Second Quarter Masco Earnings Presentation

Second Quarter 2012 Masco Earnings Presentation

July 31, 2012

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, 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.

http://www.masco.com/

Masco Q2 2012 Results – Agenda

3

Topic

• Summary of Results Tim Wadhams

• Financial/Operations Review John Sznewajs

• Outlook Tim Wadhams

• Q&A

Key Messages Today

4

• Successful execution on pricing and total cost productivity

• Sales benefitting from new construction activity in North America

• Continued progress on strategic initiatives

Masco’s Strategic Initiatives

5

Outperform the

recovery

• Leverage brands

• Innovative products Expand market leadership

• Total cost productivity

• Drive lean benefits Reduce costs

• Focus on Cabinets, Installation

• Return to profitability

Improve underperforming businesses

1

2

3

• Debt reduction

• Strong liquidity

Strengthen Balance Sheet

4

Strategy Execution Highlights

6

Expand market leadership

Reduce costs

Improve underperforming businesses

1

2

3

Strengthen Balance Sheet

4

• New faucet introductions at retail

• Continued residential new construction, retrofit and commercial channel growth in Installation Services

• Windows gaining share in Western U.S.

• Profit improvement initiatives positively impacting margins

• Overall decrease in SG&A

• Installation segment top and bottom line improvement

• Continued Cabinet segment profit improvement; addressing top line challenges

• Working capital improvement

• Debt pay down in July 2012

Laser Focus on Achieving Breakeven

Cabinets

First half operating profit improvement of $19M principally driven by cost reductions in North America

• Expect $10M - $15M of operating profit improvement in the second half of 2012

Benefits from increased housing starts offset by:

• Market conditions in European economies and North American repair/remodel activity

• Challenges implementing North American dealer and countertop strategies

Leadership changes for North American Cabinets have been implemented

Installation

First half operating profit improvement of $29M driven by new home construction activity and cost reductions from lean, ERP leverage, and supply chain

Continued penetration of retrofit and commercial channels

Assuming 725,000 (lagged) housing starts, should be close to breakeven for full year 2012

7


8

Topic




• Q&A

Sales Up 3% Excluding Currency

9

($ in Millions) Second Quarter

2012

Revenue Y-O-Y Change

$2,004 0%*

Adjusted Operating Profit** Y-O-Y Change

$124 $8

Adjusted Operating Margin** Y-O-Y Change

6.2% 40 bps

Adjusted EPS** $0.10

*Excluding the effect of currency, second quarter 2012 sales increased 3% compared to 2011. **As reported operating profit $47M; operating margin 2.3%; E.P.S of ($.17) see appendix for reconciliation

$116M $14M $4M $(10M)

$124M

$-

$50

$100

$150

$200

Q2 2011AdjustedOperating

Profit*

Net Price /Commodity

ProfitImprovement &All Other, Net

Net Volume /Mix

Q2 2012AdjustedOperating

Profit*

Q2 2012 Operating Profit Reflects Successful Price/ Commodity Management

10

Y-O-Y Change in Adjusted Operating Profit $8M

*See appendix for reconciliation

Plumbing Products:

Increased N.A. Sales offset by Currency; International Sales Mix Impacting Margin

11

Highlights

• Top line growth in North American faucets in the high-single digits offset by unfavorable currency translation

• Margin negatively impacted by:

• Program costs and growth initiatives of $15 million

• Mix of $13 million

• Currency of $5 million

• Offset by favorable price/commodity of $12 million


2012


$738 (3%)*

Adjusted Operating Profit** Y-O-Y Change

$73 ($27)


9.9% (320) bps

*Excluding the effect of currency, second quarter sales 2012 increased 2% compared to 2011. **Excludes business rationalization charges of $3M and $5M in the second quarter of 2012 and 2011, respectively.

Decorative Architectural Products:

Top Line Benefitting from Successful Product Introductions

12

Highlights

• Increased revenues driven by Behr Pro business growth, price increases, and Liberty Hardware share gains

• Operating profit margin impacted by unfavorable price/commodity relationships of $5 million


2012

Revenue Growth

$517 5%

Adjusted Operating Profit Y-O-Y Change

$95 $5

Adjusted Operating Margin Y-O-Y Change

18.4% 10 bps

Cabinets and Related Products:

Margin Expansion Reflects Profit Improvement Execution

13

Highlights

• North American new home construction strength offset by weaker retail & dealer sales

• International sales impacted by continued weak Euro-zone macro-economic conditions and currency translation

• Profit improvement initiatives reflected in margin improvement


2012


$312 (5%)*

Adjusted Operating Loss** Y-O-Y Change

$(11) $10


(3.5%) 290 bps

*Excluding the effect of currency, second quarter 2012 sales decreased 3% compared to 2011. **Excludes business rationalization charges of $1M and $6M in the second quarter of 2012 and 2011, respectively.

Installation and Other Services:

Strong Execution Reflected in Top & Bottom Line Performance

14

Highlights

• Growth in all channels with installation of insulation up 20%

• Margins reflect successful profit improvement execution, including cost reductions from lean, ERP leverage, and supply chain


2012

Revenue Growth

$296 10%

Adjusted Operating Loss Y-O-Y Change*

$(9) $10

Adjusted Operating Margin Y-O-Y Change*

(3.0%) 400 bps

*Excludes business rationalization charges of $2M in the second quarter of 2011.

Other Specialty Products:

Successful Price/Commodity Execution Reflected in Margins

15

Highlights

• Excluding the exit of select U.S. Window markets in late 2011, sales growth was 1%, driven by demand in the Western U.S., and new home construction

• Margin improvement fueled by successful price increases in U.K. and North American Window businesses


2012


$141 (3%)

Operating Profit Y-O-Y Change

$6 $6

Operating Margin Y-O-Y Change

4.3% 430 bps

Strengthening the Balance Sheet

• Working capital as a percentage of sales improved to 14.6%

• July debt repayment of $745 million

• Subsequent to the debt reduction, we have cash of $1.2 billion and borrowing capacity of approximately $900 million

16

$1.9 billion of cash as of 6/30/2012


17

Topic




• Q&A

Delivering on 2012 Priorities – Q2 Highlights

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

18

Successfully launch new products and programs

Outlook into 2012

Tailwinds Headwinds

• Improving demand in residential new construction

• Successful product introductions at retail

• Favorable price/commodity relationships

• Eliminated litigation uncertainty

• Additional profit improvement opportunities identified

• Slowing economic activity in North America and European economies

• Implementation of Cabinet countertop and dealer strategies

• International Plumbing mix impact

• Commodity cost volatility

• Composition of new housing starts

19

Q&A

Appendix

Appendix – Profit Reconciliation

22

($ in Millions) Q2 2012 Q2 2011

Sales $ 2,004 $ 1,998

Gross Profit – As Reported $ 525 $ 532

Rationalization Charges 3 11

(Gain) From Sale of Fixed Assets (5) -

Gross Profit – As Adjusted $ 523 $ 543

Gross Margin - As Reported 26.2% 26.6%

Gross Margin - As Adjusted 26.1% 27.2%

Operating Income – As Reported $ 47 $ 96



Charge for Litigation Settlements, Net 75 5

Operating Profit – As Adjusted $ 124 $ 116

Operating Margin - As Reported 2.3% 4.8%

Operating Margin - As Adjusted 6.2% 5.8%

Appendix – EPS Reconciliation

23

($ in Millions) Q2 2012 Q2 2011

(Loss) Income from Continuing Operations before Income Taxes – As

Reported

$ (19) $ 64


Charge for Litigation Settlements, Net 75 5

Financial Investment (Income) Expense - (33)


Interest Carry Costs 7 -

Income from Continuing Operations Before Income Taxes – As Adjusted 65 51

Tax at 36% Rate Benefit (Expense) (23) (18)

Less: Net Income Attributable to Non-Controlling Interest 8 12

Net Income – As Adjusted $ 34 $ 21

Income per Common Share – As Adjusted $ 0.10 $ 0.06

Shares 349 349

($ in Millions) 2012 Estimate 2011 Actual

Rationalization Charges* ~ $30 $121

Tax Rate** ~ 50% 18%

Interest Expense ~ $250 $254

General Corp. Expense ~ $125 $118

Capital Expenditures ~ $150 $151

Depreciation & Amortization

~ $210 $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.

24

Business

Second Quarter Masco Earnings Presentation