mas q4 2016 earnings presentation 02.09.2017

Fourth Quarter and Full Year

2016 Earnings Presentation

February 9, 2017

Safe Harbor Statement

This presentation contains statements that reflect our views about our future performance and 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. Our views

about future performance 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 the levels of home improvement activity and new home

construction, our ability to maintain our strong brands and to develop and introduce new and improved

products, our ability to maintain our competitive position in our industries, our reliance on key customers, our

ability to achieve the anticipated benefits of our strategic initiatives, our ability to improve our under-

performing U.S. window business, the cost and availability of raw materials, our dependence on third party

suppliers, and risks associated with international operations and global strategies. 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. The forward-looking statements in this press release speak only as of the date of this press

release. 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.

2

Masco Q4 and Full Year 2016 Results

Topic

• Summary of Results Keith Allman

• Financial/Operations Review John Sznewajs

• Q&A

3

2 0 1 6 I N R E V I E W

Continued Execution of Strategy Drives Results

• Gained share with our strong brands

• Invested in new products and programs

• Drove top and bottom line growth

• Positioned Masco for further growth

• Expanded profit margin

• Strengthened balance sheet

• Returned over $585 million to shareholders

4

Driving

Shareholder

Value


Topic



• Q&A

5

21st Consecutive Quarter of Sales

and Operating Profit Growth

6

*See Appendix for GAAP reconciliation.

Quarter Highlights

• Total company sales increased 4% excluding the effects of foreign currency translation

• North American sales increased 3%; international sales increased 8% in local currency

• Operating profit impacted by increased insurance costs of approximately $10 million

(approximately $.02 per share)

($ in Millions)Fourth Quarter

2016

Full-Year

2016

Revenue Y-O-Y Change

$1,759

3%

$7,357

3%

Operating Profit* Y-O-Y Change

$221$2

$1,075$148

Operating Margin* Y-O-Y Change

12.6%(20) bps

14.6%160 bps

Adjusted EPS*Y-O-Y Change

$0.3314%

$1.5127%

P L U M B I N G P R O D U C T S

7

Delivers Profitable Growth and Margin Expansion

Quarter Highlights

• Sales increased by 7% excluding the effects of foreign currency translation driven by

record performances at Delta, Hansgrohe and Watkins

• FX negatively impacted sales by approximately $14 million

• Operating profit impacted by higher insurance costs of approximately $5 million and

strategic growth investments of approximately $10 million

*Excludes business rationalization charges for the fourth quarter and the full year 2016 of $2 million and $13 million,

respectively, and for the fourth quarter and the full year 2015 of $7 million and $9 million, respectively.


2016

Full-Year

2016


$891

5%

$3,526

6%


$153$20

$655$134


17.2%150 bps

18.6%300 bps

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

8

Pro Initiative and New Programs Drive Growth

Quarter Highlights

• Strong demand for Behr Pro® and DIY products

• Builders’ hardware benefited from shower door program expansion

• Performance impacted by planned increases in strategic growth investments

and promotional allowances, and unfavorable price to commodity, totaling

approximately $20 million


2016

Full-Year

2016


$4435%

$2,092

4%

Operating Profit Y-O-Y Change

$75($10)

$430$27

Operating Margin Y-O-Y Change

16.9%(330) bps

20.6%60 bps

C A B I N E T R Y P R O D U C T S

9

KraftMaid ® Product Strength Improves Margins

Quarter Highlights

• Retail and dealer sales driven by continued success of KraftMaid® products

• Growth in retail and dealer sales more than offset by the exit of certain less

profitable direct-to-builder business

*Excludes business rationalization charges for the fourth quarter and the full year 2016 of $3 million and $8 million,

respectively. Excludes business rationalization charges for the fourth quarter and full year 2015 of $2 million and $5 million,

respectively, and gain from sale of property and equipment for the fourth quarter and the full year 2015 of $2 million and $5

million, respectively.


2016

Full-Year

2016


$234(8%)

$970

(5%)


$19$ -

$101$50


8.1%60 bps

10.4%540 bps

W I N D O W S A N D O T H E R S P E C I A LT Y P R O D U C T S

10

Improvements at Milgard on Plan

Quarter Highlights

• Sales increased 2% excluding the effects of foreign currency translation

• European window sales increased 6% in local currency


2016

Full-Year

2016


$191(2%)

$7692%

Operating Profit (Loss)*Y-O-Y Change

$7$ -

($2)($59)

Operating Margin*Y-O-Y Change

3.7%10 bps

(0.3%)(780) bps

*Excludes business rationalization charges for the fourth quarter and full year 2016 of $1 million.

Strong Balance Sheet

Liquidity as of 12/31/2016

Cash and cash investments $1.0B

Short-term bank deposits $0.2B

Total $1.2B

11

Disciplined Capital Allocation

• Repurchased approximately 14.9 million shares in 2016

• 12.9 million shares left in our 50 million share repurchase program

• Increased annual dividend by $0.02 to $0.40 per share

• Rating raised by Fitch to investment grade


Topic



• Q&A

12

Appendix

Appendix – Profit Reconciliation – Fourth Quarter

15

($ in Millions) Q4 2016 Q4 2015

Net Sales $ 1,759 $ 1,715

Gross Profit – As Reported $ 573 $ 532

Rationalization charges 4 6

(Gain) on sale of property and equipment - (2)

Gross Profit – As Adjusted $ 577 $ 536

Gross Margin - As Reported 32.6% 31.0%Gross Margin - As Adjusted 32.8% 31.3%

Selling, General and Administrative Expenses – As Reported $ 358 $ 320


Selling, General and Administrative Expenses – As Adjusted $ 356 $ 317

Selling, General and Administrative Expenses as Percent of Net Sales – As Reported 20.4% 18.7%Selling, General and Administrative Expenses as Percent of Net Sales – As Adjusted 20.2% 18.5%

Operating Profit – As Reported $ 215 $ 212



Operating Profit – As Adjusted $ 221 $ 219

Operating Margin - As Reported 12.2% 12.4%Operating Margin - As Adjusted 12.6% 12.8%

Appendix – Profit Reconciliation – Full Year

16

($ in Millions) 2016 2015

Net Sales $ 7,357 $ 7,142

Gross Profit – As Reported $ 2,456 $ 2,253



Gross Profit – As Adjusted $ 2,470 $ 2,256

Gross Margin - As Reported 33.4% 31.5%Gross Margin - As Adjusted 33.6% 31.6%

Selling, General and Administrative Expenses – As Reported $ 1,403 $ 1,339


Selling, General and Administrative Expenses – As Adjusted $ 1,395 $ 1,329

Selling, General and Administrative Expenses as Percent of Net Sales – As Reported 19.1% 18.7%Selling, General and Administrative Expenses as Percent of Net Sales – As Adjusted 19.0% 18.6%

Operating Profit – As Reported $ 1,053 $ 914



Operating Profit – As Adjusted $ 1,075 $ 927

Operating Margin - As Reported 14.3% 12.8%Operating Margin - As Adjusted 14.6% 13.0%

Appendix – EPS Reconciliation – Fourth Quarter

17

(in Millions, Except per Common Share Data) Q4 2016 Q4 2015

Income from Continuing Operations before Income Taxes – As Reported $ 173 $ 160



(Gain) from auction rate securities (2) -

(Gains) from private equity funds, net (3) (1)

(Earnings) from equity investments, net (1) -

Loss from other investments 3 -

Income from Continuing Operations before Income Taxes – As Adjusted $ 176 $ 166

Tax at 36% rate (63) (60)

Less: Net income attributable to noncontrolling interest 8 10

Income from Continuing Operations, as adjusted $ 105 $ 96

Income per common share, as adjusted $ 0.33 $ 0.29

Average Diluted Shares Outstanding 323 335

Appendix – EPS Reconciliation – Full Year

18

(in millions, except per common share data) 2016 2015

Income from Continuing Operations before Income Taxes – As Reported $ 830 $ 689



(Gain) from auction rate securities (3) -

(Gains) from private equity funds, net (5) (6)

(Earnings) from equity investments, net (2) (2)

Loss from other investments 3 -

Income from Continuing Operations before Income Taxes – As Adjusted $ 845 $ 694

Tax at 36% rate (304) (250)

Less: Net income attributable to non-controlling interest 43 39

Income from Continuing Operations, as adjusted $ 498 $ 405

Income per common share, as adjusted $ 1.51 $ 1.19

Average Diluted Shares Outstanding 330 341

($ in Millions) 2017 Estimate 2016 Actual

Rationalization Charges1 ~ $2 $22

Tax Rate ~ 36% 36%

Interest Expense ~ $175 $229

General Corp. Expense ~ $100 $109

Capital Expenditures ~ $200 $180

Depreciation & Amortization ~ $130 $134

Foreign Currency Translation

Impact to Sales2 ~ ($100) ($68)

Shares Repurchased3 $400-500 $459

Shares Outstanding4323 million 323 million

1. Based on 2017 business plans.

2. Based on rates as of December 29, 2016.

3. 2016 share repurchases include approximately 1.1 million shares that were repurchased to offset grants of long-term stock awards.

4. Reflects weighted average diluted shares outstanding for the fourth quarter 2016 and assumes no share repurchases in 2017.19

2017 Guidance Estimates

2016 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

PlumbingProducts

DecorativeArchitecturalProducts

$3.5B

$2.1B

Revenue 2016 % of Total

48%

28%

$ 7.4B 100%Total Company

Windows and Other Specialty Products

$0.8B 11%

R&R% vs. NC NA% vs. Int’l

82% 63%

99% 100%

71% 78%

83% 79%

Cabinetry Products $1.0B 13% 61% 94%

20

2016 International Revenue Split*

*Based on Company estimates

International Sales Accounted for ~21%

of Total 2016 Masco Sales

21

27%

5%

8%

28%

6%

16%

10% United Kingdom

Northern Europe

Southern Europe

Central Europe

Eastern Europe

Emerging Markets

Other

mas q4 2016 earnings presentation 02.09.2017

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