masco - q4 2014 presentation

Fourth Quarter and

Full-Year 2014 Earnings

Presentation

MASCO CORPORATION

February 9, 2015

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.

2

http://www.masco.com/

Masco Q4 and Full-Year 2014 Results

Topic

• Summary of Results Keith Allman

• Financial/Operations Review John Sznewajs

• Q&A

3

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

4

Driving Shareholder

Value


Topic



• Q&A

5

Strong Operating Profit Growth in 2014

6

*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

7

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.


2014 Full-Year

2014


$804 1%

$3,308 4%


$116 20%

$517 24%


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

8

New Products and Programs Drive Sales Growth


2014 Full-Year

2014


$438 7%

$1,998 4%


$80 21%

$360 2%


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

9

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.


2014 Full-Year

2014


$243 (3%)

$999 (1%)

Operating Loss* Y-O-Y Change

($7) (N/M)

($31) (N/M)


(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

10

Commercial and Custom Homes Drive Sales Growth


2014 Full-Year

2014


$398 7%

$1,515 7%


$26 73%

$60 58%


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

11

Remodeling Activity Drives Sales and Profit Growth


2014 Full-Year

2014


$181 8%

$701 10%


$8 (11%)

$48 17%


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

12

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

13


Topic



• Q&A

14

Appendix

Appendix – Profit Reconciliation – Fourth Quarter

17

($ 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


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

18

($ in Millions) 2014 2013

Sales $ 8,521 $ 8,173

Gross Profit – As Reported $ 2,387 $ 2,255


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

19

(in Millions, Except per Common Share Data) Q4 2014 Q4 2013

Income from Continuing Operations before Income Taxes – As Reported $ 140 $ 73




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

20

(in millions, except per common share data) 2014 2013

Income from Continuing Operations before Income Taxes – As Reported $ 575 $ 450




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.

21

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%

22

2014 International Revenue Split*

*Based on Company estimates.

International Sales Accounted for ~19% of Total 2014 Masco Sales

28%

5%

10%

25%

9%

14%

9%

UK

Northern Europe

Southern Europe

Central Europe

Eastern Europe

Emerging markets

Other

23

masco - q4 2014 presentation

Investor Relations

forwardlooking statements

actual results

current results

future performance

future periods

future events

prior year increased

additional information