Masco Corporation · NYSE:MAS
Masco — J.P. Morgan Homebuilding and Building Products Conference 2012
40 slides from Masco's conference presentation, May 16, 2012
Slide 1: J.P. Morgan Homebuilding and Building Products Conference
J.P. Morgan Homebuilding and Building Products Conference May 16, 2012
Slide 2: Safe Harbor Statement
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,”
Slide 3: Strong Fundamentals - Positioned to Outperform
INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth 3
Slide 4: Masco at a Glance
Masco at a Glance 2011 Revenue $7.5B Revenue % renovation vs. new construction 75% Cumulative free cash flow last 3 years ~$1B Employees 31,000 Market capitalization >$4.0B Dividend yield 2.9% Cash at 12/31/2011 $1.7B 4
Slide 5: Masco – Strong Brands with Market Leading Positions
Masco – Strong Brands with Market Leading Positions B USINESS S EGMENT R EVENUE 2011 % OF T OTAL L EADING P OSITIONS #1 worldwide in faucets, Plumbing fittings, showerheads Products $2.9B 39% #1 in spas Decorative Architectural $1.7B 22% #1 DIY paint and stain Products Cabinets #1 & #2 U.S.
Slide 6: Masco – Unique Scope and Scale
Masco – Unique Scope and Scale We believe we are the……. Largest manufacturer of faucets in the world Largest manufacturer of kitchen cabinets in the world Largest non-commodity supplier to The Home Depot Largest supplier to Lowe’s Kitchen and Bath segment supplier of architectural coatings to the La
Slide 7: Strong Fundamentals - Positioned to Outperform
INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth 7
Slide 8: Strategic Initiatives to Improve Performance
Strategic Initiatives to Improve Performance 1 Expand market • Leverage brands leadership • Innovative products 2 • Supply chain savings Reduce costs • Drive lean benefits Outperform the 3 recovery • Focus on Cabinets, Improve Installation underperforming businesses • Return to profitability 4 Stren
Slide 9: Key Brands Gaining Share since 2010
1. EXPAND MARKET LEADERSHIP 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 ranking, Direct to Pro® service growth, Kilz Pro line • Other Specialty: Milgard®
Slide 10: Significant Progress Lowering Cost Structure & Higher Margins
2. REDUCE COSTS Significant Progress Lowering Cost Structure Higher Margins Cumulative Gross Fixed Cost Headcount Reductions Reductions of ~50% $540M $560M 62,500 32,500 31,000 ~$100M 2007 2010 2011 2006 2010 2011 Includes 28 closed / mothballed facilities 10
Slide 11: Laser Focus on Achieving Breakeven
3. IMPROVE UNDERPERFORMING BUSINESSES Laser Focus on Achieving Breakeven Cabinets Executing wide range of sales initiatives • Countertops and Vanities Program • Increased Dealer penetration Expect ~$50M operating profit improvement in 2012 Installation Continued penetration of retrofit and com
Slide 12: Declining Debt to Capitalization Ratio
4. STRENGTHEN BALANCE SHEET Declining Debt to Capitalization Ratio 84% 45%-55% • Planned reduction of $400M in 2012 2011 Future Target Year End 12
Slide 13: Strong Fundamentals - Positioned to Outperform
INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth 13
Slide 14: Key Strengths we are Leveraging
Key Strengths we are Leveraging 1 Market-leading brands 2 Industry innovator 3 Broad distribution 4 Masco Business System 5 Strong financial position 14
Slide 15: Unparalleled Brand Strength
STRENGTH 1: MARKET LEADING BRANDS Unparalleled Brand Strength Cabinets & Related Plumbing Decorative Other Specialty Products Products Architectural Products Products Installation & Other Services 15
Slide 16: Significant New Product Introductions – Last 3 Years
STRENGTH 2: INDUSTRY INNOVATOR Significant New Product Introductions – Last 3 Years Examples of New Products/Technologies 2009 2010 2011 2011 Revenues Behr Premium Arrow BehrProTM Plus Ultra R.E.D. 70% 30%* Existing Touch2O® Essence Kilz PRO-XTM Products Technology Windows Hansgrohe’s Axor® ACE® Sal
Slide 17: Broad Distribution Across Multiple Channels
STRENGTH 3: BROAD DISTRIBUTION Broad Distribution Across Multiple Channels Broad Portfolio Big Box Retailers Homebuilders Wholesalers / Dealers • Dedicated customer- • Exclusive products and • Extensive training specific service services for the direct to programs for branch and organizations with o
Slide 18: Masco Business Systems: A Continuous Improvement Culture
STRENGTH 4: MASCO BUSINESS SYSTEMS A Continuous Improvement Culture – At the Center of Our Success Customer focus Innovation MBS Lean Talent Quality 18
Slide 19: Strong Liquidity and Improving Balance Sheet
STRENGTH 5: STRONG FINANCIAL POSITION Strong Liquidity and Improving Balance Sheet Strong Liquidity Declining Debt to (as of 3/31/2012) Capitalization Ratio 84% • Cash and equivalents of ~$1.8B 45%-55% • Borrowing availability of ~$780M • A strong free cash flow business – ~$1B last 3 years – Mainte
Slide 20: Strong Fundamentals - Positioned to Outperform
INVESTMENT THESIS Strong Fundamentals - Positioned to Outperform The company The strategy The strengths The growth 20
Slide 21: Positioned to Outperform in the Recovery
Positioned to Outperform in the Recovery 1 Leveraged to the recovery 2 Continued brand leverage and share expansion 3 Continued cost position improvement 4 Disciplined capital deployment 21
Slide 22: 1. Leveraged to the Recovery
1. Leveraged to the Recovery Adjusted Operating Margin* 10-14% 12% Reflects • lower fixed cost base of >$560M (gross) 6% • driving lean principles 4% across the company 2006 2010 2011 3-5 Years Last Peak Housing starts 2.1M 0.6M 0.6M ~1-1.5M 30% margin on incremental volume 22 *See Appendix slide 31
Slide 23: 2. Initiatives to Leverage Brands and Expand Share
2. Initiatives to Leverage Brands and Expand Share Product Strengthen Extend Geographic Introductions Brand Loyalty Categories Expansion Plumbing Products Decorative Architectural Products Cabinets and Related Products Installation and Other Services Other Specialty Products 23
Slide 24: 3. Continue to Improve Cost Position
3. Continue to Improve Cost Position Driven by: Driven by: Sourcing ~$150M* Actions Taken In Lean Prior Years Initiatives of Total Cost • Plant Closures Productivity • Headcount Distribution Reductions in 2012 • System & Logistics Implementations 24 * Gross
Slide 25: 4. Disciplined Capital Deployment
4. Disciplined Capital Deployment Invest in the Business • Maintenance capex: $110M annually Financial Flexibility • Target 45%-55% debt to Strong Cash capitalization vs. ~84% Flow Generation Dividend • Maintain dividend yield ~2% Acquisitions • Potential acquisitions (<$100M) in support of internat
Slide 26: 2012 Priorities
2012 Priorities Cabinet profit improvement Installation profit improvement Successfully launch new products in Paint & Builders Hardware Reduce debt by ~$400M/refinance $400M Investment in strategic growth initiatives Grow share of key brands Total cost productivity Geographic expansion 26
Slide 27: Masco 3-5 Years Out – A "Normal" Housing Market
Masco 3-5 Years Out – A “Normal” Housing Market • Estimate revenues of ~$10-12B, margin of 10-14% • Growth outperforming the industry • International expansion • Positive return from assets employed in – Cabinets – Installation • Optimized portfolio with a strong balance sheet 27
Slide 28: Strong Fundamentals - Positioned to Outperform
WHY INVEST IN MASCO Strong Fundamentals - Positioned to Outperform Executing initiatives to improve performance The Strategy • Continuing to reduce fixed costs, expand share and improve underperformers Building on market-leading positions The Strengths • Best brands, innovative products, lean practi
Slide 29: Slide 29
Slide 30: Appendix
Appendix
Slide 31: Operating Profit Reconciliation
Operating Profit Reconciliation Twelve Months Ended December 31, 2011 2010 2006 Sales $ 7,467 $ 7,486 $ 12,390 Operating (loss) profit , as reported $ (295) $ (463) $ 1,115 Rationalization charges 121 208 47 Impairment of goodwill and other intangible assets 494 698 317 Litigation charge 9 - - Opera
Slide 32: 2012 Outlook – Cabinets Estimated Improvement
2012 Outlook – Cabinets Estimated Improvement (in Millions) Sales Operating Profit 2011 Total Segment $1,230 ($115) 1 Less: 2011 International ($370) ($40) 2011 North America Cabinet Actual $860 ($75) Product Exit (10) $13 2011 N.A. Operating Loss ($62) 2 2012 Profit Improvements, Net $30 2 2012 Rev
Slide 33: 2012 Outlook – Installation Estimated Improvement
2012 Outlook – Installation Estimated Improvement (in Millions) Sales Operating Profit 2011 Total Segment $1,077 ($71) 2011 Branch Closures ($30) $6 2011 Adjusted Segment $1,047 ($65) 1 2012 Profit Improvements, Net $20 1 2012 Revenue Opportunities, Net $40 $10 2012 Installation Segment Estimate $1,
Slide 34: Q1 2012 - Improved Results Impacted by Increased Demand and Execution
Q1 2012 - Improved Results Impacted by Increased Demand and Execution First Quarter ($ in Millions) 2012 Revenue $1,875 Growth 7% Adjusted Operating Profit* $112 Y-O-Y Change $54 Adjusted Operating Margin* 6.0% Y-O-Y Change 270 bps Adjusted EPS* $0.05 *As reported operating profit $102M; operating m
Slide 35: Q1 2012 – Profit Reconciliation
Q1 2012 – Profit Reconciliation ($ in Millions, except EPS) Q1 2012 Q1 2011 Sales $ 1,875 $ 1,753 Gross Profit – As Reported $ 485 $ 425 Rationalization Charges 11 24 Gross Profit – As Adjusted $ 496 $ 449 Gross Margin - As Reported 25.9% 24.2% Gross Margin - As Adjusted 26.5% 25.6% Operating Profit
Slide 36: Q1 2012 – EPS Reconciliation
Q1 2012 – EPS Reconciliation (in Millions) Q1 2012 Q1 2011 Income (Loss) from Continuing Operations before Income Taxes – As Reported $ 53 $ (16) Rationalization Charges 12 32 Litigation (Income) Charge (2) - Financial Investment (Income) Expense (16) (17) Income (Loss) from Continuing Operations be
Slide 37: Outlook into 2012
Outlook into 2012 Tailwinds Headwinds • Solid 1Q 2012 performance – • Competitive promotional off to a good start environment for Cabinets • Successful price increases in • International expansion cost key businesses and mix impact • Major restructuring activities • Commodity cost volatility complet
Slide 38: 2012 Guidance Estimates
2012 Guidance Estimates ($ in Millions) 2012 Estimate 2011 Actual Rationalization Charges* ~ $20 $121 Tax Rate** ~ 50% 18% Interest Expense ~ $250 $254 General Corp. Expense ~ $140 $118 Capital Expenditures ~ $180 $151 Depreciation & ~ $220 $263*** Amortization Outstanding Shares 348 million 348 mil
Slide 39: Segment Mix Full Year 2011 Estimate
Segment Mix Full Year 2011 Estimate Business Segment Revenue 2011 % of Total RR% vs. NC NA% vs. Int’l Plumbing Products $2.9B 39% 80% 55% Decorative Architectural $1.7B 22% 95% 100% Products Cabinets and Related Products $1.2B 17% 75% 75% Installation and Other Services $1.1B 14% 20% 100% Other Spec
Slide 40: 2011 Masco International Revenue Split
2011 Masco International Revenue Split* International Sales Accounted for ~24% of Total 2011 Masco Sales 40 *Based on company estimates
Masco — J.P. Morgan Homebuilding and Building Products Conference 2012 on 6ix