View Presentation (PDF 729 KB) - Masco Corporation

Second Quarter 2011
Masco Earnings Presentation
Tuesday, July 26, 2011
8:00 a.m. ET
1

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. 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, www.masco.com.
2

Q2 2011 Overview
Net sales decreased 1% to $2.0 billion, reflecting:
−
Lower sales volume related to Cabinets, including planned product exits, Installation
and Decorative Architectural Products
Excluding business rationalization charges, gains and impairments from financial
investments, and adjusting for a normal tax rate of 36%, income, as reconciled, was $.05
per common share compared to $.16 per common share in the second quarter of 2010
Income as reported, was $.02 per common share compared to $.01 per common share in
the second quarter of 2010
Results, as reported, include gains from financial investments of $33 million pre-tax in the
second quarter of 2011 and impairment charges for financial investments of $33 million pretax
in the second quarter of 2010
Gross profit margins, as adjusted, decreased 150 basis points to 26.9% compared to the
second quarter of 2010
Working capital, as a percent of sales, improved to 15.6%
$1.6 Billion of cash at June 30, 2011
3

Q2 2011 Profit
Reconciliation
($ in Millions) Q2 2011 Q2 2010
Sales $ 2,022 $ 2,048
Gross Profit – As Reported $ 532 $ 546
Rationalization Charges 11 36
Gross Profit – As Adjusted $ 543 $ 582
Gross Margin - As Reported 26.3% 26.7%
Gross Margin - As Adjusted 26.9% 28.4%
Operating Income – As Reported $ 91 $ 119
Rationalization Charges 15 51
Litigation Charge 5 -
Operating Profit – As Adjusted $ 111 $ 170
Operating Margin - As Reported 4.5% 5.8%
Operating Margin - As Adjusted 5.5% 8.3%
4

Q2 2011 EPS
Reconciliation
($ in Millions) Q2 2011 Q2 2010
Income before Income Taxes – As Reported $ 58 $ 16
Rationalization Charges 15 51
Litigation Charge 5 -
Financial Investment Gains (33) -
Impairment of Financial Investments - 33
Income before Income Taxes – As Adjusted 45 100
Tax at 36% rate benefit (expense) (16) (36)
Less: Net income attributable to non-controlling interest (12) (9)
Net Income – as adjusted $ 17 $ 55
Earnings per common share – as adjusted $ 0.05 $ 0.16
Shares 349 349
5

Cabinets and Related Products
Financial Performance Q2 2011
($ in Millions)
2 nd QTR
3 Months Ended
6/30/11
vs.
6/30/10
6/30/2011 6/30/2010 $ %
Net Sales $330 $400 $(70) (18%)
Operating (Loss) Profit* $(21) $6 $(27) N/A
Operating Margin (6.4%) 1.5%
Decremental Margin (39%)
Commentary
Brands
Excluding sales related to planned product
exits, sales were down ~6%
Margins impacted by:
−Volume
−Under-absorption of fixed costs
−Unfavorable price/commodity relationship
−Increased promotional costs
®
*Excludes business rationalization charges of $6M & $43M in the second quarter of 2011 & 2010, respectively.
See Analyst Package for GAAP reconciliation.
6

Cabinets and Related Products
Q2 2011 Update
Benefitting from the North American cabinet integration
− Over 400 dealers have committed to the addition of a Masco Cabinetry brand since
April 2010
− On track to achieve $35-$40 million of savings by end of 2012
Completed common architecture program
Countertop model continuing to gain traction
− Driving higher attachment rates
Idled Los Lunas, New Mexico manufacturing facility
Completed exit of ready-to-assemble cabinetry
KraftMaid Cabinetry ranked “Highest in Customer Satisfaction with Cabinets” by
J.D. Power and Associates 2011 U.S. Kitchen Cabinet Satisfaction Study SM
European markets continue to be challenging
Lowered fixed costs by approximately $180 million since 2006
7

Plumbing Products
Financial Performance Q2 2011
($ in Millions)
2 nd QTR
3 Months Ended
6/30/11
vs.
6/30/10
6/30/2011 6/30/2010 $ %
Net Sales $761 $682 $79 12%
Operating Profit* $100 $92 $8 N/A
Operating Margin 13.1% 13.5%
Incremental
Margin
10%
Commentary
Increased sales volume 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
*Excludes business rationalization charges of $5M & $6M in the second quarter of 2011 & 2010, respectively. See
Analyst Package for GAAP reconciliation.
8

Plumbing Products
Q2 2011 Update
Continue to invest in brand building, international growth, innovation
and design
Strong performance in the U.S. with Delta ® , Peerless ® , and Brizo ®
brands
− Gaining share at wholesale and retail
Innovative technology is resonating with the consumer
− Touch 2 O ® technology launched with lavatory faucets in Q2
Extending the Delta ® brand to adjacent product categories, including
tub and shower bathing systems
Gaining share in hot tubs and spas with our HotSpring ® and
Caldera ® brands
Delta Faucet won the 2011 Silver Effie Award, a prestigious
advertising award, in recognition of the effectiveness of the
marketing and communications campaign for Touch 2 O ® products
9

Installation and Other Services
Financial Performance Q2 2011
($ in Millions)
2 nd QTR
3 Months Ended
6/30/11
vs.
6/30/10
6/30/2011 6/30/2010 $ %
Net Sales $294 $309 $(15) (5%)
Operating (Loss)* $(24) $(21) $(3) N/A
Operating Margin (8.2%) (6.8%)
Decremental
Margin
(20%)
Commentary
Businesses
Lower sales volume due to decline in new home
construction starts:
−7% decline in 90 day lagged housing starts
Contractor
Distributor
Framing
Contractor
Margins impacted by:
−Investment to support strategic growth
initiatives
−Under-absorption of fixed costs
*Excludes business rationalization charges of $2M in both the second quarter of 2011 & 2010. See Analyst
Package for GAAP reconciliation.
10

Installation and Other Services
Q2 2011 Update
Continued retrofit sales gains in 2011
Sequential share gains from Q1 2011
Increasing strategic alliances with big builders
Fully implemented ERP system and realizing initial benefits
Benefitting from a lean culture that we expect will drive additional
cost savings
Lowered fixed costs in excess of $180 million since 2006
11

Decorative Architectural Products
Financial Performance Q2 2011
($ in Millions)
2 nd QTR
3 Months Ended
6/30/11
vs.
6/30/10
6/30/2011 6/30/2010 $ %
Net Sales $492 $505 $(13) (3%)
Operating Profit $90 $109 $(19) N/A
Operating Margin 18.3% 21.6%
Decremental Margin (146%)
Commentary
Brands
Decline in sales volume of paints and stains and
builders’ hardware (including the loss of Wal-Mart
business)
Continued commodity cost pressure
Margins impacted by:
−Volume
−Timing of advertising spend
−Program costs related to new opportunities
−Investment in Direct to Pro ® and international
expansion
12

Decorative Architectural Products
Q2 2011 Update
Leveraging our resources to expand top-line growth
− Direct to Pro ® program with The Home Depot continues to gain traction
− Kilz ® Pro-X coatings line set in all The Home Depot stores in Q2
− Continue to upgrade core Premium Plus ® paint line by introducing new
low VOC formula
− Continue our focus on the international expansion of our paint business
Liberty launching new programs at retail in bath and cabinet
hardware
13

Other Specialty Products
Financial Performance Q2 2011
($ in Millions)
2 nd QTR
3 Months Ended
6/30/11
vs.
6/30/10
6/30/2011 6/30/2010 $ %
Net Sales $145 $152 $(7) (5%)
Operating Profit $-- $11 $(11) N/A
Operating Margin --% 7.2%
Decremental Margin (157%)
Commentary
Sales declines reflect:
−Lower repair & remodel activity
−Significant decline in western U.S. new
home construction starts
Brands
Margins impacted by:
−Volume
−Under-absorption of fixed costs
−Investment to support strategic growth
initiatives
14

Other Specialty Products
Q2 2011 Update
Milgard Manufacturing continuing to gain share in the western United
States
Milgard Manufacturing is expanding into new geographies, including
Texas and western Canada
U.K. Window Group continuing to gain share
Arrow Fastener is reinventing their core product line with the launch
of the R.E.D. and Elite tool lines
− Gaining share with domestic and international retailers
15

Q2 2011 Working Capital
15.6%
16.1%
50
50
Working Capital % of Sales
Accounts Receivable Days
59
55
59
51
Inventory Days
Q2 -2011 Q2 - 2010
Accounts Payable Days
Q2 - 2011 Q2 -2010
16

Wrap-Up Comments
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
Will continue to focus on what we can control
−
−
−
Improve execution through the Masco Business System
Continue to invest in innovation, leadership brands and global expansion
Aggressively manage our fixed cost structure
Since 2006, ~$500 million gross reduction
Operational priorities
−
Installation and Cabinets
We are confident in the long-term fundamentals for our markets and as such have
continued to invest in:
−
−
−
−
Increasing our penetration in the North American Cabinet Dealer channel
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
17

Questions & Answers
18

Appendix
19

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 June 30, 2011
Approximately $1 billion of borrowing availability on the line today
20

$1,200
$800
$400
$0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Outstanding Debt Maturities
June 30, 2011
($ In Millions)
Zero Coupon Fixed
2032
2033
2034
2035
2036
Zero Coupon Notes have a put date of July 20, 2011.
21

Q2 2011 Results (As Reported)
Change in
Net Sales Operating Margin *
Sales
Q2 2011 Q2 2010
Q2 2011 vs.
Q2 2010 Q2 2011 Q2 2010
Cabinets and Related Products $ 330 $ 400 -18% -8.2% -9.3%
Plumbing Products 761 682 12% 12.5% 12.6%
Installation and Other Services 294 309 -5% -8.8% -7.4%
Decorative Architectural Products 492 505 -3% 18.3% 21.6%
Other Specialty Products 145 152 -5% 0.0% 7.2%
Total Segment* $ 2,022 $ 2,048 -1% 6.5% 7.1%
North America $ 1,563 $ 1,659 -6% 5.6% 6.9%
International 459 389 18% 9.8% 8.2%
Total Segment - Reported $ 2,022 $ 2,048 -1% 6.5% 7.1%
* Operating margin is before general corporate expense, net and $5M charge for litigation related to Other Specialty Products segment. See Analyst
Package for GAAP reconciliation.
22

Q2 2011 Gross Profit/SG&A
Second Quarter
$532
26.3%
$546
26.7%
($ in Millions)
Gross profit negatively impacted by:
−
−
Increased material costs as a
percentage of sales
Lower sales volume
Gross Profit / Margin
$441
21.8%
$427
20.8%
SG&A as a % of Sales
Q2 - 2011 Q2 - 2010
(SG&A includes General Corp. Expense in 2011 and 2010).
SG&A as a percent of sales increased
due to:
−
−
−
−
Legal settlement
Increased advertising and promotional
expenses
Under-absorption of fixed costs
Increased expenses to support
strategic initiatives
23

Q2 2011 Segment Rationalization Charges
($ in Millions)
Severance
Rationalization Charges - Q2 2011
Plant
Closures
ERP
RTA Exit
Total -
Q1 2011
Q2 2010 2011 YTD 2010 YTD
Total -
Q2 2010
Total
YTD - 2011
Total
YTD - 2010
Cabinets and Related Products $ - $ (3) $ - $ (3) $ (6) $ (43) $ (27) $ (54)
Plumbing Products - (5) - - (5) (6) (11) (7)
Installation and Other Services - - (2) - (2) (2) (4) (4)
Decorative Architectural Products - - - - - - (1) -
Other Specialty Products - - - - - - - -
Corp. / Other (1) (1) - - (2) - (4) -
Total Q2 2011 $ (1) $ (9) $ (2) $ (3) $ (15) $ (51) $ (47) $ (65)
Total Q2 2010 $ (6) $ (11) $ (2) $ (32) $ (51)
Change $ 5 $ 2 $ - $ 29 $ 36
24

Cabinets & Related Products
Current Segment Dynamics
Drivers of Q2 Sales Decline
Product
Exit
Reduced
Activity Currency Total
North America $49 $22 $-- $71
International --- 8 (9) (1)
$49 $30 $(9) $70
25

2011 Estimate - Other Financial Data
($ in Millions)
2011 Estimate 2010 Actual
Rationalization Charges* ~ $65 $208
Tax Rate** ~ 70% 32%
Interest Expense ~ $250 $251
General Corp. Expense ~ $135 $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

Segment Mix Full-Year 2010 - 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%
-- 100% 90+%
-- 100%

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 12/31/2010.
28

“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 Study SM .
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.
29