q2 2014 earnings presentation

Second Quarter 2014 Earnings Presentation

MASCO CORPORATION

July 29, 2014

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 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.

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 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 Masco’s Web Site, www.masco.com.

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Masco Q2 2014 Results

Topic

• Summary of Results Keith Allman

• Financial/Operations Review John Sznewajs

• Outlook Keith Allman

• Q&A

3

Key Messages Today

Revenue growth delivered by successful new products and programs coupled with continued execution, despite lower than expected industry growth

Sales and profit initiatives being executed to improve long-term Cabinet performance

Margin expansion driven by strong operating leverage

4


Topic




• Q&A

5

Consistent Execution Delivers Another Quarter of Sales and Profit Growth

6

*See Appendix for GAAP reconciliation.

Quarter Highlights • 11th consecutive quarter of top- and bottom-line growth

• North American sales increased 4%; international sales increased 2% in local currency

• Strong operating leverage demonstrated by 39% incremental margin

($ in Millions) Second Quarter 2014

Revenue Change

$2,260 5%

Adjusted Operating Profit* Y-O-Y Change

$249 21%

Adjusted Operating Margin* Y-O-Y Change

11.0% 140 bps

Adjusted EPS* $0.32

Operating Margins Fueled by Strong Operating Leverage

7 * Please note dollars are in millions. See appendix for GAAP reconciliation.

TO BE UPDATED

$206 $18

$27 $(2) $249

Q2 2013Operating

Profit*

Net Volume /Mix

Net Price /Commodity

Net Total CostProductivity

Q2 2014Operating

Profit*

Y-O-Y Change in Operating Profit $43M

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

8

Repair and Remodel Drives Sales and Profit Growth

*Excluding business rationalization charges of $8 million in the second quarter of 2013.


Revenue Change

$849 6%


$139 26%


16.4% 270 bps

Quarter Highlights • Wholesale/trade sales driven by increased repair and remodel

• Strong execution by international plumbing

• Margin expansion driven by operating leverage and favorable mix

• Anticipate mid-teen margins in this segment in the near term

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

9

New Products and Pro Initiative Drive Sales


Revenue Change

$596 5%


$113 8%

Operating Margin* Y-O-Y Change

19.0% 40 bps

Quarter Highlights • New products, such as Behr Deckover and Behr Marquee Interior, as well as

the Pro paint initiative continue to drive gallon growth

• Builders’ hardware realizes share gains and volume growth

• Growth initiatives continue to deliver operating profit dollar growth


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

10

Business Stabilization Actions Continue



Revenue Change

$253 (5%)

Adjusted Operating Loss* Y-O-Y Change

($8) (N/M)


(3.2%) (510) bps

Quarter Highlights • Sales growth in dealer channel more than offset by lower sales at home centers • Executing revenue- and margin-expansion initiatives to improve performance • Incremental and other one-time costs totaled:

• ~$10 million in Q1 related to inefficiencies and plant closures • ~$10 million in Q2 related to ERP associated inefficiencies • ~$5 million in Q3 related to ERP associated inefficiencies

• ERP implementation to complete by end of Q3

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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Capitalizing on New Construction Trends


Revenue Change

$384 8%


$18 125%

Operating Margin* Y-O-Y Change

4.7% 250 bps

Quarter Highlights • Sales growth driven by improvement in residential new home construction,

commercial and distribution channels

• Profit and margin expansion driven by strong operating leverage


O T H E R S P E C I A LTY P R O D U C T S

12

Share Expansion Drives Strong Growth

*Excluding business rationalization charge of $1 million and $3 million in the second quarters of 2014 and 2013, respectively.


Revenue Change

$178 11%


$15 7%


8.4% (40 bps)

Quarter Highlights • Share expansion and positive mix shift drives revenue growth

• Margins impacted by ERP expense and growth investments

Strong Balance Sheet

Balance Sheet Liquidity as of 6/30/2014

Cash and cash investments $1.2B

Short-term bank deposits $0.2B

Total $1.4B

Q2 2014 Accomplishments

• Working capital as a percent of sales improved to 12.9% in Q2 2014, compared to 13.1% in Q2 2013

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Topic




• Q&A

14

Go Forward Plan

15

1

2 3

Strategic Plan

Listening tour • Customers • Investors • Employees

Immersion in the Business Short-term plan

• Assess team • Determine org structure • Implement operating model

End of Q3 2014

Appendix

Appendix – Profit Reconciliation – Second Quarter

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($ in M ill ions) Q2 2014 Q2 2013 Sales $ 2,260 $ 2,149

Gross Profit – As Reported $ 661 $ 609 Rationalization charges - 11 Gross Profit – As Adjusted $ 661 $ 620 Gross Margin - As Reported 29.2% 28.3% Gross Margin - As Adjusted 29.2% 28.9%

Operating Profit – As Reported $ 240 $ 188 Rationalization charges 9 18

Operating Profit – As Adjusted $ 249 $ 206 Operating Margin - As Reported 10.6% 8.7% Operating Margin - As Adjusted 11.0% 9.6%

Appendix – EPS Reconciliation – Second Quarter

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(in Mill ions, Except per Common Share Data) Q2 2014 Q2 2013

Income from Continuing Operations before Income Taxes – As Reported $ 190 $ 132

Rationalization charges 9 18

Gains from financial investments, net (3) (5)

Earnings from equity investments, net - (1)

Income from Continuing Operations before Income Taxes – As Adjusted $ 196 $ 144

Tax at 36% rate (71) (52)

Less: Net income attributable to noncontrolling interest 13 10

Net income, as adjusted $ 112 $ 82

Income per common share, as adjusted $ 0.32 $ 0.23

Average Diluted Shares Outstanding 352 352

($ in Millions) 2014 Estimate 2013 Actual

Rationalization Charges1, 3 ~ $18 $48

Tax Rate ~ 17% 26%

Interest Expense ~ $225 $235

General Corp. Expense2 ~ $130 $134

Capital Expenditures ~ $175 $126

Depreciation & Amortization3

~ $175 $186

Shares Outstanding 352 million 352 million

2014 Guidance Estimates

1. Based on 2014 business plans.

2. Includes rationalization expenses of $7M and $3M for the years ended December 31, 2014 and 2013, respectively.

3. Includes accelerated depreciation of $13M for the year ended December 31, 2013 and estimated accelerated depreciation for the year ended December 31, 2014 of ~$1M. Such expenses are also included in the rationalization charges.

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2013 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

$3.2B

$1.4B

$1.9B

Revenue 2013 % of Total

39%

23%

17%

$8.2B 100% Total Company

Other Specialty Products $0.7B 9%

R&R% vs. NC NA% vs. Int’l

82% 59%

99% 100%

18% 100%

74% 76%

72% 81%

Cabinets and Related Products $1.0B 12% 57% 93%

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2013 International Revenue Split*

*Based on Company estimates.

International Sales Accounted for ~20% of Total 2013 Masco Sales

23%

7%

6%

31%

9%

14%

10%

UKNorthern EuropeSouthern EuropeCentral EuropeEastern EuropeEmerging marketsOther

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q2 2014 earnings presentation

Investor Relations

outlook keith

strong operating

gaap performance

results keith

margin expansion

adjusted operating

adjusted operating

gaap reconciliation