Q3 2013 Earnings Presentation

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  • 1. Third Quarter 2013 Masco Earnings Presentation

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 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, 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 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.2Certain 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 Mascos web site, www.masco.com. 3. Masco Q3 2013 Results AgendaTopic Summary of ResultsTim Wadhams Financial/Operations ReviewJohn Sznewajs OutlookTim Wadhams Q&A3 4. Key Messages Today New home construction and improved repair and remodel activity drive North American Sales; International sales continue growth momentum New product introductions in Paint and Plumbing drive consumer demand and sales growth Cabinets and Installation deliver significant year-over-year improvement Operating leverage and cost control improves profitability; Best return on sales since Q3 20074 5. Strategy Execution Highlights Q3 2013 1Expand market leadership Investments in innovation drive continued success of new product and program introductions Strong performance by all brands in all channels2Reduce costs Continued commitment to cost control results in SG&A leverage and margin improvement3Improve underperforming businesses Cabinetry increases top and bottom line growth momentum Installation capitalizes on strategic growth with new home construction, commercial, distribution and retrofit channels4Strengthen balance sheet5 Strong working capital management Retired $200M debt maturity 6. Masco Q3 2013 Results AgendaTopic Summary of ResultsTim Wadhams Financial/Operations ReviewJohn Sznewajs OutlookTim Wadhams Q&A6 7. Double Digit Sales Growth for Two Consecutive Quarters ($ in Millions)Third Quarter 2013Revenue$2,150GrowthAdjusted Operating Profit* Y-O-Y Change12%$222 $74Adjusted Operating Margin*10.3%Adjusted EPS*$0.27Y-O-Y Change260 bps*See appendix for GAAP reconciliationQuarter Highlights Sales growth driven by new products at retail and new home constructionContinued cost containment drives 140 bps improvement in SG&A 7North American sales increased 13%; International sales increased 5% in local currencyOperating profit expansion reflects favorable operating leverage 8. Double Digit Margins for the First Time Since Q3 2007Y-O-Y Change in Operating Profit $74M8*See appendix for GAAP reconciliation 9. Plumbing Products:Strong Growth Momentum Continues($ in Millions)Third Quarter 2013Revenue$820Adjusted Operating Profit*$124Growth11%Y-O-Y ChangeAdjusted Operating Margin* Y-O-Y Change$4315.1% 410 bps*Excluding business rationalization charges of $6 million in each of the third quarters of 2013 and 2012.Quarter Highlights North American sales growth partially offset by lost bathware business9North American faucet and toilet sales growth percentage in the midteens Margins impacted by improved International results, favorable price/commodity relationship, and total cost productivity efforts 10. Decorative Architectural Products:New Product Introductions Drive Top Line($ in Millions)Third Quarter 2013Revenue$522Operating Profit$93GrowthY-O-Y ChangeOperating Margin Y-O-Y Change9%($3)17.8%(220) bpsQuarter Highlights 10New product introductions, Pro, and International drove gallon growth percentage in the low-teens Margins impacted by increased volume, which was more than offset by an unfavorable price/commodity relationship; and increased advertising and promotions of ~$10 million to drive gallon growth 11. Cabinets and Related Products:Volume Growth in All Sales Channels; Strong Operating Leverage($ in Millions)Revenue GrowthThird Quarter 2013 $262 15%Adjusted Operating Profit*$1Y-O-Y ChangeAdjusted Operating Margin* Y-O-Y Change$210.4%920 bps*Excluding business rationalization charges of $3 million and $8 million in the third quarters of 2013 and 2012, respectively.Quarter Highlights Growth driven by increased sales in all channels, including direct to builder, dealer, and retailMargins positively impacted by reduced promotional activity and productivity improvements; partially offset by negative mix 11North American cabinet sales grew 20%, excluding countertopsExcludes Danish RTA business, which is in discontinued operations 12. Installation and Other Services:Continued Execution Drives Top and Bottom Line Growth($ in Millions)Third Quarter 2013Revenue$370Adjusted Operating Profit*$19GrowthY-O-Y ChangeAdjusted Operating Margin* Y-O-Y Change19% $205.1%540 bps*Excluding business rationalization charges of $1 million in each of the third quarters of 2013 and 2012.Quarter Highlights 12Sales growth driven by higher volumes in residential new home construction, commercial, distribution, and retrofit channels Margin improvement driven by operating leverage and productivity improvements 13. Other Specialty Products:Strong Performance Reflects Window Share Gains ($ in Millions)Third Quarter 2013Revenue$176Adjusted Operating Profit*$16Growth13%Y-O-Y ChangeAdjusted Operating Margin* Y-O-Y Change$-9.1%(120) bps*Excluding business rationalization charge of $1 million and change in warranty estimate of $12 million in the third quarter of 2012.Quarter Highlights Sales growth driven by increased new home construction and repair & remodel activity, and new product introductions13North American window sales growth percentage in the mid-teensBenefit of increased sales volume offset by mix and other costs, including ERP system implementation 14. Strengthening the Balance Sheet Retired $200M debt maturity in August with existing cash Working capital as a percent of sales improved to 12.1% in Q3 2013, compared to 14.8% in Q3 2012 Balance Sheet Liquidity as of 9/30/2013 Cash and cash investments Short-term bank deposits$0.3BTotal14$1.0B$1.3B 15. Masco Q3 2013 Results AgendaTopic Summary of ResultsTim Wadhams Financial/Operations ReviewJohn Sznewajs OutlookTim Wadhams Q&A15 16. Delivering on 2013 Priorities Q3 Highlights Cabinet profit improvement Profitably grow Installation Successfully launch new products and programs Reduce debt by ~$200M Investment in strategic growth initiatives Grow share of key brands Total cost productivity Geographic expansion16 17. Outlook RisksOpportunities Velocity of U.S. economic recovery Improving repair and remodel demand Consumer confidence Continued growth in new home construction Global economic uncertainty Mix shifts Commodity volatility Successful new product and program launches at retail Share gains at retail and with big builders Strong liquidity Capitalize on operating leverage17 18. Q&A 19. Appendix Profit Reconciliation Third Quarter ($ in Millions)Q3 2013Q3 2012Sales$2,150$1,913Gross Profit As Reported$607$5006Gross Profit As Adjusted$10-Rationalization charges Other Specialty Products - warranty12613$522Gross Margin - As Reported28.2%26.1%Gross Margin - As Adjusted28.5%27.3%Operating Profit As Reported$Rationalization charges212$1081027Other Specialty Products - warranty-12Charge for litigation settlements, net-1Operating Profit As Adjusted$222$148Operating Margin - As Reported5.6%Operating Margin - As Adjusted199.9% 10.3%7.7% 20. Appendix EPS Reconciliation Third Quarter (in Millions)Income from Continuing Operations before Income Taxes Q3 2013As ReportedQ3 2012$$Rationalization charges154511027Gain from financial investments, net-(2)Charge for litigation settlements, net-1Other Specialty Products - warranty-12Income from Continuing Operations before Income Taxes As Adjusted$Tax at 36% rate benefit (expense)164$89(59) 11Less: Net income attributable to non-controlling interest(32) 9Net Income, as adjusted$94$48Income per common share, as adjusted$0.27$0.14Average Diluted Shares Outstanding20352350 21. 2013 Guidance Estimates ($ in Millions)2013 Estimate2012 ActualRationalization Charges1, 3~ $55$78Tax Rate~ 25%198%Interest Expense~ $240$254General Corp. Expense2~ $130$126Capital Expenditures~ $125$119Depreciation & Amortization3~ $190$214352 million349 millionShares Outstanding1 Based on current business plans. 2 Excludes rationalization expenses of $14M for the year ended December 31, 2012. 3 Includes accelerated depreciation of $28M for the year ended December 31, 2012 and estimated accelerated depreciation for the year ended December 31, 2013 of ~$15M. Such expenses are also included in the rationalization charges. 21 22. Segment Mix Full Year 2012 Estimate Business SegmentRevenue 2012% of TotalR&R% vs. NCNA% vs. IntlPlumbing Products$3.0B40%82%59%Decorative Architectural Products$1.8B24%99%100%Cabinets and Related Products$0.9B12%69%92%Installation and Other Services$1.2B16%16%100%Other Specialty Products$0.6B8%75%75%73%80%Total company22R&R = % of sales to repair and remodel channels NC = % of sales to new construction channels NA = % of sales within North America Intl = % of sales outside North America$7.5B100% 23. 2012 Masco International Revenue Split*6% 15% 26%11%Other United Kingdom Northern Europe Southern Europe Central Europe Eastern Europe34%3% 5%Emerging MarketsInternational Sales Accounted for ~20% of Total 2012 Masco Sales 23*Based on company estimates