q1 2014 earnings presentation

First Quarter 2014 Earnings Presentation

MASCO CORPORATION

April 25, 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 Q1 2014 Results

Topic

• Summary of Results Keith Allman

• Financial/Operations Review John Sznewajs

• Outlook Keith Allman

• Q&A

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Key Messages Today

North American sales driven by new products and programs, coupled with new home construction and repair and remodel activity

Focus on execution dampened impact of weather in much of North America

International sales strengthened by new products and strong execution in an improving environment

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2014 Priorities

Grow share of market-leading brands

Focus on execution to drive profitable growth in cabinets and installation

Further penetrate international markets

Accelerate customer-focused innovation pipeline

Strengthen the balance sheet, including reducing debt by $300-500 million by 2016

Drive operational leverage through focus on cost containment

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Topic




• Q&A

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Ten Consecutive Quarters of Sales and Profit Growth

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*See Appendix for GAAP reconciliation.

Quarter Highlights • 10th consecutive quarter of top and bottom line growth

• North American sales increased 3%; international sales increased 7% in local currency

• Execution helped mitigate the effects of weather in much of North America

($ in Millions) First Quarter 2014

Revenue Change

$1,965 5%

Adjusted Operating Profit* Y-O-Y Change

$157 12%

Adjusted Operating Margin* Y-O-Y Change

8.0% 50 bps

Adjusted EPS* $0.15

Continued Improvement in Operating Margins

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Y-O-Y Change in Operating Profit $17M

*See appendix for GAAP reconciliation.

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

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International Drives Sales and Profit Growth

*Excluding business rationalization charges of $2 million and $1 million in the first quarters of 2014 and 2013, respectively.


Revenue Change

$800 5%


$121 39%


15.1% 370 bps

Quarter Highlights • New product success continues

• International sales increased mid-single-digit percentage in local currency

• Strong sales to wholesale/trade

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

10

Pro Sales Continue to Expand


Revenue Change

$441 2%

Operating Profit Y-O-Y Change

$76 (15%)

Operating Margin Y-O-Y Change

17.2% (340) bps

Quarter Highlights • New products and Pro initiative continue to drive gallon growth

• Share gains and volume growth in builders’ hardware

• Margins adversely impacted by ~$5 million due to timing of advertising costs

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 Stabilization Work Continues

*Excluding business rationalization charges of $3 million and $4 million in the first quarters of 2014 and 2013, respectively.


Revenue Change

$237 --%

Adjusted Operating Loss* Y-O-Y Change

$(9) N/M


(3.8%) (380) bps

Quarter Highlights • Mid-single-digit percentage sales growth in the builder and dealer channels

• Continued traction with customer-focused new products

• Margins adversely impacted by:

• ERP optimization

• Plant closure and weather inefficiencies

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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Strong Growth Despite Difficult Weather Conditions


Revenue Change

$335 7%

Operating Loss Y-O-Y Change

$(4) --%

Operating Margin Y-O-Y Change

(1.2%) 10 bps

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

commercial and distribution channels

• Profit impacted by multi-family mix, investments to grow the business and weather inefficiencies

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

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Share Expansion Drives Strong Growth

*Excluding business rationalization charge of $3 million in the first quarter of 2013.


Revenue Change

$152 13%


$5 150%


3.3% 180 bps

Quarter Highlights • Share expansion drives mid-teens-percentage sales growth in North America

and International windows

• Milgard ERP implementation continues

Strong Balance Sheet

Balance Sheet Liquidity as of 3/31/2014

Cash and cash investments $0.9B

Short-term bank deposits $0.3B

Total $1.2B

Q1 2014 Accomplishments

• Working capital as a percent of sales improved to 13.3% in Q1 2014, compared to 14.2% in Q1 2013

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Topic




• Q&A

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Outlook

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• Velocity of global economic recovery

• Consumer confidence

• Commodity volatility

• Housing affordability/ financing costs/mortgage availability

• Share gains in all channels

• Continued international market penetration

• New product adjacencies

• Operating leverage

• Improving repair and remodel demand, including big ticket items

• Continued growth/demand in new home construction

• Strong liquidity

RISKS OPPORTUNITIES

Appendix

Appendix – Profit Reconciliation – First Quarter

($ in Mill ions) Q1 2014 Q1 2013

Sales $ 1,965 $ 1,876

Gross Profit – As Reported $ 547 $ 508 Rationalization Charges 4 6

Gross Profit – As Adjusted $ 551 $ 514

Gross Margin - As Reported 27.8% 27.1%

Gross Margin - As Adjusted 28.0% 27.4%

Operating Profit – As Reported $ 152 $ 132 Rationalization Charges 5 8

Operating Profit – As Adjusted $ 157 $ 140

Operating Margin - As Reported 7.7% 7.0%

Operating Margin - As Adjusted 8.0% 7.5%

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Appendix – EPS Reconciliation – First Quarter

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(in Mill ions, Except per Common Share Data) Q1 2014 Q1 2013

Income from Continuing Operations before Income Taxes – As Reported $ 93 $ 85

Rationalization charges 5 8

Gains from financial investments, net - (3)

Equity investments loss (earnings),net 2 (6)

Income from Continuing Operations before Income Taxes – As Adjusted $ 100 $ 84

Tax at 36% rate (36) (30)

Less: Net income attributable to noncontrolling interest 12 9

Net Income, as adjusted $ 52 $ 45

Income per common share, as adjusted $ 0.15 $ 0.13

Average Diluted Shares Outstanding 354 352

($ in Millions) 2014 Estimate 2013 Actual

Rationalization Charges1, 3 ~ $10 $48

Tax Rate ~ 17% 26%

Interest Expense ~ $225 $235

General Corp. Expense2 ~ $130 $134

Capital Expenditures ~ $200 $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 $3M for the year ended December 31, 2013.

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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q1 2014 earnings presentation

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