q3 2015 earnings deck final 2
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Third Quarter Earnings
Presentation
October 27, 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, 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.
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Masco Q3 2015 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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Q 3 2 0 1 5 I N R E V I E W
Improved Demand, Operating Leverage and Cost Control
Drove Performance
• Capitalized on improving end market demand
• Operating leverage and cost productivity drove profit
margin expansion
• Disciplined cost control despite underlying top line growth
• Cabinets accelerated its turnaround and positioned
business for disciplined growth
• 7.6 million shares repurchased
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Driving
Performance
Masco Q3 2015 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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Strong Profitability Across All Segments
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*See Appendix for GAAP reconciliation.
Quarter Highlights
• Total company sales increased 4% excluding the effects of foreign currency
translation
• North American sales increased 3%; International increased 4% in local currency
• FX negatively impacted sales by $66 million and profit by $10 million
($ in Millions)Third Quarter
2015
Revenue Y-O-Y Change
$1,839
0%
Operating Profit* Y-O-Y Change
$25716%
Operating Margin* Y-O-Y Change
14%190 bps
Adjusted EPS*Y-O-Y Change
$0.3426%
P L U M B I N G P R O D U C T S
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Retail and Trade Demand Drove Growth
($ in Millions)Third Quarter
2015
Revenue Y-O-Y Change
$8530%
Operating Profit*Y-O-Y Change
$138(2%)
Operating Margin*Y-O-Y Change
16.2%- 30 bps
Quarter Highlights
• North American sales increased 8% excluding the impact of Canadian
currency; International sales increased 4% in local currency
• FX negatively impacted sales by approximately $57 million and profit by $7
million
• Continued strong performance in retail and trade channels
• Commodity hedge negatively impacted operating profit by $9 million
*Excludes business rationalization charges for the third quarter 2015 of $1 million
D E C O R AT I V E A R C H I T E C T U R A L P R O D U C T S
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Pro Paint Continues to Gain Momentum
($ in Millions)Third Quarter
2015
Revenue Y-O-Y Change
$527
1%
Operating ProfitY-O-Y Change
$10212%
Operating MarginY-O-Y Change
19.4%200 bps
Quarter Highlights
• Behr Pro and core DIY growth partially offset by promotion expense
• Realized low to mid-single digit gallon growth in the quarter
• Sourcing and lean initiatives drove profit growth
C A B I N E T S A N D R E L AT E D P R O D U C T S
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Business Turnaround Accelerating
($ in Millions)Third Quarter
2015
Revenue Y-O-Y Change
$253(5%)
Operating Profit* Y-O-Y Change
$19N/M
Operating Margin* Y-O-Y Change
7.5%1,010 bps
Quarter Highlights
• Strong retail sales offset by the exit of certain less profitable direct to builder
business
• KraftMaid® Vantage continued to perform in the dealer channel resulting in
positive mix
• Improved operating efficiencies drove substantial margin expansion
*Excludes business rationalization charges for the third quarter 2015 and 2014 of $1 million and $28 million, respectively and
gain from sale of property and equipment for the third quarter 2015 of $3 million
O T H E R S P E C I A LT Y P R O D U C T S
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Strong Milgard Window Performance
($ in Millions)Third Quarter
2015
Revenue Y-O-Y Change
$206
8%
Operating ProfitY-O-Y Change
$2315%
Operating MarginY-O-Y Change
11.2%70 bps
Quarter Highlights
• Sales increased 11% excluding the effects of foreign currency translation
• North American windows delivered strong growth across all channels and
improved mix
Strong Balance Sheet and Disciplined Capital
Allocation
Liquidity as of 9/30/2015
Cash and cash investments $1.3B
Short-term bank deposits $0.2B
Total $1.5B
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Q3 2015 Accomplishments
• Repurchased approximately 7.6 million shares
Masco Q3 2015 Results
Topic
• Summary of Results Keith Allman
• Financial/Operations Review John Sznewajs
• Q&A
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Q&A
Appendix
Appendix – Profit Reconciliation – Third Quarter
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($ in Millions) Q3 2015 Q3 2014
Net Sales $ 1,839 $ 1,834
Gross Profit – As Reported $ 589 $ 522
Rationalization charges 1 28
Gain on sale of property and equipment (3) -
Gross Profit – As Adjusted $ 587 $ 550
Gross Margin - As Reported 32.0% 28.5%
Gross Margin - As Adjusted 31.9% 30.0%
Selling, General and Administrative Expenses – As Reported $ 331 $ 341
Rationalization charges 1 13
Selling, General and Administrative Expenses – As Adjusted $ 330 $ 328
Selling, General and Administrative Expenses as Percent of Net Sales – As Reported 18.0% 18.6%Selling, General and Administrative Expenses as Percent of Net Sales – As Adjusted 17.9% 17.9%
Operating Profit – As Reported $ 258 $ 181
Rationalization charges 2 41
Gain on sale of property and equipment (3) -
Operating Profit – As Adjusted $ 257 $ 222
Operating Margin - As Reported 14.0% 9.9%
Operating Margin - As Adjusted 14.0% 12.1%
Appendix – EPS Reconciliation – Third Quarter
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(in Millions, Except per Common Share Data) Q3 2015 Q3 2014
Income from Continuing Operations before Income Taxes – As Reported $ 198 $ 131
Rationalization charges 2 41
Gains from financial investments, net (1) -
Gain on sale of property and equipment (3) -
Income from Continuing Operations before Income Taxes – As Adjusted $ 196 $ 172
Tax at 36% rate (71) (62)
Less: Net income attributable to noncontrolling interest 10 13
Income from Continuing Operations, as adjusted $ 115 $ 97
Income per common share, as adjusted $ 0.34 $ 0.27
Average Diluted Shares Outstanding 338 353
($ in Millions) 2015 Estimate1 2014 Actual1
Rationalization Charges2, 3 ~ $14 $64
Tax Rate4 ~ 40% 34%
Interest Expense ~ $225 $225
General Corp. Expense5 ~ $100 $119
Capital Expenditures ~ $160 $115
Depreciation &
Amortization3
~ $130 $141
Shares Repurchased6 $400-500 $158
Shares Outstanding7 344 million 352 million
1. Guidance and 2014 results exclude TopBuild.
2. Based on 2015 business plans.
3. Includes accelerated depreciation of $1 million for the year ended December 31, 2014. Such expense is also included in the rationalization charges.
4. 2015 tax rate is impacted by an $18 million valuation allowance as a result of our decision to spin off TopBuild. 2014 tax rate excludes the $529 million
release of the valuation allowance.
5. Excludes rationalization expenses of $27 million for the year ended December 31, 2014 and $4 million (estimated) for the year ended December 31, 2015.
6. 2015 and 2014 share repurchases include approximately 720,000 and 1.7 million shares, respectively, to offset grants of long-term stock awards.
7. Reflects weighted average shares outstanding as of September 30, 2015 and assumes no further share repurchases in 2015.
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2015 Guidance Estimates
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; excludes TopBuild Corp.
Business Segment
PlumbingProducts
DecorativeArchitecturalProducts
$3.3B
$2.0B
Revenue 2014 % of Total
47%
29%
$ 7.0B 100%Total Company
Other SpecialtyProducts
$0.7B 10%
R&R% vs. NC NA% vs. Int’l
82% 59%
99% 100%
74% 74%
82% 77%
Cabinets andRelated Products
$1.0B 14% 55% 91%
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2014 International Revenue Split*
*Based on Company estimates; excludes TopBuild Corp.
International Sales Accounted for ~23%
of Total 2014 Masco Sales
28%
5%
10%
25%
9%
14%
9%
UK
Northern Europe
Southern Europe
Central Europe
Eastern Europe
Emerging markets
Other
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