Bank of America/Merrill Lynch 2013 U.S. Basic Materials Conference
December 2013
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.
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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The strengths
The growth
The strategy
The company
Masco – Executing on a Housing Recovery
Revenue % renovation vs. new construction 73%
Employees 30,000
Market capitalization >$6.0B
Dividend yield 2.9%
Revenue $7.5B
Cumulative free cash flow last 3 years ~$1B
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2012
Liquidity at 12/31/2012 $1.4B
Masco – Strong Brands with Industry Leading Positions
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
38%
24%
12%
16%
$7.5B 100% Total company
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Other Specialty Products
$0.6B 7%
LEADING POSITIONS
Leading U.S. kitchen and bath cabinetry brands
#1 worldwide in faucets, fittings, showerheads
#1 in spas
#1 insulation contractor for homebuilders
Leading DIY paint and stain provider
#1 in vinyl windows in the western US
Masco – Scope and Scale Provide Unique Opportunities
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manufacturer of faucets 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 for Growth
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The strengths
The growth
The strategy
The company
Masco’s Strategic Initiatives
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Positioned for Growth
• Leverage brands
• Innovative products Expand market leadership
• Total cost productivity
• Drive lean benefits Reduce costs
• Return Cabinets to profitability
• Drive profitability and growth in Installation
Improve underperforming businesses
1
2
3
• Debt reduction
• Strong liquidity Strengthen Balance Sheet
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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 DIY Paint at The Home Depot, 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
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• 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
~$600M
2006 2012
62,500
30,000
2006 2012
Includes 33 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
Improved Profitability and Positioned for Growth
Cabinets
New North American management team in place in 2012
Achieved profitability on an adjusted basis in Q2 2013
Disposition of Danish ready-to-assemble cabinet business in process
Revenue ~$250M and operating loss of ~$30M
Installation
Continued penetration of retrofit and commercial channels
Further cost reductions from lean, ERP leverage, supply chain
Achieved profitability in Q4 2012
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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
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87%
45%-55%
2012Year End
Future Target
• $400M reduction in 2012 • $200M reduction in 2013 • Valuation Allowance of
~$600 million on Deferred Tax Assets is expected to be reversed when our U.S. businesses return to sustained profitability
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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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
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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
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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
2012 2011 2010
70% Milgard Essence™
Windows
Arrow R.E.D.
ACE® Salt Water Sanitizing System
2012 Revenues
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BehrProTM
Masco Cabinetry’s ProCisionTM Process
* Percentage of 2012 gross sales of manufactured products attributable to new products introduced in trailing 36 months
Kilz PRO-XTM
Delta Toilets
Paint & Primer in One with Advanced Stain
Blocking Formula
KraftMaid Vanities
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
Winning with Winning Customers
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 750 field service employees
• Extensive training programs for branch and showroom associates
• Superior dealer support through display and technology expertise
• Premier brands drive traffic
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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
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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 9/30/2013)
• A strong free cash flow business – ~$1B last 3 years – Maintenance capex of ~$100M annually
• Valuation Allowance of ~$600 million on Deferred Tax Assets is expected to be reversed when our U.S. businesses return to sustained profitability
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• Debt paid down by: − $400M in 2012
− $200M in 2013
Declining Debt to Capitalization Ratio
87%
45%-55%
2012Year End
Future Target
Balance Sheet Liquidity as of 9/30/2013
Cash and cash investments $1.0B
Short-term bank deposits $0.3B
Total $1.3B
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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The strengths
The growth
The strategy
The company
Positioned to Benefit from Positive Industry Trends
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Favorable long-term household growth
Record low mortgage rates
Aging housing stock
GDP and economic recovery growth
Pent up demand from postponed residential remodeling
Positioned for Growth
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Delivering on 2013 priorities
1 Leveraged to the recovery
2 Continued brand leverage and share expansion
3 Continued cost position improvement
4 Disciplined capital deployment
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1. Leveraged to the Recovery
12%
6%
4%
6%
10-14%
2006Last Peak
2010 2011 2012 3-5 Years
Adjusted Operating Margin*
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Reflects
• lower fixed cost base of >$600M (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 32 for GAAP reconciliation
0.7M
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
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3. Continue to Improve Cost Position
~$195M* of Total Cost Productivity
in 2012
25 * 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: $100M annually
Strong Cash Flow Generation
Financial Flexibility
• Target 45%-55% debt to capitalization vs. ~87%
Dividend
• Maintain dividend yield ~2%
Acquisitions
• Potential acquisitions (<$100M) in support of international expansion
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Investment in strategic growth initiatives
Geographic expansion
Total cost productivity
Reduce debt by ~$200M
Cabinet profit improvement
Profitably grow Installation
Grow share of key brands
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Successfully launch new products and programs
5. Delivering on 2013 Priorities
W H Y I N V E S T I N M A S C O
Strong Fundamentals - Positioned for Growth
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Executing initiatives to improve performance • Continuing to reduce fixed costs, expand share and
improve underperformers The Strategy
Building on market-leading positions • Best brands, innovative products, lean practices,
strong financial position The Strengths
Well-positioned for growth • Lower cost structure higher margins, leveraged
to recovery The Growth
Appendix
Double Digit Sales Growth for Two Consecutive Quarters
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($ 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* $0.27
Quarter Highlights
• North American sales increased 13%; International sales increased 5% in local currency
• Sales growth driven by new products at retail and new home construction
• Continued cost containment drives 140 bps improvement in SG&A
• Operating profit expansion reflects favorable operating leverage
*See following slides for GAAP reconciliation
Appendix – Profit Reconciliation – Third Quarter
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($ 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%
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
($ 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
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*
36 *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