masco presents at raymond james' 33rd institutional investors conference
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Raymond James33rd Annual Institutional Investors Conference
March 6, 2012
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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,” “should,” “will,” “forecast”, “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” 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, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through business rationalizations and other initiatives. 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.
Safe Harbor Statement
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I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
The strengths
The growth
The strategy
The company
Masco at a Glance
Revenue % renovation vs. new construction 75%
Employees 31,000
Market capitalization >$4.0B
Dividend yield 2.9%
Revenue $7.5B
Cumulative free cash flow last 3 years ~$1B
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2011
Cash at 12/31/2011 $1.7B
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Masco – Strong Brands with Market Leading Positions
BUSINESS SEGMENT
Cabinetsand Related Products
PlumbingProducts
Installation and Other Services
DecorativeArchitecturalProducts
$1.2B
$2.9B
$1.1B
$1.7B
REVENUE 2011% OF TOTAL
39%
22%
17%
14%
$7.5B 100%Total company
OtherSpecialtyProducts
$0.6B 8%
LEADING POSITIONS
#1 & #2 U.S. kitchen and bath cabinetry brands
#1 worldwide in faucets, fittings, showerheads #1 in spas
#1 insulation and product installation for homebuilders
#1 DIY paint and stain
#1 windows and patio doors in western US and UK
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Masco – Unique Scope and Scale
manufacturer of faucets in the worldLargest
manufacturer of kitchen cabinets in the worldLargest
non-commodity supplier to The Home DepotLargest
supplier to Lowe’s Kitchen and Bath segmentLargest
supplier of architectural coatings to the U.S. DIY marketLargest
installer of insulation products for the new home construction marketLargest
We believe we are the…….
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~70% of Sales from Businesses that are Performing Well
Executing plans to improve performance of our businesses
High
Low
HighLow Profitability
Competitivestrengths
Cabinets
InstallationOther
SpecialtyPlumbing
DecorativeArchitectural
Note: Size of circles represents relative sales in 2011
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I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
The strengths
The growth
The strategy
The company
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Strategic Initiatives to Improve Performance
Outperformthe
recovery
• Leverage brands• Innovative products
Expand market leadership
• Supply chain savings
• Drive lean benefitsReduce costs
• Focus on Cabinets, Installation
• Return to profitability
Improve underperforming businesses
1
2
3
4
Strengthen Balance Sheet
• Debt reduction• Strong liquidity
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1 . E X P A N D M A R K E T L E A D E R S H I P
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® windows outperforming market, UK growing share
• Masco Contractor Services gaining share with insulation, retrofit and commercial channels
• Merillat® and Quality® cabinet brands gaining sharewith builders
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2 . R E D U C E C O S T S
Significant Progress Lowering Cost Structure Higher Margins
Cumulative Gross Fixed CostReductions
Headcount Reductionsof ~50%
2007 2010 2011
~$100M
$540M $560M
2006 2010 2011
62,500
32,500 31,000
Includes 28 closed / mothballed facilities
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3 . I M P R O V E U N D E R P E R F O R M I N G B U S I N E S S E S
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 commercial
channels
Further cost reductions from lean, ERP leverage, supply chain
Expect ~$30M operating profit improvement in 2012
Estimated breakeven lowered to ~700,000 housing starts
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4 . S T R E N G T H E N B A L A N C E S H E E T
Declining Debt to Capitalization Ratio
2011Year End
Future Target
84%
45%-55%• Planned
reduction of $400M in 2012
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I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
The strengths
The growth
The strategy
The company
Broad distribution3
Industry innovator2
Market-leading brands1
Masco Business System4
Strong financial position5
Key Strengths we are Leveraging
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S T R E N G T H 1 : M A R K E T L E A D I N G B R A N D S
Unparalleled Brand Strength
Installation & Other Services
PlumbingProducts
Cabinets & Related Products
Decorative Architectural
Products
Other Specialty Products
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S T R E N G T H 2 : I N D U S T R Y I N N O V A T O R
Significant New Product Introductions – Last 3 Years
30%*
Examples of New Products/Technologies
ExistingProducts
201120102009
70%
Touch2O®
Technology
Behr PremiumPlus Ultra
EssenceWindows
ArrowR.E.D.
ACE® Salt WaterSanitizing System
2011 Revenues
Hansgrohe’s Axor® Urquiola
BehrProTM
Masco Cabinetry’s ProCisionTM Process
* Percentage of 2011 gross sales of manufactured products attributable to new products introduced in trailing 36 months
Kilz PRO-XTM
S T R E N G T H 3 : B R O A D D I S T R I B U T I O N
Broad Distribution Across Multiple Channels
Broad Portfolio
Big Box Retailers Homebuilders Wholesalers / Dealers
• Exclusive products and services for the direct to builder channel
• A leading insulation contractor in the US
• Dedicated customer-specific service organizations with over 1,000 field service employees
• Extensive training programs for branch and showroom associates
• Superior dealer support through display and technology expertise
• Premier brands drive traffic
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Customer focus
Lean
QualityTalent
Innovation
S T R E N G T H 4 : M A S C O B U S I N E S S S Y S T E M S
A Continuous Improvement Culture – At the Center of Our Success
ü
MBS
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S T R E N G T H 5 : S T R O N G F I N A N C I A L P O S I T I O N
Strong Liquidity and Improving Balance Sheet
Strong Liquidity(as of 12/31/2011)
• Cash and equivalents of ~$1.7B
• Borrowing availability of ~$630M
• A strong free cash flow business– ~$1B last 3 years– Maintenance capex of
~$110M annually
• Planned reduction of $400M in 2012
Declining Debt to Capitalization Ratio
2011Year End
Future Target
84%
45%-55%
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I N V E S T M E N T T H E S I S
Strong Fundamentals - Positioned to Outperform
The strengths
The growth
The strategy
The company
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Positioned to Outperform in the Recovery
Leveraged to the recovery
Continued brand leverage and share expansion
Continued cost position improvement
Disciplined capital deployment
1
2
3
4
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1. Leveraged to the Recovery
2006Last Peak
2010 2011 3-5 Years
12%
6%
4%
10-14%
Adjusted Operating Margin*
Reflects
• lower fixed cost base of >$560M (gross)
• driving lean principles across the company
30% margin on incremental volume
Housing starts 2.1M 0.6M 0.6M ~1-1.5M
*See Appendix slide 32
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2. Initiatives to Leverage Brands and Expand Share
GeographicExpansion
Cabinetsand RelatedProducts
PlumbingProducts
Installationand OtherServices
DecorativeArchitecturalProducts
OtherSpecialtyProducts
ProductIntroductions
ExtendCategories
Strengthen Brand
Loyalty
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3. Continue to Improve Cost Position
~$150M* of Total Cost Productivity
in 2012
* Gross
SourcingLean
Initiatives
Driven by: Driven by:
Distribution &
Logistics
Actions Taken In Prior Years• Plant Closures• Headcount
Reductions• System
Implementations
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4. Disciplined Capital Deployment
Invest in the Business
• Maintenance capex: $110M annually
Strong Cash Flow Generation
Financial Flexibility
• Target 45%-55% debt to capitalization vs. ~84%
Dividend
• Maintain dividend yield ~2%
Acquisitions
• Potential acquisitions (<$100M) in support of international expansion
Maintain high cash balance ~$1B until markets firm up
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2012 Priorities
Investment in strategic growth initiatives
Geographic expansion
Total cost productivity
Reduce debt by ~$400M/refinance $400M
Cabinet profit improvement
Installation profit improvement
Grow share of key brands
Successfully launch new products in Paint & Builders Hardware
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Masco 3-5 Years Out – A “Normal” Housing Market
• Estimate revenues of ~$10-12B, margin of 10-14%
• Growth outperforming the industry
• Optimized portfolio with a strong balance sheet
• International expansion
• Positive return from assets employed in – Cabinets– Installation
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W H Y I N V E S T I N M A S C O
Strong Fundamentals - Positioned to Outperform
Executing initiatives to improve performance
• Continuing to reduce fixed costs, expand share and improve underperformers
The Strategy
Building on market-leading positions• Best brands, innovative products, lean practices,
strong financial positionThe Strengths
Well-positioned to outperform• Lower cost structure higher margins,
leveraged to recoveryThe Growth
Appendix
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Operating Profit Reconciliation
As adjusted for impairment charges for goodwill and other intangible assets and business rationalization charges.
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 - -
Operating profit, as adjusted $ 329 $ 443
$ 1,479
Operating margin, as reported -4.0% -6.2% 9.0%
Operating margin, as adjusted 4.4% 5.9% 11.9%
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2012 Outlook – Cabinets Estimated Improvement
(in Millions) Sales Operating Profit
2011 Total Segment $1,230 ($115)
Less: 2011 International1
($370) ($40)2011 North America Cabinet Actual $860 ($75)
Product Exit (10) $13
2011 N.A. Operating Loss ($62)
2012 Profit Improvements, Net2
$30
2012 Revenue Opportunities, Net2
$30 $10
2012 N.A. Cabinet Estimate $880 ($22)1Uncertain economic environments, identified cost reductions of ~$7M net in 2012
2Management estimates
*Assumptions:• Reflects a flat retail and housing start environment of 600k starts
with constant mix • Every 50k increase in lagged US starts = ~$25M in revenues
(assuming constant mix) which converts to ~$8-$10M in profits
Opportunities:• Adding new dealers and additional brands with existing dealers in 2011 starting to show solid
results• New 2011 vanity/top programs at retail now generating growth opportunities• New 2011 kitchen countertop program at retail expanding throughout the East Coast
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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)
2012 Profit Improvements, Net1
$20
2012 Revenue Opportunities, Net1
$40 $10 2012 Installation Segment Estimate $1,087 ($35)1Management Estimates
Opportunities:• Segment continues to add profitable retrofit and residential/commercial business• Further cost reductions from lean implementation, ERP leverage, vendor partnership
and supply chain benefits
*Assumptions • Reflects a flat housing start environment of 600k starts with constant mix• Every 50k increase in lagged US starts = ~$50M in revenues (assuming constant mix) which converts to ~$12M-
$15M in profits
($ in Millions) 2012 Estimate 2011 Actual
Rationalization Charges*
~ $20 $121
Tax Rate** ~ 50% 18%
Interest Expense ~ $260 $254
General Corp. Expense ~ $140 $118
Capital Expenditures ~ $180 $151
Depreciation & Amortization
~ $220 $263***
Outstanding Shares 348 million 348 million
2012 Guidance Estimates
*Based on current business plans.
**Tax rate for 2011 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge for goodwill and other intangible assets.
***2011 includes $58M of accelerated depreciation, which is also included in the rationalization charges.
Segment Mix Full Year 2011 Estimate
Business Segment
Cabinets andRelated Products
PlumbingProducts
Installation andOther Services
DecorativeArchitecturalProducts
$1.2B
$2.9B
$1.1B
$1.7B
Revenue 2011 % of Total
39%
22%
17%
14%
$7.5B 100%Total company
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Other SpecialtyProducts $0.6B 8%
RR% vs. NC NA% vs. Int’l
80% 55%
95% 100%
25% 75%
20% 100%
75% 75%
75% 76%
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2011 Masco International Revenue Split*
*Based on company estimates
International Sales Accounted for ~24% of Total 2011 Masco Sales