First Quarter 2011 Masco Earnings Presentation Tuesday, April 26, :00 a.m. ET

Transcription

1 First Quarter 2011 Masco Earnings Presentation Tuesday, April 26, :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 Q Overview Net sales decreased 4% to $1.8 billion, reflecting: Lower sales volume related to Cabinets, including planned product exits, and Installation Excluding business rationalization charges, gains from financial investments and adjusting for a normal tax rate of 36%, (loss) income, as reconciled, was $(.05) per common share compared to $.03 per common share in the first quarter of 2010 Loss as reported, was $(.13) per common share compared to $(.02) per common share in the first quarter of 2010 Results, as reported, include gains from financial investments of $17 million pre-tax Gross profit margins, as adjusted, decreased 140 basis points to 25.3% compared to the first quarter of 2010 Working capital, as a percent of sales, improved to 15.5% compared to 16.3% $1.5 Billion of Cash at March 31,

4 Q Profit Reconciliation ($ in Millions) Q Q Sales $ 1,772 $ 1,852 Gross Profit As Reported $ 425 $ 492 Rationalization Charges 24 3 Gross Profit As Adjusted $ 449 $ 495 Gross Margin - As Reported 24.0% 26.6% Gross Margin - As Adjusted 25.3% 26.7% Operating Income As Reported $ 21 $ 78 Rationalization Charges Operating Profit As Adjusted $ 53 $ 92 Operating Margin - As Reported 1.2% 4.2% Operating Margin - As Adjusted 3.0% 5.0% 4

5 Q EPS Reconciliation ($ in Millions) Q Q (Loss) Income before Income Taxes As Reported $ (21) $ 22 Rationalization charges Gains from financial investments (17) - (Loss) Income before Income Taxes As Adjusted (6) 36 Tax at 36% rate benefit (expense) 2 (13) Less: Net income attributable to non-controlling interest (12) (11) Net (Loss) Income as adjusted $ (16) $ 12 (Loss) Earnings per common share as adjusted $ (0.05) $ 0.03 Shares

6 Cabinets and Related Products Financial Performance Q Commentary ($ in Millions) 1 st QTR 3 Months Ended 3/31/11 3/31/11 vs. 3/31/10 3/31/2011 3/31/2010 $ % Net Sales $307 $403 ($96) (24%) Operating (Loss)* $(29) $(4) $(25) N/A Operating Margin (9.4%) (1.0%) Decremental Margin (26%) Brands Excluding sales related to planned product exits, sales were down 13% Decremental margin reflects: Volume Under-absorption of fixed costs Less favorable price/commodity relationships Items above were partially offset by the benefits associated with business rationalizations and other cost savings initiatives *Excludes business rationalization charges of $21M & $11M in the first quarter of 2011 & 2010, respectively. See Analyst Package for GAAP reconciliation. 6

7 Cabinets and Related Products Q Update Benefitting from the North American cabinet integration Gaining share, sequentially first quarter of 2011 versus fourth quarter of 2010 New dealers are being added rapidly Reduced dealer set-up time Over 300 dealers have added a Masco Cabinetry brand since April 2010 Countertop model continuing to gain traction Exit of ready-to-assemble cabinetry to be completed by the end of second quarter of 2011 European markets continue to be challenging Lowered fixed costs by approximately $180 million since 2006 Segment break-even sales estimated at $1.6 billion With housing starts at ~ million, and a normalized repair and remodel environment, segment is expected to return to double-digit margins 7

8 Plumbing Products Financial Performance Q ($ in Millions) 1 st QTR 3 Months Ended 3/31/11 3/31/11 vs. 3/31/10 3/31/2011 3/31/2010 $ % Net Sales $710 $663 $47 7% Operating Profit* $90 $85 $5 N/A Operating Margin 12.7% 12.8% Incremental Margin 11% Commentary Brands Increased sales volume in North America and from global expansion Incremental margin lower due to: Less favorable price/commodity relationships Less favorable product mix *Excludes business rationalization charges of $6M & $1M in the first quarter of 2011 & 2010, respectively. See Analyst Package for GAAP reconciliation. 8

9 Plumbing Products Q Update Continue to invest in brand building, innovation and design Gaining share in faucets at wholesale and retail Innovative technology is resonating with the consumer Touch 2 O technology is launching in lavatory faucets in April 2011 Global expansion model is well-developed at Hansgrohe and is being applied at Delta Faucet Extending the Delta brand to adjacent product categories, including tub and shower bathing systems In recognition of the effectiveness of the marketing and communications campaign for Touch 2 O products, Delta Faucet is a 2011 finalist for the Effie Award, the most prestigious honor in advertising Hansgrohe has again received the Product Design Award from the Federal Republic of Germany, a prestigious award in the field of design in Germany 9

10 Installation and Other Services Financial Performance Q ($ in Millions) 1 st QTR 3 Months Ended 3/31/2011 3/31/11 vs. 3/31/10 3/31/2011 3/31/2010 $ % Net Sales $254 $273 $(19) (7%) Operating (Loss)* $(38) $(40) $2 N/A Operating Margin (15.0%) (14.7%) Decremental Margin N/A Commentary Businesses Lower sales volume due to decline in new home construction market Improvement in operating loss due to: Benefits associated with business rationalizations and other cost savings initiatives Contractor Distributor Framing Contractor *Excludes business rationalization charges of $2M in both the first quarters of 2011 & See Analyst Package for GAAP reconciliation. 10

11 Installation and Other Services Q Update Continuing to improve our insulation position Added salespeople Expanded strategic relationship with Owens Corning Gaining share, sequentially first quarter of 2011 versus fourth quarter of 2010 Continued retrofit sales gains in 2011 ERP system will be fully implemented by the end of the second quarter of 2011 Poised to deliver significant benefits to our customers Establishing a lean culture to achieve additional cost savings Leveraging expanded footprint at Service Partners Lowered fixed costs in excess of $180 million Segment break-even estimated at 700,000 to 750,000 housing starts With housing starts at ~ million, segment is expected to return to high single-digit margins 11

12 Decorative Architectural Products Financial Performance Q ($ in Millions) 1 st QTR 3 Months Ended 3/31/2011 3/31/11 vs. 3/31/10 3/31/2011 3/31/2010 $ % Net Sales $375 $389 $(14) (4%) Operating Profit* $70 $87 $(17) N/A Operating Margin 18.7% 22.4% Decremental Margin ( 121%) Commentary Brands Decline in sales volume of paints and stains and builders hardware (principally due to the loss of Wal-Mart business) Decremental margin due to: Volume Program costs related to new opportunities Less favorable price/commodity relationships Successfully managing tight supply of raw materials *Excludes business rationalization charges of $1M for the first quarter of See Analyst Package for GAAP reconciliation. 12

13 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 Launched the Kilz Pro-X coatings line program in first quarter of 2011 with all The Home Depot stores to be set by the end of the second quarter of 2011 Continue to upgrade core Premium Plus paint line by introducing new low VOC formula Committed resources to facilitate international expansion of our paint business Behr has once again achieved #1 rankings in a recent leading consumer study Based on 2011 Harris poll, Kilz ranked highest among paint brands for the second year in a row Behr increased its share across all DIY architectural coatings categories * Aggressively pursuing new business in bath and cabinet hardware * Source: TraQline 13

14 Other Specialty Products Financial Performance Q ($ in Millions) 1 st QTR 3 Months Ended 3/31/2011 3/31/11 vs. 3/31/10 3/31/2011 3/31/2010 $ % Net Sales $126 $124 $2 2% Operating (Loss) $(10) ($6) $(4) N/A Operating Margin (7.9%) (4.8%) Decremental Margin N/A Commentary Brands Sales increases primarily a result of share gains, geographic expansion and new products Increased operating loss due to: New product launch and geographic expansion costs Unfavorable price/commodity relationships 14

15 Other Specialty Products Q Update Milgard Manufacturing continuing to gain share in the Western United States housing market in the first quarter of 2011 Milgard Manufacturing is expanding into new geographies including Texas and Western Canada U.K. Window Group continuing to gain share in the first quarter of 2011 Arrow Fastener is reinventing their core product line with the launch of the R.E.D. tool line 15

16 Q Working Capital 15.5% 16.3% Working Capital % of Sales Accounts Receivable Days Inventory Days Q Q Accounts Payable Days Q Q

17 Wrap-Up Comments Anticipate slow start but improving market conditions in total housing starts forecast up approximately 10% Expect modest improvement in repair and remodel activity Will continue to focus on what we can control to improve execution and strengthen our brands Embed Masco Business System across Masco Continue to invest in innovation Aggressively manage our fixed cost structure Since 2006, ~$500 million gross reduction Operational priorities Installation business Masco Cabinetry integration / strategy We believe long-term fundamentals for our markets continue to be positive We expect to outperform the recovery and create significant value for our shareholders as the housing industry recovers We believe we can achieve low double-digit to mid-teen margins in a market recovery at $10-$12 billion of sales 17

18 Questions & Answers 18

19 Appendix 19

20 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 March 31, 2011 Approximately $1 billion of borrowing availability on the line today 20

21 Outstanding Debt Maturities March 31, $1,200 Zero Coupon ($ In Millions) Fixed $800 $400 $0 Zero Coupon Notes have a put date of July 20,

22 Q Results (As Reported) ($ In Millions) Net Sales Change in Sales Operating Margin* Q Q vs Q Q Cabinets and Related Products $307 $403 (24%) (16.3%) (3.7%) Plumbing Products % 11.8% 12.7% Installation and Other Services ( 7%) ( 15.7%) (15.4%) Decorative Architectural Products ( 4%) 18.4% 22.4% Other Specialty Products % (7.9%) (4.8%) Total $1,772 $1,852 ( 4%) 3.0% 5.8% North America $1,333 $1,430 (7%).8% 4.5% International % 9.6% 10.4% Total $1,772 $1,852 (4%) 3.0% 5.8% * Operating margin is before general corporate expense, net. See Analyst Package for GAAP reconciliation. 22

23 Q Gross Profit/SG&A First Quarter $ % $ % ($ in Millions) Gross profit negatively impacted by: Increased rationalization charges Less favorable relationship between selling prices and commodity costs Lower sales volume Gross Profit / Margin $ % $ % SG&A as a percent of sales increased due to: Lower sales volume Increased advertising and trade show expenses SG&A as a % of Sales Q Q (SG&A includes General Corp. Expense in 2011 and 2010). 23

24 Q Segment Rationalization Charges ($ in Millions) Severance Rationalization Charges - Q Plant Closures ERP RTA Exit Total - Q Q Total - Q Cabinets and Related Products $ - $ (2) $ - $ (19) $ (21) $ (11) Plumbing Products - (6) - - (6) (1) Installation and Other Services - - (2) - (2) (2) Decorative Architectural Products - (1) - - (1) - Other Specialty Products Corp. / Other (1) (1) - - (2) - Total Q $ (1) $ (10) $ (2) $ (19) $ (32) $ (14) Total Q $ (3) $ (8) $ (3) $ - $ (14) Change $ 2 $ (2) $ 1 $ (19) $ (18) 24

25 Cabinets & Related Products Q Segment Dynamics Drivers of Q Sales Decline Product Exit Reduced Activity Currency Total North America $53 $27 $-- $80 International $53 $42 $1 $96 25

26 2011 Estimate - Other Financial Data ($ in Millions) 2011 Estimate 2010 Actual Rationalization Charges* ~ $65 $208 Tax Rate** ~ 60% 32% Interest Expense ~ $250 $251 General Corp. Expense ~ $140 $110 Capital Expenditures ~ $190 $137 Depreciation & Amortization ~ $260 $279 Outstanding Shares 349 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. 26

27 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% 27

28 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/