Citi 2014 Basic Materials Conference presentation by Masco

1. Citi 2014 Basic Materials Conference
December 3, 2014
MASCO CORPORATION

2. 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

3. Agenda
●
Masco Performance - Momentum
●
Powerful Capabilities
–
Strengths
–
Opportunities
●
Renewed Focus
3

4. Masco – Strong Brands with Industry Leading Positions 4
BUSINESS SEGMENT
Cabinets and Related Products
Plumbing Products
Installation and Other Services
Decorative Architectural Products
$1.0B
$3.2B
$1.4B
$1.9B
REVENUE 2013
$8.2B
Total company
Other Specialty Products
$0.7B
LEADING POSITIONS

Leading U.S. kitchen and bath cabinetry brands

#1 worldwide in faucets, fittings, showerheads

#1 in spas

#1 insulation contractor for homebuilders

Leading DIY paint and stain provider

#1 in vinyl windows in the western U.S.

5. MASCO PERFORMANCE Masco Drove Improvement During the Downturn
Reduced fixed costs
Strengthened management
Improved underperformers
Refined portfolio
•
Installation profitable Q4 2012
•
Cabinets profitable on an adjusted basis Q2 2013
•
Reduced fixed gross costs by ~$600M, lowered breakeven
•
Divested Danish cabinet business
•
Aligned organization with strategic goal setting and improved planning process
•
Topgraded talent at several BUs
5

6. Masco is Delivering Growth and Strong Cash Flow Generation
6
*Operating Profit as adjusted, excluding goodwill, litigation, rationalization and other charges ($570M in 2011, $198M in
2012, and $48M in 2013). Operating (loss)/profit as reported, ($215M) in 2011, $302M in 2012 and $673M in 2013.
$7.2
$7.5
$8.2
2011
2012
2013
Revenues
($B)
$355
$500
$721
2011
2012
2013
$75
$139
$514
2011
2012
2013
Cash Flow ($M)
Operating Profit*
($M)

7. MASCO PERFORMANCE Masco Delivered a Solid Performance in 2013
Revenue
$8.2B
Market cap
>$7.9B
Dividend yield
1.4%
Free Cash Flow
>$500M
Focused on Repair & Remodel (Breakdown of 2013 Revenue)
New Construction
Repair & Remodel
72%
28%
7
12/31/2013
Liquidity
$1.5B

8. Agenda
●
Masco Performance - Momentum
●
Powerful Capabilities
–
Strengths
–
Opportunities
●
Renewed Focus
8

9. Masco Strengths
9
1
Unparalleled brand strength
2
Customer focused innovation
3
Broad market coverage
4
Strong financial position

10. MASCO STRENGTHS 1. Unparalleled Brand Strength Drives Share Gains
10
Masco Cabinetry (cabinet manufacturer in U.S.)
Delta (faucet brand in North America)
Masco Contractor Services (installer of insulation in U.S.)
Behr (DIY architectural coatings in North America)
Milgard (vinyl window brand in Western U.S.)
Hansgrohe (global faucet & mixer brand)
Arrow, Liberty, BrassCraft and Watkins (in their respective categories)
#2
#1
#1
#1
#1
#1
#2

11. MASCO STRENGTHS 2. Customer Focused Innovation
* Percentage of 2013 gross sales of manufactured products attributable to new products introduced in trailing 36 months 11
30%*
Examples of New Products/Technologies
Existing Products
2013
2012
2011
70%
Hansgrohe SelectTM
Collection
KraftMaid New
Design Launch
2013 Revenues
BehrPro® Paint
Masco Cabinetry’s
ProCision® Process
Kilz PRO-X® Paint
Delta® Toilets
Paint & Primer in One with Advanced Stain Blocking Formula
KraftMaid® Vanities
Behr DeckOver®
Coating

12. MASCO STRENGTHS 3. Broad Coverage Across Segments, Price Points and Channels
12
Segments
Price Points
Channels
New
construction 28%
Repair / remodel 72%
International 19%
N. America 81%
•
Low ticket value ~$20
•
High ticket luxury ~$20K
•
Direct-to-Builder
•
Big box retail
•
Wholesale / dealer trade

13. MASCO STRENGTHS 4. Strong Financial Position
13
Strong Liquidity
(as of 9/30/2014)
●
A strong operating cash flow business
–
~$1B last 3 years
–
Maintenance capex of ~$100M annually
●
Valuation allowance of ~$517 million on deferred tax assets was reversed in the third quarter of 2014
●
Plan to reduce debt by $300M–$500M by 2016
Declining Debt to Capitalization Ratio
2013
Year End
Future
Target
Balance Sheet Liquidity
Cash and cash investments
$1.3B
Short-term bank deposits
$0.3B
Total
$1.6B
82%
45%–55%

14. Agenda
●
Masco Performance - Momentum
●
Powerful Capabilities
–
Strengths
–
Opportunities
●
Renewed Focus
14

15. Masco Opportunities
15
2. Leverage opportunities across our portfolio
1. Drive full potential of our core businesses
3. Actively manage portfolio
OPPORTUNITIES

16. MASCO OPPORTUNITIES 1. Drive Full Potential of Our Core Businesses
16
Current Examples:
●
Extended Delta® brand to toilets and showers based on the power of the brand
●
Increased Behr marketing to the professional painter to add a new channel
●
Extended Hansgrohe into new international markets
1.

17. MASCO OPPORTUNITIES 2. Leverage Opportunities Across Our Portfolio
17
●
Improved supply chain by implementing best practices across our portfolio
●
Reduced material costs from integrated purchasing
●
Applied value engineering across businesses
Current Examples:
2.

18. MASCO OPPORTUNITIES 3. Actively Manage Portfolio
18
●
Announced spin-off of Installation Services segment on Sept. 30, 2014
●
Divested underperforming Danish cabinet business
●
Acquired opening price point spa business to augment Watkins’ spas
Current Examples:
3.

19. Agenda
●
Masco Performance - Momentum
●
Powerful Capabilities
–
Strengths
–
Opportunities
●
Renewed Focus
19

20. Recent Initiatives to Unlock Shareholder Value
Unlocking Shareholder Value
20
Spin-off of Installation and Other Services businesses
Reduce corporate expense
Share repurchase program
1
2
3

21. Disciplined
Capital
Deployment 21
Invest in the business
Pay down debt
Bolt on acquisitions
Shareholder- friendly activities
Capital Allocation – A Disciplined and Balanced Approach
•
Capital expenditure of approximately 2% of sales
•
$300-500 million over the next two to three years
•
Disciplined approach to bolt on acquisitions
•
Repurchase up to 50 million shares
•
Dividend expense of approximately $130 million

22. Driving Improved Performance
22
Transforming
•
Delivering on the promise of transformation
•
Unlocking value by creating two strong companies with independent growth opportunities
•
Returning capital to shareholders
•
Maintaining our focus on continued strong operating performance and free cash flow generation
•
Streamlining corporate expense and organizational structure
Two Strong Companies
Share Repurchase Program
Reduce Corporate Expense
Balanced Capital Allocation

23. Appendix

24. ($ in Millions)
2014 Estimate
2013 Actual
Rationalization Charges1, 3
~ $58
$48
Tax Rate4
~ 36%
26%
Interest Expense
~ $225
$235
General Corp. Expense2
~ $140
$134
Capital Expenditures
~ $125
$126
Depreciation & Amortization3
~ $170
$186
Shares Outstanding5
353 million
352 million
2014 Guidance Estimates
1.
Based on 2014 business plans.
2.
Includes rationalization expenses of $20M 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 ~$29M. Such expenses are also included in the rationalization charges.
4.
Excludes $517 million release of the valuation allowance in the third quarter 2014.
5.
2014 shares outstanding does not reflect potential Q4 2014 share repurchases.
24

25. 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%
25

26. 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%
UK
Northern Europe
Southern Europe
Central Europe
Eastern Europe
Emerging markets
Other
26