Third Quarter 2011 Masco Earnings Presentation Tuesday, October 25, :00 a.m. ET

Transcription

1 Third Quarter 2011 Masco Earnings Presentation Tuesday, October 25, :00 a.m. ET 1

2 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 Forwardlooking statements can be identified by words such as believe, anticipate, appear, may, will, 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 the Masco Business System and other initiatives. 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 forwardlooking 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 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, 2

3 Q3 Highlights and Commentary Commodity cost pressures, competitive retail environments and depressed consumer confidence continue to impact performance In this challenging environment we: Maintained or gained share in our major product categories Introduced new products and programs in retail channels Were awarded industry recognition for our products in Plumbing and Windows Took additional actions to support sales growth and profitability 3

4 Rationalization & Divestiture Activities Plant closures Milgard Manufacturing exited Tempering Business in September Milgard Manufacturing announced the closure of three plants in October Headcount reductions of ~750 across the company from September until end of year 2011 Divestitures Announced four divestitures in our Installation segment which were focused on non-core diversified products including framing, commercial drywall installation & millwork 4

5 Q Overview Net sales increased 3% to $2.0 billion, reflecting Favorable currency translation increased sales 2% and offset planned cabinet product exits Excluding business rationalization charges, gains from financial investments, impairment of intangible assets, and adjusting for a normal tax rate of 36%, income, as reconciled, was $.08 per common share compared to $.11 per common share in the third quarter of 2010 Metal Commodity hedging losses were ($10) million in Q compared to a gain of $4 million in Q Income (loss) as reported, was $.10 per common share compared to $(.02) per common share in the third quarter of 2010 Results, as reported, include gains (losses) from financial investments of $19 million pre-tax and ($3) million pre-tax in the third quarter of 2011 and 2010, respectively Gross profit margins, as adjusted, decreased 180 basis points to 25.1% compared to the third quarter of 2010 Working capital, as a percent of sales, improved to 14.8% $1.6 Billion of Cash at September 30,

6 Q Profit Reconciliation ($ in Millions) Q Q Sales $ 2,006 $ 1,957 Gross Profit As Reported $ 495 $ 494 Rationalization Charges 8 32 Gross Profit As Adjusted $ 503 $ 526 Gross Margin - As Reported 24.7% 25.2% Gross Margin - As Adjusted 25.1% 26.9% Operating Income As Reported $ 102 $ 102 Rationalization Charges Impairment of intangible assets 7 - Litigation Charge 1 - Operating Profit As Adjusted $ 123 $ 141 Operating Margin - As Reported 5.1% 5.2% Operating Margin - As Adjusted 6.1% 7.2% 6

7 Q EPS Reconciliation (in Millions) Q Q Income before Income Taxes As Reported $ 61 $ 38 Rationalization Charges Litigation Charge 1 - Impairment of intangible assets 7 - Financial Investment (Income) Expense (19) 3 Income before Income Taxes As Adjusted Tax at 36% rate benefit (expense) (23) (29) Less: Net income attributable to non-controlling interest (13) (12) Net Income as adjusted $ 27 $ 39 Earnings per common share as adjusted $ 0.08 $ 0.11 Shares

8 Cabinets and Related Products Financial Performance Q ($ 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 Commentary Brands Excluding planned product exits, sales were down ~4% Margins impacted by: Volume decline Under-absorption of fixed costs Unfavorable mix Unfavorable price/commodity relationship Benefits associated with profit improvement programs *Excludes business rationalization charges of $7M & $34M in the third quarter of 2011 & 2010, respectively. See Analyst Package for GAAP reconciliation. 8

9 Cabinets and Related Products Q Update Benefitting from the North American cabinet integration Significant Q3 profit improvements driven by integration savings, lean and sourcing activities and spending reductions Countertop model continues to gain traction Driving higher attachment rates Expect continued expansion with large retailers and builders Heavy promotional activity continues in Q4 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 9

10 KraftMaid Tops & Bottoms Programs Home Centers KraftMaid Kitchen Tops Granite Program Initial Lowe s store rollout a success Expansion to additional stores scheduled for Q4 Additional expansion plans for 2012 KraftMaid Vanity & Denova Tops Program 1100 Lowe s stores set with the program Simplified purchase process Pushed attachment rates of tops and vanities Further sales growth anticipated in 2012 KraftMaid Vanity & Tops Program 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 10

11 Plumbing Products Financial Performance Q ($ 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 Commentary Increased sales due to: Hansgrohe and Delta brands gaining share Positive impact of currency translation Brands Margins impacted by: Unfavorable price/commodity relationship Unfavorable mix Investment to support strategic growth initiatives Benefits associated with profit improvement programs *Excludes business rationalization charges of $1M & $3M in the third quarter of 2011 & 2010, respectively. See Analyst Package for GAAP reconciliation. Includes metal commodity hedging gains (losses) of ($10) million and $4 million in the third quarter of 2011 & 2010, respectively. 11

12 Plumbing Products Q Update Gaining share in the U.S. with Delta, Peerless, and Brizo brands New Peerless and Delta product launches at Lowe s Continued international growth with Hansgrohe products Continuing to invest in brand building, new product development and international growth 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 12

13 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 13

14 Installation and Other Services Financial Performance Q ($ 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% Commentary Businesses Increased sales due to: Share gains in new home construction Continued growth in retrofit sales Margins impacted by: Unfavorable price/commodity relationship *Excludes business rationalization charges of $2M in both the third quarter of 2011 & Also excludes impairment charge of $7M related to intangible assets in the third quarter of See Analyst Package for GAAP reconciliation. 14

15 Installation and Other Services Q Update Year-over-year overall share gains Continued strong retrofit sales gains in Q3 Increasing penetration of multi-family channel Increasing strategic alliances with big builders 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 ERP implementation continues to reduce costs Divesting businesses focused on non-core diversified products 15

16 Decorative Architectural Products Financial Performance Q ($ 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%) Commentary Brands Decreased sales due to: Loss of Wal-Mart business Soft end markets Continued commodity cost pressure Margins impacted by: Volume Unfavorable price/commodity relationship Costs related to new programs Investment to support strategic growth initiatives including the professional painter and international expansion 16

17 Decorative Architectural Products Q Update 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 Behr recognized by The Home Depot as 2011 Partner of the Year Department 24 Paint Liberty Hardware Manufacturing launching new programs at retail in bath and cabinet hardware 17

18 Other Specialty Products Financial Performance Q ($ 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% Commentary Brands Increased sales due to: Positive impact of foreign currency translation Margins impacted by: Favorable price/commodity relationship Benefits associated with profit improvement programs *Excludes business rationalization charges of $2M in the third quarter of See Analyst Package for GAAP reconciliation. 18

19 Other Specialty Products Q Update 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 19

20 Milgard Window New Product Introductions Essence Series Wood Windows and Doors 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 Vinyl Exterior Frame Colors Currently sold in all of Milgard s western markets Sold as an upgrade option in four premium colors 20

21 Q Working Capital 14.8% 16.2% Working Capital % of Sales Accounts Receivable Days Inventory Days Q Q Accounts Payable Days Q Q

22 Closing Commentary 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 22

23 Questions & Answers 23

24 Appendix 24

25 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 25

26 Outstanding Debt Maturities September 30, $1,200 ($ In Millions) Fixed $800 $400 $0 26

27 Q Results (As Reported) Change in Net Sales Operating Margin * Sales Q Q Q vs. Q Q Q Cabinets and Related Products $ 307 $ % -11.1% -17.1% Plumbing Products % 11.8% 14.1% Installation and Other Services % -8.6% -7.5% Decorative Architectural Products % 19.3% 22.5% Other Specialty Products % 7.5% 6.9% Total Segment* $ 2,006 $ 1,957 3% 6.5% 6.6% North America $ 1,524 $ 1, % 5.2% International % 10.4% 11.7% Total Segment - Reported $ 2,006 $ 1,957 3% 6.5% 6.6% * Operating margin is before general corporate expense, net and $1M charge for litigation related to Cabinets and Related Products segment. See Analyst Package for GAAP reconciliation. 27

28 Q Gross Profit/SG&A Third Quarter $ % $ % ($ in Millions) Gross profit impacted by: Increased material costs Under-absorption of fixed costs Lower business rationalization costs Gross Profit / Margin $ % $ % SG&A impacted by: Increased sales Increased expenses to support strategic initiatives Lower business rationalization costs SG&A as a % of Sales Q Q (SG&A includes General Corp. Expense in 2011 and 2010). 28

29 Q Segment Rationalization Charges ($ in Millions) Severance Rationalization Charges - Q Plant Closures ERP RTA Exit Total - Q Q YTD 2010 YTD Total - Q Total YTD Total YTD 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 Q $ (4) $ (6) $ (1) $ (2) $ (13) $ (39) $ (61) $ (104) Total Q $ (2) $ (5) $ (2) $ (30) $ (39) Change $ (2) $ (1) $ 1 $ 28 $ 26 29

30 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) 30

31 2011 Estimate - Other Financial Data ($ 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 *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 is impacted by an increase in the valuation allowance on net operating losses and losses in certain tax jurisdictions providing no tax benefit. 31

32 Segment Mix Full-Year Estimate Segment International North America Cabinets and Related Products Plumbing Products Installation and Other Services Decorative Architectural Products Other Specialty Products New Construction 25% 75% 25% - 30% 40% 60% 20% - 25% % 90+% % <5% 25% 75% 20% - 30% Company Total 22% 78% 25% - 30% 32

33 Masco International Revenue Split* 6% 6% 9% 7% 11% 36% Central Europe United Kingdom Emerging Markets Eastern Europe Northern Europe North America Southern Europe 25% *Based on company estimates as of 12/31/