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Q2 2013 final presentation

  1. Second Quarter 2013 Masco Earnings Presentation
  2. 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, 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 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.
  3. Masco Q2 2013 Results – Agenda 3 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
  4. Key Messages Today 4 North American sales increase was driven by new home construction activity and retail performance; International sales grew despite challenging market conditions Cabinets and Installation capitalized on market dynamics delivering top and bottom line growth Operating leverage and focus on cost control increased profits All segments positively contributed to top and bottom line growth
  5. Strategy Execution Highlights Q2 2013 5 Expand market leadership Reduce costs Improve underperforming businesses 1 2 3 Strengthen balance sheet 4 • Continued success with new and previously introduced products and programs at retail with Plumbing Products and Decorative Architectural Products • Continued commitment to cost control results in SG&A improvement • Cabinetry continues to execute on strategic plan and delivers profit • Installation and Other Services capitalizes on strategic growth with new home construction, commercial, distribution and retrofit channels • Strong working capital management
  6. Masco Q2 2013 Results – Agenda 6 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
  7. Margin Expansion Demonstrates Operating Leverage 7 ($ in Millions) Second Quarter 2013 Revenue Growth $2,149 10% Adjusted Operating Profit* Y-O-Y Change $206 $75 Adjusted Operating Margin* Y-O-Y Change 9.6% 290 bps Adjusted EPS* $0.23 Quarter Highlights • North American sales increased 11%; International sales increased 6% in local currency • Sales growth driven by increased sales at retail and new home construction • Incremental margins ~37% achieved from operating leverage *See appendix for reconciliation to GAAP information.
  8. Commitment to Cost Control and Leverage on Increased Volume Favorably Impacting Margins 8 Y-O-Y Change in Operating Profit $75M *See appendix for reconciliation * *
  9. Plumbing Products: Strong Performance in North America and International 9 Quarter Highlights • North American faucet and toilet sales growth percentage in the mid- teens • North American sales growth partially offset by lost bathware business • International sales increase 6% in local currency due to growth in all major channels including project work, DIY, and trade • Margins impacted by favorable price/commodity relationship and total cost productivity efforts ($ in Millions) Second Quarter 2013 Revenue Growth $802 9% Adjusted Operating Profit* Y-O-Y Change $110 $37 Adjusted Operating Margin* Y-O-Y Change 13.7% 380 bps *Excluding rationalization charges of $8 million and $3 million in the second quarters of 2013 and 2012, respectively.
  10. Decorative Architectural Products: Core Paint Sales Benefit from Healthy Repair and Remodel Activity and New Product Introductions 10 Quarter Highlights • Increased sales driven by volume growth of DIY core paint and new products • Behr Pro, Behr’s expansion into Mexico, and retail sales of Builder’s Hardware continue to grow • Margins positively impacted by increased volume; partially offset by increased advertising costs and unfavorable price/commodity relationship ($ in Millions) Second Quarter 2013 Revenue Growth $565 9% Adjusted Operating Profit* Y-O-Y Change $105 $10 Adjusted Operating Margin* Y-O-Y Change 18.6% 20 bps *Excludes $1 million of rationalization charges in the second quarter of 2013.
  11. Cabinets and Related Products: Focus on Profitability Drives Performance 11 Quarter Highlights • Strong direct-to-builder sales • Results positively impacted by pricing and promotional strategies, cost control, and productivity improvements; partially offset by mix • Excludes Danish RTA business, which is in discontinued operations ($ in Millions) Second Quarter 2013 Revenue Growth $265 5% Adjusted Operating Profit* Y-O-Y Change $5 $9 Adjusted Operating Margin* Y-O-Y Change 1.9% 350 bps *Excludes rationalization charges of $3 million and $1 million in the second quarters of 2013 and 2012, respectively.
  12. Installation and Other Services: Top and Bottom Line Growth Demonstrate Solid Execution 12 Quarter Highlights • Sales growth driven by higher volumes in residential new home construction, commercial, distribution, and retrofit channels • Installation sales to residential new home construction increased ~34% • Margin improvement driven by operating leverage and continued cost control ($ in Millions) Second Quarter 2013 Revenue Growth $357 21% Operating Profit Y-O-Y Change $8 $17 Operating Margin Y-O-Y Change 2.2% 520 bps
  13. Other Specialty Products: Strong Performance Reflects Window Share Gains and Profit Improvement 13 Quarter Highlights • North American window sales increased ~20% • Sales growth driven by increased new home construction and repair & remodel sales, and new product introductions • Margin expansion fueled by increased volume and favorable price/commodity relationship ($ in Millions) Second Quarter 2013 Revenue Growth $160 13% Adjusted Operating Profit* Y-O-Y Change $14 $8 Adjusted Operating Margin* Y-O-Y Change 8.8% 450 bps *Excludes rationalization charges of $3 million in the second quarter of 2013.
  14. Strengthening the Balance Sheet • Continued strong working capital execution • Will retire $200M debt maturity in August with existing cash 14 $1.2 billion of cash as of 6/30/2013
  15. Masco Q2 2013 Results – Agenda 15 Topic • Summary of Results Tim Wadhams • Financial/Operations Review John Sznewajs • Outlook Tim Wadhams • Q&A
  16. Delivering on 2013 Priorities – Q2 Highlights Investment in strategic growth initiatives Geographic expansion Total cost productivity Reduce debt by ~$200M Cabinet profit improvement Profitably grow Installation Grow share of key brands 16 Successfully launch new products and programs
  17. 2013 Outlook Risks Opportunities • Velocity of U.S. economic recovery • European economic uncertainty • Mix shifts • Commodity volatility • Improving demand in new home construction • Successful new product and program launches at retail • Share gains at retail and with big builders • Strong liquidity • Capitalize on operating leverage 17
  18. Q&A
  19. Appendix
  20. Appendix – Profit Reconciliation – Second Quarter 20 ($ in Millions) Q2 2013 Q2 2012 Sales $ 2,149 $ 1,945 Gross Profit – As Reported $ 609 $ 521 Rationalization charges 11 3 Gross Profit – As Adjusted $ 620 $ 524 Gross Margin - As Reported 28.3% 26.8% Gross Margin - As Adjusted 28.9% 26.9% Operating Profit – As Reported $ 188 $ 54 Rationalization charges 18 7 Gain from sale of fixed assets - (5) Charge for litigation settlements, net - 75 Operating Profit – As Adjusted $ 206 $ 131 Operating Margin - As Reported 8.7% 2.8% Operating Margin - As Adjusted 9.6% 6.7%
  21. Appendix – EPS Reconciliation – Second Quarter 21 (in Millions) Q2 2013 Q2 2012 Income (loss) from Continuing Operations before Income Taxes – As Reported $ 131 $ (12) Rationalization charges 18 7 Gain from financial investments, net (5) - Gain from sale of fixed assets - (5) Charge for litigation settlements, net - 75 Interest carry costs - 7 Income from Continuing Operations before Income Taxes – As Adjusted $ 144 $ 72 Tax at 36% rate benefit (expense) (52) (26) Less: Net income attributable to non-controlling interest 10 8 Net Income, as adjusted $ 82 $ 38 Income per common share, as adjusted $ 0.23 $ 0.11 Average Diluted Shares Outstanding 352 349
  22. ($ in Millions) 2013 Estimate 2012 Actual Rationalization Charges1 ~ $55 $78 Tax Rate ~ 25% 198% Interest Expense ~ $240 $254 General Corp. Expense2 ~ $130 $126 Capital Expenditures ~ $150 $119 Depreciation & Amortization3 ~ $190 $214 Shares Outstanding 352 million 349 million 2013 Guidance Estimates 1 – Based on current business plans. 2 – Excludes rationalization expenses of $14M for the year ended December 31, 2012. 3 – Includes accelerated depreciation of $28M for the year ended December 31, 2012. Estimate for accelerated depreciation for the year ended December 31, 2013 is ~$17M. Such expenses are also included in the rationalization charges.
  23. Segment Mix Full Year 2012 Estimate Business Segment Cabinets and Related Products Plumbing Products Installation and Other Services Decorative Architectural Products $0.9B $3.0B $1.2B $1.8B Revenue 2012 % of Total 40% 24% 12% 16% $7.5B 100%Total company 23 Other Specialty Products $0.6B 8% R&R% vs. NC NA% vs. Int’l 82% 59% 99% 100% 69% 92% 16% 100% 75% 75% 73% 80% 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
  24. 2012 Masco International Revenue Split* 24 *Based on company estimates International Sales Accounted for ~20% of Total 2012 Masco Sales 6% 26% 3% 5% 34% 11% 15% Other United Kingdom Northern Europe Southern Europe Central Europe Eastern Europe Emerging Markets
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