q3 2014 earnings presentation
DESCRIPTION
Q3 2014 earnings presentationTRANSCRIPT
Third Quarter 2014 Earnings Presentation
MASCO CORPORATION
October 28, 2014
Safe Harbor Statement
Statements contained 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, our ability to maintain our competitive position in our industries, risks associated with the proposed spin-off of our Services Business, our ability to realize the expected benefits of the spin-off, the timing and terms of our share repurchase program, and our ability to reduce corporate expense and simplify our organizational structure. We discuss many of the risks we face in Item 1A, “Risk Factors” in our most recent 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.
The Company believes that the non-GAAP performance measures and ratios that are contained herein, used in managing the business, may provide users of this financial information 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 Securities and Exchange Commission and is available on Masco's website at www.masco.com.
2
Masco Q3 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Outlook Keith Allman
• Q&A
3
Key Messages Today
New products and programs continue to drive top-line growth
Strong execution results in record sales for Delta and Hansgrohe
Margin expansion driven by consistent execution and strong operating leverage
4
Masco Q3 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Outlook Keith Allman
• Q&A
5
6
Another Quarter of Sales and Profit Growth
*See Appendix for GAAP reconciliation.
Quarter Highlights
• Consistent quarter of top- and bottom-line growth
• Q3 2013 revenue growth was 12%
• North American sales increased 4%; international sales increased 3% in local currency
($ in Millions)Third Quarter
2014
Revenue Change
$2,232 4%
Adjusted Operating Profit* Y-O-Y Change
$2439%
Adjusted Operating Margin* Y-O-Y Change
10.9%60 bps
Adjusted EPS* $0.31
7
Focused Execution Fuels Operating Margin Expansion
* Please note dollars are in millions. See appendix for GAAP reconciliation.
Q3 2013 Op-erating Profit*
Net Volume / Mix
Net Price / Commodity
Net Total Cost Productivity
Q3 2014 Op-erating Profit*
$222
$229
$240 $243 $243
Y-O-Y Change inOperating Profit $21M
8
P LU M B I N G P R O D U C T S
Wholesale/Trade Drives Growth
*Excluding business rationalization charges of $6 million in the third quarter of 2013. See appendix for GAAP reconciliation.
($ in Millions)Third Quarter
2014
Revenue Change
$855 4%
Operating ProfitY-O-Y Change*
$14114%
Operating MarginY-O-Y Change*
16.5%140 bps
Quarter Highlights
• Continued strength of wholesale/trade sales by Delta® and Brizo® brands and spas drives North America revenue growth
• International sales up 2% in local currency despite soft economic conditions
• Margin expansion driven by improved mix and lean initiatives
9
D E C O RAT I V E A RC H I T E C T U RA L P R O D U C T S
New Products Continue to Gain Traction
($ in Millions)Third Quarter
2014
Revenue Change
$523 --%
Operating ProfitY-O-Y Change
$91(2%)
Operating MarginY-O-Y Change
17.4%(40) bps
Quarter Highlights
• Challenging comparison to Q3 2013 when revenue growth was 9% due to strong product introductions
• Continued growth from Behr Pro®, Behr Marquee® and builders’ hardware introductions
• Sales impacted by timing of inventory replenishment
• Margins impacted by growth investments and mix
10
C A B I N E T S A N D R E L AT E D P R O D U C T S
Executing Revenue and Profit Initiatives to Drive Performance
*Excluding business rationalization charges of $28 million and $3 million in the third quarters of 2014 and 2013, respectively. See appendix for GAAP reconciliation.
($ in Millions)Third Quarter
2014
Revenue Change
$266 2%
Adjusted Operating Loss* Y-O-Y Change
($7)(N/M)
Adjusted Operating Margin* Y-O-Y Change
(2.6%)(300) bps
Quarter Highlights• Sales growth in dealer channel offset by lower sales at home centers• Restored Merillat® lead times• Incremental and other one-time costs of ~$8 million in Q3 related to ERP
associated inefficiencies• Incurred rationalization charges of $28 million associated with the closure
of two mothballed facilities
11
I N S TA L L AT I O N A N D O T H E R S E RV I C E S
Capitalizing on New Construction and Commercial Growth
($ in Millions)Third Quarter
2014
Revenue Change
$398 8%
Operating ProfitY-O-Y Change*
$205%
Operating MarginY-O-Y Change*
5.0%(10) bps
Quarter Highlights
• Sales growth driven by improvement in new home construction, commercial, retrofit and distribution channels
• Profitability growth driven by increased volume
• Margins impacted by $4 million of medical and benefit costs
*Excluding business rationalization charges of $1 million in the third quarter of 2013. See appendix for GAAP reconciliation.
12
O T H E R S P E C I A LT Y P R O D U C T S
Positive Repair and Remodel Mix Sales Drives Growth
($ in Millions)Third Quarter
2014
Revenue Change
$190 8%
Operating ProfitY-O-Y Change
$2025%
Operating MarginY-O-Y Change
10.5%140 bps
Quarter Highlights
• Higher mix of repair and remodel activity drives sales and profit
• Continued momentum in international windows
Strong Balance Sheet
Balance Sheet Liquidity as of 9/30/2014
Cash and cash investments $1.3B
Short-term bank deposits $0.3B
Total $1.6B
Q3 2014 Accomplishments
• As a result of the continued profitability of U.S. operations, a $466 million ($1.32 per share) net tax benefit was recorded primarily due to the release of the valuation allowance
13
Masco Q3 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Outlook Keith Allman
• Q&A
14
I N S U M M A RY
Driving Improved Performance
● Maintain focus on continued strong operating leverage and free cash flow generation
● Position Cabinet business for improved performance
● Execute capital allocation strategy with a strengthened balance sheet
● Continue to drive strategic priorities
15
ImprovedPerformance
Q&A
Appendix
Appendix – Profit Reconciliation – Third Quarter
18
($ in Millions) Q3 2014 Q3 2013
Sales $ 2,232 $ 2,150
Gross Profit – As Reported $ 611 $ 607
Rationalization charges 28 6
Gross Profit – As Adjusted $ 639 $ 613
Gross Margin - As Reported 27.4% 28.2%
Gross Margin - As Adjusted 28.6% 28.5%
Operating Profit – As Reported $ 202 $ 212
Rationalization charges 41 10
Operating Profit – As Adjusted $ 243 $ 222
Operating Margin - As Reported 9.1% 9.9%
Operating Margin - As Adjusted 10.9% 10.3%
Appendix – EPS Reconciliation – Third Quarter
19
(in Millions, Except per Common Share Data) Q3 2014 Q3 2013
Income from Continuing Operations before Income Taxes – As Reported $ 152 $ 160
Rationalization charges 41 10
Gains from financial investments, net - -
Earnings from equity investments, net - (6)
Income from Continuing Operations before Income Taxes – As Adjusted $ 193 $ 164
Tax at 36% rate (69) (59)
Less: Net income attributable to non-controlling interest 13 11
Net Income, as Adjusted $ 111 $ 94
Income per Common Share, as Adjusted $ 0.31 $ 0.27
Average Diluted Shares Outstanding 353 352
($ in Millions) 2014 Estimate 2013 Actual
Rationalization Charges1,
3
~ $58 $48
Tax Rate4 ~ 36% 26%
Interest Expense ~ $225 $235
General Corp. Expense2 ~ $140 $134
Capital Expenditures ~ $125 $126
Depreciation & Amortization3
~ $170 $186
Shares Outstanding5 353 million 352 million
2014 Guidance Estimates
1. Based on 2014 business plans.
2. Includes rationalization expenses of $20M and $3M for the years ended December 31, 2014 and 2013, respectively.
3. Includes accelerated depreciation of $13M for the year ended December 31, 2013 and estimated accelerated depreciation for the year ended December 31, 2014 of ~$29M. Such expenses are also included in the rationalization charges.
4. Excludes $517 million release of the valuation allowance in the third quarter 2014.
5. 2014 shares outstanding does not reflect potential Q4 2014 share repurchases.
20
2013 Segment Mix*
R&R = % of sales to repair and remodel channelsNC = % of sales to new construction channels NA = % of sales within North AmericaInt’l = % of sales outside North America *Based on Company estimates.
Business Segment
PlumbingProducts
Installation andOther Services
DecorativeArchitecturalProducts
$3.2B
$1.4B
$1.9B
Revenue 2013 % of Total
39%
23%
17%
$8.2B 100%Total Company
Other SpecialtyProducts $0.7B 9%
R&R% vs. NC NA% vs. Int’l
82% 59%
99% 100%
18% 100%
74% 76%
72% 81%
Cabinets andRelated Products $1.0B 12% 57% 93%
21
2013 International Revenue Split*
*Based on Company estimates.
International Sales Accounted for ~20% of Total 2013 Masco Sales
23%
7%
6%
31%
9%
14%
10%
UKNorthern EuropeSouthern EuropeCentral EuropeEastern EuropeEmerging marketsOther
22