morgan stanley 2011
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Morgan Stanley
Global Consumer Conference November 15, 2011
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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,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” “should,” “will,” 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 the Masco Business System 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. 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 these 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.
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• 2010 Financial Data
Sales $7.6 billion
Operating Profit* $430 million
Free Cash Flow $300 million
• Cash on Hand at 09/30/2011 $1.6 billion
Global leader in the innovation and
marketing of quality building products
and services.
*Excludes business rationalization charges of $208 million and charges for goodwill
and other intangible assets of $721 million, operating loss as reported ($499) million.
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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Scale – Masco is the Industry Leader
We believe we are the …
Largest faucet manufacturer in the world
Largest cabinet manufacturer 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 U.S. installer of building products for the new
home construction market
We believe Masco’s scale and position with its customers is unparalleled in the industry
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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Broad Distribution Across Multiple Channels
The breadth of Masco’s product portfolio positions us
to compete at multiple price points across all channels
Homebuilders
• Unique direct-to-builder
channel for certain
products and services
• A leading insulation
contractor in the US
• Value proposition built
upon service reliability
and high quality brands
Big Box Retailers
• Dedicated customer-
specific service
organizations with
over 1,000 field
service employees
• Premier brands that
drive traffic
to retail stores
Wholesalers/Dealers
• Extensive training
programs for branch and
showroom associates
• Superior display and
technology expertise and
support
• Strong trade brands that
drive sales with
contractors and
consumers
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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20
10
Re
ve
nu
es
Installation &
Other Services
Plumbing
Products
Cabinets & Related
Products
Se
lec
ted
Bra
nd
s
$1.5B
$1.1B
Decorative
Architectural
Products
Other Specialty
Products
$2.7B
$1.7B
$600M
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Cabinets and Related Products
Financial Performance Brands
North America
International
New Construction
Repair/Remodel
25%-30% 25%
Segment Comments Business Mix (2010 est.)
®
Sales Drivers Consumer Confidence
Age of Housing Stock/Housing Turnover
Home Prices
Housing Starts
Key Commodities Lumber, Particle Board
New
Products/Programs
Denova Countertops
Kraftmaid Vanity Programs at Home
Centers
($ in Millions)
3 Months Ended
9/30/11
vs.
9/30/10
9/30/2011 9/30/2010 $ %
Net Sales $307 $357 $(50) (14%)
Operating (Loss)* $(27) $(27) $-- N/A
Operating Margin (8.8%) (7.6%)
Incremental Margin N/A
*Excludes business rationalization charges of $7M & $34M in the third quarter of 2011 & 2010, respectively. See
Appendix for GAAP reconciliation.
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Benefitting from the North American cabinet integration
Exit of ready-to-assemble cabinetry completed
Common architecture program completed
Recently idled Los Lunas, New Mexico manufacturing facility
Dealer Advantage Program continues to gain momentum
Gaining share with big builders
Countertop model continues to gain traction
KraftMaid Cabinetry ranked “Highest in Customer Satisfaction with Cabinets” by J.D.
Power and Associates 2011 U.S. Kitchen Cabinet Satisfaction StudySM
Heavy promotional activity continues in retail and dealer channels
European markets continue to be challenging
− U.K. austerity measures impacting the Moore Group and depressed consumer demand for
furniture impacting Tvilum
Cabinets and Related Products Update
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KraftMaid “Tops & Bottoms” Programs Home Centers
KraftMaid Kitchen Tops
Granite Program
KraftMaid Vanity &
Denova™ Tops Program
KraftMaid Vanity & Tops Program
Initial Lowe’s store rollout a
success
Expansion to additional stores
scheduled for Q4
Additional expansion plans for
2012
1100 Lowe’s stores set with
the program
Simplified purchase process
Pushed attachment rates of
tops and vanities
Further sales growth
anticipated in 2012
1500 Home Depot stores scheduled to be over the next
five months, including 180 Canadian stores
Program designs, sells, and ships cabinets, accessories,
lighting, mirrors, countertops and sinks as one package to
the consumer
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Plumbing Products
Financial Performance Brands
Segment Comments Business Mix (2010 est.)
North America
International
60%
New Construction
Repair/Remodel
20%-25% Sales Drivers Age of Housing Stock
Existing Home Sales
Consumer Confidence
Key Commodities Brass, Zinc, Copper
New
Products/Programs
Delta –Touch2O, Peerless Program at
Lowe’s
Hansgrohe – Global Expansion
($ in Millions)
3 Months Ended
9/30/11
vs.
9/30/10
9/30/2011 9/30/2010 $ %
Net Sales $768 $686 $82 12%
Operating Profit* $92 $100 $(8) N/A
Operating Margin 12.0% 14.6%
Incremental
Margin N/A
*Excludes business rationalization charges of $1M & $3M in the third quarter of 2011 & 2010, respectively. See
Appendix for GAAP reconciliation. Includes metal commodity hedging gains (losses) of ($10) million and $4 million
in the third quarter of 2011 & 2010, respectively.
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Continuing to invest in brand building, new product development and international growth
Gaining share in the U.S. with Delta®, Peerless®, and Brizo® brands
− New Peerless and Delta product launches at Lowe’s
Continuing international growth with Hansgrohe products
Extending the Delta and Peerless brands to additional product categories, including tub and shower bathing systems
Gaining share in hot tubs and spas with our HotSpring® and Caldera® brands
− Hotspring’s Aria® spa received the “Best Buy” distinction from Consumers Digest
Hansgrohe has again received the Product Design Award from the Federal
Republic of Germany, a prestigious award in the field of design in Germany
Delta Faucet won the 2011 Silver Effie Award, a prestigious advertising
award, in recognition of the effectiveness of the marketing and
communications campaign for Touch2O® products
Plumbing Products Update
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EPA names Delta Faucet Watersense Partner of the Year
® ®
Delta Faucet Company was recognized for its outstanding support of the
U.S. Environmental Protection Agency’s WaterSense program and
ongoing commitment to promoting advancements in water efficiency
The EPA’s WaterSense program aims to protect the future of the U.S.
water supply by providing people with easy and identifiable ways to
conserve water
WaterSense Partner of the Year awards recognize industry partners that
help advance the overall mission of the WaterSense program,
demonstrate overall excellence in the water-efficiency arena and increase
awareness of the WaterSense brand in a measurable way. Each year, the
program recognizes just one manufacturer that demonstrates
exceptional performance in each of these areas
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Installation and Other Services
Financial Performance Businesses
Segment Comments Business Mix (2010 est.)
North AmericaInternational
100%
New ConstructionRepair/Remodel
90+%
Sales Drivers Housing Starts
Home Size/Design
Energy Efficiency
Key Commodities Insulation
New Products/Programs Retrofit Services
Service Partners Locations
® ®
($ in Millions)
3 Months Ended
9/30/11
vs.
9/30/10
9/30/2011 9/30/2010 $ %
Net Sales $315 $292 $23 8%
Operating (Loss)* $(18) $(20) $2 N/A
Operating Margin (5.7%) (6.8%)
Incremental
Margin 9%
*Excludes business rationalization charges of $2M in both the third quarter of 2011 & 2010. Also excludes
impairment charge of $7M related to intangible assets in the third quarter of 2011. See Appendix for GAAP
reconciliation.
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Year-over-year overall share gains
Continued retrofit sales gains in 2011
Increasing penetration of multi-family channel
Increasing strategic alliances with big builders
ERP system fully implemented
Benefitting from a lean culture that we expect will drive additional cost savings
− Integrating WellHome into MCS to leverage its sales and marketing capability
and further expand this business
Divestitures
− Announced four divestitures in our Installation segment which were focused on
non-core diversified products including framing, commercial drywall installation &
millwork
Installation and Other Services Update
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Decorative Architectural Products
Financial Performance Brands
Segment Comments Business Mix (2010 est.)
100%
North AmericaInternational
New ConstructionRepair/Remodel
<5%
Sales Drivers Existing Home Sales
Lower ticket DIY product
Commodities Titanium Dioxide, Petroleum Based
Resins, Zinc
New
Products/Programs
Liberty – New Hardware reset at THD
Behr – Kilz® Pro-X
($ in Millions)
3 Months Ended
9/30/11
vs.
9/30/10
9/30/2011 9/30/2010 $ %
Net Sales $455 $463 $(8) (2%)
Operating Profit $88 $104 $(16) N/A
Operating Margin 19.3% 22.5%
Decremental
Margin (200%)
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Leveraging our resources to expand top-line growth
− Direct to Pro® program with The Home Depot continues to gain traction
− Continued investment in new product & merchandising innovation
− Focused on the international expansion of our paint business
− Continue to upgrade core Premium Plus® paint line by introducing new
low VOC formula
Behr has once again achieved #1 rankings in a recent leading consumer study
Behr recognized by The Home Depot as 2011 Partner of the Year Department 24 – Paint
Based on 2011 Harris poll, Kilz ranked highest among paint brands
for the second year in a row
Liberty Hardware Manufacturing launching new programs at retail in bath and cabinet hardware
Decorative Architectural Products Update
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Behr Direct to Pro®
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Other Specialty Products
Financial Performance Brands
Segment Comments Business Mix (2010 est.)
North America
International
75%
New Construction
Repair/Remodel
20%-30% Sales Drivers Consumer Confidence
Energy Efficiency
Home Prices
Housing Starts
Key
Commodities
Petroleum Based Resins, Glass, Steel
New Products Milgard – Essence
Arrow – T50 Elite TM staple gun at Lowe’s
($ in Millions)
3 Months Ended
9/30/11
vs.
9/30/10
9/30/2011 9/30/2010 $ %
Net Sales $161 $159 $2 1%
Operating Profit $14 $11 $3 N/A
Operating Margin 8.7% 6.9%
Incremental Margin 150%
*Excludes business rationalization charges of $2M in the third quarter of 2011. See Appendix for GAAP
reconciliation.
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Milgard Manufacturing has outperformed depressed repair and remodel and new home construction markets
− Continuing to gain share in the western United States
− Expanding into new geographies including Texas and western Canada
− Successful new product introductions
− Opportunity to expand further as competitors are exiting the market
The Milgard Essence Series TM windows received the Crystal
Achievement Award for Most Innovative New Window for a Large
Manufacturer from Window and Door Magazine
Milgard Manufacturing exited Tempering Business in September
Milgard Manufacturing announced the closure of 3 plants in October
U.K. Window Group gaining share in the U.K.
Launched the Arrow ® T50 Elite TM staple gun at Lowe’s
Other Specialty Products Update
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Milgard Window New Product Introductions
Essence Series™ Wood Windows
and Doors Vinyl Exterior Frame Colors
Sales exceeded expectations in the
limited market release
We expect sales will continue to expand
as product is now available in all of
Milgard’s sales regions
Received the Crystal Achievement Award
for Most Innovative New Window of the
Year for a Large Manufacturer from
Window & Door Magazine
Currently sold in all of Milgard’s western
markets
Sold as an upgrade option in four
premium colors
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Unparalleled Brand Strength
Masco’s continuing commitment to innovation will create sustainable competitive advantage for our brands
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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Operational Leverage
Aggressively managing capacity
− Gross fixed cost reduction (2006-2010) estimated at
~ $500M
Annual maintenance capex ~ $110M
High contribution margins
− 30% company wide average
Masco’s commitment to lean principles
should drive increased productivity
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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History of Strong Cash Flow
$1.6 Billion of Cash on Hand 09/30/2011
Year Housing
Starts (Thousands)
Sales Free
Cash
Flow
2003 1,848 $10.1B $1.2B
2004 1,959 $11.3B $1.1B
2005 2,068 $12.2B $1.0B
2006 1,801 $12.4B $820M
2007 1,355 $11.4B $980M
2008 906 $9.5B $560M
2009 554 $7.8B $550M
2010 588 $7.6B $300M
Limited capital required to fund
expected growth
Strong working capital
management
Returned $6B to shareholders
from 2003 to 2007 in the form
of dividends and share
buybacks, reducing outstanding
shares by 30%
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Investment Considerations
Scale
Distribution
Brands
Operating Leverage
History of Strong Cash Flow
Long-term Fundamentals For Our Markets Are
Positive
Driving sustainable competitive advantage through
innovation, brand strength and disciplined execution
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Market conditions continue to be challenging
− 2011 total housing starts forecast projected to be flat with 2010
− Repair and remodel activity still slow for larger projects
We continue to take actions to reduce our cost structure
− Multiple plant closures
− Reduced headcount
− Divestitures
− Leveraging our infrastructures
Operational priorities
− Installation and Cabinets
− Driving lean benefits throughout our supply chain
We are confident in the long-term fundamentals for our markets and continue to invest in:
− Increasing our penetration in the North American Cabinet Dealer channel
− Expanding our leadership position in North American DIY coatings
− Increasing our penetration with the professional painter
− Launching new programs this year in Plumbing, Cabinets and Builders’ Hardware
− Developing international opportunities for Paint and Plumbing
Closing Commentary
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Questions & Answers
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Appendix
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Masco Credit Facility
$1.25 billion line established in June 2010 (amended in February
2011) with two financial covenants
− Total debt to adjusted total capitalization threshold (65%)
− Interest coverage (adjusted EBITDA/Interest Expense)
In compliance with all covenants and had no borrowings outstanding
at September 30, 2011
Approximately $1 billion of borrowing availability on the line today
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$0
$400
$800
$1,200
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Fixed
($ In Millions)
Outstanding Debt Maturities September 30, 2011
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Q3 2011 Results (As Reported)
* Operating margin is before general corporate expense, net and $1M charge for litigation related to Cabinets and Related Products segment.
Change in
Sales
Q3 2011 Q3 2010
Q3 2011 vs. Q3
2010 Q3 2011 Q3 2010
Cabinets and Related Products $ 307 $ 357 -14% -11.1% -17.1%
Plumbing Products 768 686 12% 11.8% 14.1%
Installation and Other Services 315 292 8% -8.6% -7.5%
Decorative Architectural Products 455 463 -2% 19.3% 22.5%
Other Specialty Products 161 159 1% 7.5% 6.9%
Total Segment* $ 2,006 $ 1,957 3% 6.5% 6.6%
North America $ 1,524 $ 1,528 -- 5.2% 5.2%
International 482 429 12% 10.4% 11.7%
Total Segment - Reported $ 2,006 $ 1,957 3% 6.5% 6.6%
Net Sales Operating Margin *
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$494
Gross Profit / Margin
25.2% $495 24.7%
$392
SG&A as a % of SalesQ3 - 2011 Q3 - 2010
20.0%
$393 19.6%
(SG&A includes General Corp. Expense in 2011 and 2010).
Gross profit impacted by:
− Increased material costs
− Under-absorption of fixed costs
− Lower business rationalization costs
Q3 2011 Gross Profit/SG&A
($ in Millions) Third Quarter
SG&A impacted by:
− Increased sales
− Increased expenses to support
strategic initiatives
− Lower business rationalization costs
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Q3 2011 Segment Rationalization Charges
($ in Millions)Q3 2010 2011 YTD 2010 YTD
SeverancePlant
ClosuresERP RTA Exit
Total -
Q3 2011
Total -
Q3 2010
Total
YTD - 2011
Total
YTD - 2010
Cabinets and Related Products $ (1) $ (3) $ (1) $ (2) $ (7) $ (34) $ (35) $ (88)
Plumbing Products - (1) - - (1) (3) (12) (10)
Installation and Other Services (2) - - - (2) (2) (6) (6)
Decorative Architectural Products - - - - - - (1) -
Other Specialty Products - (2) - - (2) - (2) -
Corp. / Other (1) - - - (1) - (5) -
Total Q3 2011 $ (4) $ (6) $ (1) $ (2) $ (13) $ (39) $ (61) $ (104)
Total Q3 2010 $ (2) $ (5) $ (2) $ (30) $ (39)
Change $ (2) $ (1) $ 1 $ 28 $ 26
Rationalization Charges - Q3 2011
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Cabinets & Related Products Current Segment Dynamics
Drivers of Q3 Sales Decline
Product
Exit
Reduced
Activity
Currency
Total
North America $(38) $(10) --$ $(48)
International -- (10) 8 (2)
$(38) $(20) $8 $(50)
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($ in Millions)
2011 Estimate 2010 Actual
Rationalization Charges* ~ $100 $208
Tax Rate** ~ 200% 32%
Interest Expense ~ $250 $251
General Corp. Expense ~ $125 $110
Capital Expenditures ~ $170 $137
Depreciation & Amortization ~ $260 $279
Outstanding Shares 348 million 349 million
2011 Estimate - Other Financial Data
*Based on current business plans.
**Tax rate for 2010 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge
for goodwill and other intangible assets. 2011 is impacted by an increase in the valuation allowance on net operating losses
and losses in certain tax jurisdictions providing no tax benefit.
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Segment International North America New
Construction
Cabinets and
Related Products
25% 75% 25% - 30%
Plumbing
Products
40% 60% 20% - 25%
Installation and
Other Services
-- 100% 90+%
Decorative
Architectural
Products
-- 100% <5%
Other Specialty
Products
25% 75% 20% - 30%
Company Total 22% 78% 25% - 30%
Segment Mix Full-Year 2010 - Estimate
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36%
25%
11%
9%
7%
6%
6%
Central Europe
United Kingdom
Emerging Markets
Eastern Europe
Northern Europe
North America
Southern Europe
Masco International Revenue Split*
*Based on company estimates as of 12/31/2010.
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“Highest in Customer Satisfaction with Cabinets”
KraftMaid Cabinetry received the highest numerical score among cabinetry brands in the
proprietary J.D. Power and Associates 2011 US Kitchen Cabinet Satisfaction StudySM.
Study based on responses from 1,207 consumers measuring 7 companies and measures
opinions of consumers who purchased kitchen cabinets within the previous 12 months.
Proprietary study results are based on experiences and perceptions of consumers
surveyed in March-April 2011. Your experiences may vary. Visit jdpower.com
J.D. Power and the J.D. Power award are the marks of J.D. Power and Associates.
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Additional Inquiries Contact:
Maria Duey
Vice President of Investor Relations
313-792-5500