Second Quarter 2014 Earnings Presentation

Transcription

1 MASCO CORPORATION Second Quarter 2014 Earnings Presentation July 29, 2014

2 Safe Harbor Statement 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 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 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. 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, 2

3 Masco Q Results Topic Summary of Results Keith Allman Financial/Operations Review John Sznewajs Outlook Keith Allman Q&A 3

4 Key Messages Today Revenue growth delivered by successful new products and programs coupled with continued execution, despite lower than expected industry growth Margin expansion driven by strong operating leverage Sales and profit initiatives being executed to improve longterm Cabinet performance 4

5 Masco Q Results Topic Summary of Results Keith Allman Financial/Operations Review John Sznewajs Outlook Keith Allman Q&A 5

6 Consistent Execution Delivers Another Quarter of Sales and Profit Growth ($ in Millions) Revenue Change Adjusted Operating Profit* Adjusted Operating Margin* Second Quarter 2014 $2,260 5% $249 21% 11.0% 140 bps Adjusted EPS* $0.32 *See Appendix for GAAP reconciliation. Quarter Highlights 11 th consecutive quarter of top- and bottom-line growth North American sales increased 4%; international sales increased 2% in local currency Strong operating leverage demonstrated by 39% incremental margin 6

7 Operating Margins Fueled by Strong Operating Leverage in Operating Profit $43M TO BE UPDATED $27 $(2) $249 $18 $206 Q Operating Profit* Net Volume / Mix Net Price / Commodity Net Total Cost Productivity Q Operating Profit* * Please note dollars are in millions. See appendix for GAAP reconciliation. 7

8 PLUMBING PRODUCTS Repair and Remodel Drives Sales and Profit Growth ($ in Millions) Revenue Change Adjusted Operating Profit* Adjusted Operating Margin* Second Quarter 2014 $849 6% $139 26% 16.4% 270 bps *Excluding business rationalization charges of $8 million in the second quarter of Quarter Highlights Wholesale/trade sales driven by increased repair and remodel Strong execution by international plumbing Margin expansion driven by operating leverage and favorable mix Anticipate mid-teen margins in this segment in the near term 8

9 DECORATIVE ARCHITECTURAL PRODUCTS New Products and Pro Initiative Drive Sales ($ in Millions) Revenue Change Adjusted Operating Profit* Operating Margin* Second Quarter 2014 $596 5% $113 8% 19.0% 40 bps *Excluding business rationalization charges of $1 million in the second quarter of Quarter Highlights New products, such as Behr Deckover and Behr Marquee Interior, as well as the Pro paint initiative continue to drive gallon growth Builders hardware realizes share gains and volume growth Growth initiatives continue to deliver operating profit dollar growth 9

10 CABINETS AND RELATED PRODUCTS Business Stabilization Actions Continue ($ in Millions) Revenue Change Adjusted Operating Loss* Adjusted Operating Margin* Second Quarter 2014 $253 (5%) ($8) (N/M) (3.2%) (510) bps *Excluding business rationalization charges of $3 million in the second quarter of Quarter Highlights Sales growth in dealer channel more than offset by lower sales at home centers Executing revenue- and margin-expansion initiatives to improve performance Incremental and other one-time costs totaled: ~$10 million in Q1 related to inefficiencies and plant closures ~$10 million in Q2 related to ERP associated inefficiencies ~$5 million in Q3 related to ERP associated inefficiencies ERP implementation to complete by end of Q3 10

11 INSTALLATION AND OTHER SERVICES Capitalizing on New Construction Trends ($ in Millions) Revenue Change Adjusted Operating Profit* Operating Margin* Second Quarter 2014 $384 8% $18 125% 4.7% 250 bps *Excluding business rationalization charges of $1 million in the second quarter of Quarter Highlights Sales growth driven by improvement in residential new home construction, commercial and distribution channels Profit and margin expansion driven by strong operating leverage 11

12 OTHER SPECIALTY PRODUCTS Share Expansion Drives Strong Growth ($ in Millions) Revenue Change Adjusted Operating Profit* Adjusted Operating Margin* Second Quarter 2014 $178 11% $15 7% 8.4% (40 bps) *Excluding business rationalization charge of $1 million and $3 million in the second quarters of 2014 and 2013, respectively. Quarter Highlights Share expansion and positive mix shift drives revenue growth Margins impacted by ERP expense and growth investments 12

13 Strong Balance Sheet Q Accomplishments Working capital as a percent of sales improved to 12.9% in Q2 2014, compared to 13.1% in Q Balance Sheet Liquidity as of 6/30/2014 Cash and cash investments $1.2B Short-term bank deposits $0.2B Total $1.4B 13

14 Masco Q Results Topic Summary of Results Keith Allman Financial/Operations Review John Sznewajs Outlook Keith Allman Q&A 14

15 Go Forward Plan Listening tour Customers Investors Employees Immersion in the Business Short-term plan Assess team Determine org structure Implement operating model Strategic Plan End of Q

16 Q&A

17 Appendix

18 Appendix Profit Reconciliation Second Quarter ($ in Millions) Q Q Sales $ 2,260 $ 2,149 Gross Profit As Reported $ 661 $ 609 Rationalization charges - 11 Gross Profit As Adjusted $ 661 $ 620 Gross Margin - As Reported 29.2% 28.3% Gross Margin - As Adjusted 29.2% 28.9% Operating Profit As Reported $ 240 $ 188 Rationalization charges 9 18 Operating Profit As Adjusted $ 249 $ 206 Operating Margin - As Reported 10.6% 8.7% Operating Margin - As Adjusted 11.0% 9.6% 18

19 Appendix EPS Reconciliation Second Quarter (in Millions, Except per Common Share Data) Q Q Income from Continuing Operations before Income Taxes As Reported $ 190 $ 132 Rationalization charges 9 18 Gains from financial investments, net (3) (5) Earnings from equity investments, net - (1) Income from Continuing Operations before Income Taxes As Adjusted $ 196 $ 144 Tax at 36% rate (71) (52) Less: Net income attributable to noncontrolling interest Net income, as adjusted $ 112 $ 82 Income per common share, as adjusted $ 0.32 $ 0.23 Average Diluted Shares Outstanding

20 2014 Guidance Estimates ($ in Millions) 2014 Estimate 2013 Actual Rationalization Charges 1, 3 ~ $18 $48 Tax Rate ~ 17% 26% Interest Expense ~ $225 $235 General Corp. Expense 2 ~ $130 $134 Capital Expenditures ~ $175 $126 Depreciation & ~ $175 $186 Amortization 3 Shares Outstanding 352 million 352 million 1. Based on 2014 business plans. 2. Includes rationalization expenses of $7M 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 ~$1M. Such expenses are also included in the rationalization charges. 20

21 2013 Segment Mix* Business Segment Revenue 2013 % of Total R&R% vs. NC NA% vs. Int l Plumbing Products $3.2B 39% 82% 59% Decorative Architectural Products $1.9B 23% 99% 100% Installation and Other Services $1.4B 17% 18% 100% Cabinets and Related Products $1.0B 12% 57% 93% Other Specialty Products $0.7B 9% 74% 76% Total Company $8.2B 100% 72% 81% 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 *Based on Company estimates. 21

22 2013 International Revenue Split* 10% 23% 9% 14% 6% 7% UK Northern Europe Southern Europe Central Europe Eastern Europe Emerging markets Other 31% International Sales Accounted for ~20% of Total 2013 Masco Sales *Based on Company estimates. 22