographic Expansion
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
Other Specialty Products
Product Introductions
Extend Categories
Strengthen Brand Loyalty
23
3. Continue to Improve Cost Position
~$150M* of Total Cost Productivity
in 2012
24 * Gross
Sourcing
Lean Initiatives
Driven by: Driven by:
Distribution & Logistics
Actions Taken In Prior Years
• Plant Closures • Headcount
Reductions • System
Implementations
4. Disciplined Capital Deployment
Invest in the Business
• Maintenance capex: $110M annually
Strong Cash Flow Generation
Financial Flexibility
• Target 45%-55% debt to capitalization vs. ~84%
Dividend
• Maintain dividend yield ~2%
Acquisitions
• Potential acquisitions (<$100M) in support of international expansion
Maintain high cash balance ~$1B until markets firm up
25
2012 Priorities
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
26
Successfully launch new products in Paint & Builders Hardware
Masco 3-5 Years Out – A “Normal” Housing Market
27
• Estimate revenues of ~$10-12B, margin of 10-14%
• Growth outperforming the industry
• Optimized portfolio with a strong balance sheet
• International expansion
• Positive return from assets employed in – Cabinets – Installation
W H Y I N V E S T I N M A S C O
Strong Fundamentals - Positioned to Outperform
28
Executing initiatives to improve performance • Continuing to reduce fixed costs, expand share and
improve underperformers The Strategy
Building on market-leading positions • Best brands, innovative products, lean practices,
strong financial position
The Strengths
Well-positioned to outperform • Lower cost structure higher margins, leveraged
to recovery
The Growth
Appendix
Operating Profit Reconciliation
31
As adjusted for impairment charges for goodwill and other intangible assets and business rationalization charges.
Twelve Months Ended
December 31,
2011 2010 2006
Sales $ 7,467 $ 7,486 $ 12,390
Operating (loss) profit , as reported $ (295) $ (463) $ 1,115
Rationalization charges 121 208 47
Impairment of goodwill and other intangible assets 494 698 317
Litigation charge 9 - -
Operating profit, as adjusted $ 329 $ 443 $ 1,479
Operating margin, as reported -4.0% -6.2% 9.0%
Operating margin, as adjusted 4.4% 5.9% 11.9%
2012 Outlook – Cabinets Estimated Improvement
32
(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
33
(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-$15M in profits
Q1 2012 - Improved Results Impacted by Increased Demand and Execution
34
($ 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 $.11 per common share, see slides 35 & 36 for reconciliation.
Q1 2012 – Profit Reconciliation
35
($ 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%
Q1 2012 – EPS Reconciliation
36
(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
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
37
($ 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.
Segment Mix Full Year 2011 Estimate
Business Segment
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
$1.2B
$2.9B
$1.1B
$1.7B
Revenue 2011 % of Total
39%
22%
17%
14%
$7.5B 100% Total company
39
Other Specialty Products $0.6B 8%
RR% vs. NC NA% vs. Int’l
80% 55%
95% 100%
75% 75%
20% 100%
75% 75%
75% 76%
2011 Masco International Revenue Split*
40 *Based on company estimates
International Sales Accounted for ~24% of Total 2011 Masco Sales