masco - q4 2014 presentation
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Safe Harbor Statement
Statements contained 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, our ability to maintain our competitive position in our industries, risks associated with the proposed spin-off of our Services Business, our ability to realize the expected benefits of the spin-off, the timing and terms of our share repurchase program, and our ability to reduce corporate expense and simplify our organizational structure. We discuss many of the risks we face 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.
The Company believes that the non-GAAP performance measures and ratios that are contained herein, used in managing the business, may provide users of this financial information 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 Securities and Exchange Commission and is available on Masco's website at www.masco.com.
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Masco Q4 and Full-Year 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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2 0 1 4 I N R E V I E W
A Year of Heightened Focus and Execution
● Delivered full-year top-line growth of 4%
● Expanded adjusted operating margins by 120 bps
● Increased sales while holding SG&A flat over prior year
● Increased dividend by 20%
● Repurchased ~5 million shares in Q4
● Announced the spin-off of the Services Business
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Driving Shareholder
Value
Masco Q4 and Full-Year 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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Strong Operating Profit Growth in 2014
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*See Appendix for GAAP reconciliation.
Full-Year Highlights • Focused execution drives top- and bottom-line growth
• 2013 revenue growth was 9% • North American sales increased 4%; international sales increased 4% in local
currency
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$2,064 3%
$8,521 4%
Operating Profit* Y-O-Y Change
$202 32%
$851 18%
Operating Margin* Y-O-Y Change
9.8% 210 bps
10.0% 120 bps
Adjusted EPS* Y-O-Y Change
$0.24 60%
$1.02 32%
P L U M B I N G P R O D U C T S
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Broad-Based Out Performance Across the Segment
*Excludes business rationalization charges for the fourth quarter and full-year 2014 of $3 million and $5 million, respectively, and for the fourth quarter and full-year of 2013 of $9 million and $24 million, respectively.
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$804 1%
$3,308 4%
Operating Profit* Y-O-Y Change
$116 20%
$517 24%
Operating Margin* Y-O-Y Change
14.4% 230 bps
15.6% 250 bps
Quarter Highlights
• Ongoing strength of wholesale/trade channel drives margin expansion
• International sales increased 5% in local currency
• FX negatively impacted sales by approximately $30 million in Q4
• Lean initiatives continue to enhance profitability
D E C O R AT I V E A R C H I T E C T U R A L P R O D U C T S
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New Products and Programs Drive Sales Growth
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$438 7%
$1,998 4%
Operating Profit* Y-O-Y Change
$80 21%
$360 2%
Operating Margin* Y-O-Y Change
18.3% 210 bps
18.0% (30) bps
Quarter Highlights
• Behr Marquee® and Behr Pro® sales drive gallon growth
• Builders’ hardware driving profitable growth through continued share gains
*Excludes business rationalization charges for the fourth quarter and full-year 2013 of $1 million and $2 million, respectively.
C A B I N E T S A N D R E L AT E D P R O D U C T S
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Addressing Recent Challenges
*Excludes business rationalization charges for the full-year 2014 of $31 million and for the fourth quarter and full-year 2013 of $2 million and $12 million, respectively.
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$243 (3%)
$999 (1%)
Operating Loss* Y-O-Y Change
($7) (N/M)
($31) (N/M)
Operating Margin* Y-O-Y Change
(2.9%) (130) bps
(3.1%) (330) bps
Quarter Highlights
• Increased sales to builder channel were more than offset by challenges in dealer and retail channels
• Fine-tuning promotional strategy
• Incremental and other one-time costs of ~$7 million in Q4 related to ERP associated inefficiencies
I N S TA L L AT I O N A N D O T H E R S E R V I C E S
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Commercial and Custom Homes Drive Sales Growth
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$398 7%
$1,515 7%
Operating Profit* Y-O-Y Change
$26 73%
$60 58%
Operating Margin* Y-O-Y Change
6.5% 250 bps
4.0% 130 bps
Quarter Highlights
• New home construction and commercial drive sales growth
• Strong operating leverage and lean initiatives drive profit improvement
*Excludes business rationalization charges for the fourth quarter and full-year 2014 of $1 million and $2 million, respectively, and for the full-year 2013 of $1 million.
O T H E R S P E C I A LTY P R O D U C T S
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Remodeling Activity Drives Sales and Profit Growth
($ in Millions) Fourth Quarter
2014 Full-Year
2014
Revenue Y-O-Y Change
$181 8%
$701 10%
Operating Profit* Y-O-Y Change
$8 (11%)
$48 17%
Operating Margin* Y-O-Y Change
4.4% (100) bps
6.8% 40 bps
Quarter Highlights
• Higher mix of repair and remodel activity drives sales
• Continued momentum in international window business
• Accounting adjustment of $5 million negatively impacts operating profit
*Excludes business rationalization charges for full-year 2014 and 2013 of $1 million and $6 million, respectively.
Strong Balance Sheet
Balance Sheet Liquidity as of 12/31/2014
Cash and cash investments $1.4B
Short-term bank deposits $0.3B
Total $1.7B
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Returning Capital to Shareholders
Full-Year 2014 Accomplishments
• Repurchased approximately 5 million shares in Q4
• Repurchases anticipated to continue at this pace
• Increased the dividend by 20% in May 2014
• Well positioned to retire $300-500 million of debt by 2016
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Masco Q4 and Full-Year 2014 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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Appendix – Profit Reconciliation – Fourth Quarter
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($ in Millions) Q4 2014 Q4 2013
Sales $ 2,064 $ 1,998
Gross Profit – As Reported $ 568 $ 531
Rationalization charges 3 10
Gross Profit – As Adjusted $ 571 $ 541
Gross Margin - As Reported 27.5% 26.6%
Gross Margin - As Adjusted 27.7% 27.1%
Operating Profit – As Reported $ 194 $ 141
Rationalization charges 11 12
Costs related to spin-off of Services Business 6 -
(Income) charge for litigation settlements (9) -
Operating Profit – As Adjusted $ 202 $ 153
Operating Margin - As Reported 9.4% 7.1%
Operating Margin - As Adjusted 9.8% 7.7%
Appendix – Profit Reconciliation – Full Year
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($ in Millions) 2014 2013
Sales $ 8,521 $ 8,173
Gross Profit – As Reported $ 2,387 $ 2,255
Rationalization charges 35 33
Gross Profit – As Adjusted $ 2,422 $ 2,288
Gross Margin - As Reported 28.0% 27.6%
Gross Margin - As Adjusted 28.4% 28.0%
Operating Profit – As Reported $ 788 $ 673
Rationalization charges 66 48 Costs related to spin-off of Services Business 6 - (Income) charge for litigation settlements (9) -
Operating Profit – As Adjusted $ 851 $ 721
Operating Margin - As Reported 9.2% 8.2%
Operating Margin - As Adjusted 10.0% 8.8%
Appendix – EPS Reconciliation – Fourth Quarter
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(in Millions, Except per Common Share Data) Q4 2014 Q4 2013
Income from Continuing Operations before Income Taxes – As Reported $ 140 $ 73
Rationalization charges 11 12
Costs related to spin-off of Services Business 6 -
(Income) charge for litigation settlements (9) -
Currency Translation Expense - Masco Denmark - 18
Gains from financial investments, net - (3)
Loss (earnings) from equity investments, net - (3)
Income from Continuing Operations before Income Taxes – As Adjusted $ 148 $ 97
Tax at 36% rate (53) (35)
Less: Net income attributable to noncontrolling interest 9 11
Income from Continuing Operations, as adjusted $ 86 $ 51
Income per common share, as adjusted $ 0.24 $ 0.15
Average Diluted Shares Outstanding 351 352
Appendix – EPS Reconciliation – Full Year
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(in millions, except per common share data) 2014 2013
Income from Continuing Operations before Income Taxes – As Reported $ 575 $ 450
Rationalization charges 66 48
Costs related to spin-off of Services Business 6 -
(Income) charge for litigation settlements (9) -
Gains from financial investments, net (4) (11)
Loss (earnings) from equity investments, net 2 (16)
Currency translation expense - Masco Denmark - 18
Income from Continuing Operations before Income Taxes – As Adjusted $ 636 $ 489
Tax at 36% rate (229) (176)
Less: Net income attributable to non-controlling interest 47 41
Income from Continuing Operations, as adjusted $ 360 $ 272
Income per common share, as adjusted $ 1.02 $ 0.77
Average Diluted Shares Outstanding 352 352
($ in Millions) 2015 Estimate 2014 Actual
Rationalization Charges1, 3 ~ $30 $72
Tax Rate4 ~ 36% 34%
Interest Expense ~ $235 $225
General Corp. Expense2 ~ $100 $103
Capital Expenditures ~ $190 $128
Depreciation & Amortization3
~ $154 $167
Shares Repurchased5 $400-500 $158
Shares Outstanding6 352 million 352 million
2015 Guidance Estimates
1. Based on 2015 business plans. 2015 includes approximately $25 million related to spin-off transaction costs. 2. Excludes rationalization expenses of $33 million for the year ended December 31, 2014 and $16 million (estimated) for the year ended December 31, 2015. 3. Includes accelerated depreciation of $1 million for the year ended December 31, 2014. Such expenses are also included in the rationalization charges. 4. Excludes $529 million release of the valuation allowance in 2014. 5. 2014 share repurchases include approximately 1.7 million shares to offset grants of long-term stock awards. 6. Assumes no share repurchases throughout 2015.
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2014 Segment Mix*
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.
Business Segment
Plumbing Products
Installation and Other Services
Decorative Architectural Products
$3.3B
$1.5B
$2.0B
Revenue 2014 % of Total
39%
23%
18%
$8.5B 100% Total Company
Other Specialty Products $0.7B 8%
R&R% vs. NC NA% vs. Int’l
82% 59%
99% 100%
18% 100%
74% 74%
71% 81%
Cabinets and Related Products $1.0B 12% 55% 91%
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