raymond james 2013
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Raymond James 34th Annual Institutional Investors Conference
March 6, 2013
Safe Harbor Statement
2
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, 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.
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.
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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The strengths
The growth
The strategy
The company
Masco at a Glance
Revenue % renovation vs. new construction 73%
Employees 30,000
Market capitalization >$6.0B
Dividend yield 2.9%
Revenue $7.8B
Cumulative free cash flow last 3 years ~$1B
4
2012
Cash at 12/31/2012 $1.4B
Masco – Strong Brands with Industry Leading Positions
Business Segment
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
$1.2B
$3.0B
$1.2B
$1.8B
Revenue 2012 % of Total
38%
24%
15%
16%
$7.8B 100% Total company
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Other Specialty Products $0.6B 7%
R&R% vs. NC NA% vs. Int’l
82% 59%
99% 100%
69% 73%
16% 100%
75% 75%
73% 78%
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
Masco – Unique Scope and Scale
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manufacturer of faucets in the world Largest
non-commodity supplier to The Home Depot Largest
supplier to Lowe’s Kitchen and Bath segment Largest
supplier of architectural coatings to the U.S. DIY market Largest
installer of insulation products for the new home construction market Largest
We believe we are the……
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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The strengths
The growth
The strategy
The company
Masco’s Strategic Initiatives
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Positioned for Growth
• Leverage brands
• Innovative products Expand market leadership
• Total cost productivity
• Drive lean benefits Reduce costs
• Return Cabinets to profitability
• Drive profitability and growth in Installation
Improve underperforming businesses
1
2
3
• Debt reduction
• Strong liquidity Strengthen Balance Sheet
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1 . E X P A N D M A R K E T L E A D E R S H I P
Key Brands Gaining Share since 2010
Examples Gaining Share
• Delta®, Peerless®, and Brizo® brands in U.S.
• International plumbing growth with Hansgrohe
• Decorative Architectural: Behr® #1 DIY Paint at The Home Depot, Direct to Pro® service growth, Kilz Pro line
• Other Specialty: Milgard® windows outperforming market, UK growing share
• Masco Contractor Services gaining share with insulation, retrofit and commercial channels
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• Merillat® and Quality® cabinet brands gaining share with builders
2 . R E D U C E C O S T S
Significant Progress Lowering Cost Structure Higher Margins
Cumulative Gross Fixed Cost Reductions
Headcount Reductions of ~50%
~$100M
~$600M
2006 2012
62,500
30,000
2006 2012
Includes 33 closed / mothballed facilities 10
3 . I M P R O V E U N D E R P E R F O R M I N G B U S I N E S S E S
Improved Profitability and Positioned for Growth
Cabinets
New North American management team in place in 2012
Achieved ~$32M operating profit improvement in 2012
Disposition of Danish ready-to-assemble cabinet business
Revenue ~$250M and operating loss of ~$30M
Installation
Continued penetration of retrofit and commercial channels
Further cost reductions from lean, ERP leverage, supply chain
Achieved profitability in Q4 2012
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4 . S T R E N G T H E N B A L A N C E S H E E T
Declining Debt to Capitalization Ratio
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87%
45%-55%
2012Year End
Future Target
• $400M reduction in 2012 • Planned reduction of
$200M in 2013 • Valuation Allowance of
~$630 million on Deferred Tax Assets is expected to be reversed when our U.S. businesses return to sustained profitability
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
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The strengths
The growth
The strategy
The company
Broad distribution 3
Industry innovator 2
Market-leading brands 1
Masco Business System 4
Strong financial position 5
Key Strengths we are Leveraging
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S T R E N G T H 1 : M A R K E T L E A D I N G B R A N D S
Unparalleled Brand Strength
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Installation & Other Services
Plumbing Products
Cabinets & Related Products
Decorative Architectural Products
Other Specialty Products
S T R E N G T H 2 : I N D U S T R Y I N N O V A T O R
Significant New Product Introductions – Last 3 Years
30%*
Examples of New Products/Technologies
Existing Products
2012 2011 2010
70% Milgard Essence™
Windows
Arrow R.E.D.
ACE® Salt Water Sanitizing System
2012 Revenues
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BehrProTM
Masco Cabinetry’s ProCisionTM Process
* Percentage of 2012 gross sales of manufactured products attributable to new products introduced in trailing 36 months
Kilz PRO-XTM
Delta Toilets
Paint & Primer in One with Advanced Stain
Blocking Formula
KraftMaid Vanities
S T R E N G T H 3 : B R O A D D I S T R I B U T I O N
Winning with Winning Customers
Broad Portfolio
Big Box Retailers Homebuilders Wholesalers / Dealers
• Exclusive products and services for the direct to builder channel
• A leading insulation contractor in the US
• Dedicated customer-specific service organizations with over 750 field service employees
• Extensive training programs for branch and showroom associates
• Superior dealer support through display and technology expertise
• Premier brands drive traffic
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Customer focus
Lean Quality Talent
Innovation
S T R E N G T H 4 : M A S C O B U S I N E S S S Y S T E M S
A Continuous Improvement Culture – At the Center of Our Success
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MBS
S T R E N G T H 5 : S T R O N G F I N A N C I A L P O S I T I O N
Strong Liquidity and Improving Balance Sheet
Strong Liquidity (as of 12/31/2012)
• Cash and equivalents of ~$1.4B
• Borrowing availability of ~$870M
• A strong free cash flow business – ~$1B last 3 years – Maintenance capex of
~$100M annually
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• Paid down $400M in 2012 • Plan to reduce debt in 2013 by $200M
Declining Debt to Capitalization Ratio
87%
45%-55%
2012Year End
Future Target• Valuation Allowance of ~$630 million on
Deferred Tax Assets is expected to be reversed when our U.S. businesses return to sustained profitability
I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned for Growth
20
The strengths
The growth
The strategy
The company
Positioned for Growth
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Leveraged to the recovery
Continued brand leverage and share expansion
Continued cost position improvement
Disciplined capital deployment
1
2
3
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1. Leveraged to the Recovery
12%
6%
4%
6%
10-14%
2006Last Peak
2010 2011 2012 3-5 Years
Adjusted Operating Margin*
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Reflects
• lower fixed cost base of >$600M (gross)
• driving lean principles across the company
30% margin on incremental volume
Housing starts 2.1M 0.6M 0.6M ~1-1.5M
*See Appendix slide 32 for GAAP reconciliation
0.7M
2. Initiatives to Leverage Brands and Expand Share
Geographic Expansion
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
Other Specialty Products
Product Introductions
Extend Categories
Strengthen Brand Loyalty
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3. Continue to Improve Cost Position
~$195M* of Total Cost Productivity
in 2012
24 * Gross
Sourcing
Lean Initiatives
Driven by: Driven by:
Distribution & Logistics
Actions Taken In Prior Years
• Plant Closures • Headcount
Reductions • System
Implementations
4. Disciplined Capital Deployment
Invest in the Business
• Maintenance capex: $100M annually
Strong Cash Flow Generation
Financial Flexibility
• Target 45%-55% debt to capitalization vs. ~87%
Dividend
• Maintain dividend yield ~2%
Acquisitions
• Potential acquisitions (<$100M) in support of international expansion
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2013 Priorities
Investment in strategic growth initiatives
Geographic expansion
Total cost productivity
Reduce debt by ~$200M
Cabinet profit improvement
Profitably grow Installation
Grow share of key brands
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Successfully launch new products and programs
Masco 3-5 Years Out – A “Normal” Housing Market
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• Estimate revenues of ~$10-12B, margin of 10-14%
• Positioned for Growth
• Optimized portfolio with a strong balance sheet
• International expansion
• Positive return from assets employed in – Cabinets – Installation
W H Y I N V E S T I N M A S C O
Strong Fundamentals - Positioned for Growth
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Executing initiatives to improve performance • Continuing to reduce fixed costs, expand share and
improve underperformers The Strategy
Building on market-leading positions • Best brands, innovative products, lean practices,
strong financial position The Strengths
Well-positioned for growth • Lower cost structure higher margins, leveraged
to recovery The Growth
Appendix
Appendix – Profit Reconciliation – Fourth Quarter
31
($ in Millions) Q4 2012 Q4 2011
Sales $ 1,890 $ 1,738
Gross Profit – As Reported $ 446 $ 332 Rationalization charges 27 48 Gross Profit – As Adjusted $ 473 $ 380 Gross Margin - As Reported 23.6% 19.1%
Gross Margin - As Adjusted 25.0% 21.9%
Operating Profit (Loss) – As Reported $ 21 $ (531)
Impairment of goodwill and other intangible assets $ 42 $ 494 Rationalization charges 31 61 Charge for litigation settlements, net 3 3 Gain from sales of fixed assets, net (3) -
Operating Profit – As Adjusted $ 94 $ 27 Operating Margin - As Reported 1.1% -30.6%
Operating Margin - As Adjusted 5.0% 1.6%
Appendix – Profit Reconciliation – Full-Year
32
($ in Millions) YTD 12/31/12 YTD 12/31/11 Sales $ 7,745 $ 7,467
Gross Profit – As Reported $ 1,951 $ 1,784 Rationalization charges 52 91 Other Specialty Products - Warranty 12 - Gross Profit – As Adjusted $ 2,015 $ 1,875 Gross Margin - As Reported 25.2% 23.9% Gross Margin - As Adjusted 26.0% 25.1%
Operating Profit (Loss) – As Reported $ 271 $ (295)
Rationalization charges 78 121 Charge for litigation settlements, net 77 9 Impairment of goodwill and other intangible assets 42 494 Other Specialty Products - Warranty 12 - Gain from sales of fixed assets, net (8) -
Operating Profit – As Adjusted $ 472 $ 329 Operating Margin - As Reported 3.5% -4.0% Operating Margin - As Adjusted 6.1% 4.4%
Appendix – EPS Reconciliation – Fourth Quarter
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(in Millions) Q4 2012 Q4 2011
Loss from Continuing Operations before Income Taxes – As Reported $ (37) $ (593)
Impairment of goodwill and other intangible assets $ 42 $ 494
Rationalization charges 31 61
Charge for litigation settlements, net 3 3
Gain from sales of fixed assets, net (3) -
Gain from financial investments, net (4) (4)
Income (Loss) from Continuing Operations before Income Taxes – As Adjusted
$ 32 $ (39)
Tax at 36% rate benefit (expense) (12) 14
Less: Net income attributable to non-controlling interest 7 5
Net Income (Loss), as adjusted $ 13 $ (30)
Income (Loss) per common share, as adjusted $ 0.04 $ (0.09)
Shares Outstanding 349 348
Appendix – EPS Reconciliation – Full-Year
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($ in Millions) YTD 12/31/12 YTD 12/31/11
Income (Loss) from Continuing Operations before Income Taxes – As Reported
$ 42 $ (472)
Rationalization charges $ 78 $ 121
Charge for litigation settlements, net 77 9
Impairment of goodwill and other intangible assets 42 494
Other Specialty Products - Warranty 12 -
Interest carry costs 7 -
Gain from sales of fixed assets, net (8) -
Gain from financial investments, net (22) (73)
Income (Loss) from Continuing Operations before Income Taxes – As Adjusted
$ 228 $ 79
Tax at 36% rate benefit (expense) (82) (28)
Less: Net income attributable to non-controlling interest 35 42
Net Income, as adjusted $ 111 $ 9
Income per common share, as adjusted $ 0.32 $ 0.02
Shares Outstanding 349 348
3 . I M P R O V E U N D E R P E R F O R M I N G B U S I N E S S E S
North America Cabinetry’s Strategic Initiatives
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• Rationalize operational footprint
• Increase overhead efficiency Cost Realignment
• Channel strategies
• Promotions
• Products
• Dealers
• Builders
• Retail
• Consumers
1
2
3
Profitable Revenue Growth
Customer Focus
($ in Millions) 2013 Estimate 2012 Actual
Rationalization Charges1 ~ $40 $78
Tax Rate ~ 25% 198%
Interest Expense ~ $240 $254
General Corp. Expense2 ~ $130 $126
Capital Expenditures ~ $165 $119
Depreciation & Amortization3 ~ $210 $214
Shares Outstanding 349 million 349 million
2013 Guidance Estimates
1 – Based on current business plans. 2 – Includes rationalization expenses of $14M for the year ended December 31, 2012. 3 – Includes accelerated depreciation of $28M for the year ended December 31, 2012. Such expenses are also included in the rationalization charges.
2012 Masco International Revenue Split*
37 *Based on company estimates
International Sales Accounted for ~22% of Total 2012 Masco Sales
7%
23%
8%
4%
34%
10%
14%
North America
United Kingdom
Northern Europe
Southern Europe
Central Europe
Eastern Europe
Emerging Markets