Masco Q4 2013 Earnings Presentation

Fourth Quarter 2013 Masco Earnings Presentation

Safe Harbor Statement

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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, 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.

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.

Masco Q4 and Full-Year 2013 Results – Agenda

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Topic

• Summary of Results Tim Wadhams

• Financial/Operations Review John Sznewajs

• Outlook Keith Allman

• Q&A

Key Messages Today

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New home construction and improved repair and remodel activity drive North American sales; international sales continue growth momentum

New product introductions in Paint and Plumbing drive consumer demand and sales growth

Operating leverage and cost control improve profitability; sales and profit grow across all segments

Cabinets and Installation return to profitability in 2013

Masco delivers solid 4th quarter resulting in a strong 2013 performance

Delivering on 2013 Priorities

Investment in strategic growth initiatives

Geographic expansion

Total cost productivity

Reduce debt by ~$200M

Cabinet profit improvement

Profitably grow Installation

Grow share of key brands

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Successfully launch new products and programs

Strategy Execution Highlights Q4 2013

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Expand market leadership

Reduce costs

Improve underperforming businesses

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2

3

Strengthen balance sheet

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• Innovation drives successful product and program introductions

• Wholesale/dealer channel sales continue to increase

• Focused execution delivers share gains

• Continued commitment to cost control results in SG&A leverage and margin improvement

• Dealer and builder channels drive North American cabinetry growth

• Installation growth in new home construction, commercial, distribution and retrofit channels

• Finalized sale of Danish cabinetry business

• Strong working capital management

• Free cash flow exceeds $500 million

• Balance sheet liquidity at year-end of $1.5 billion


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Topic




• Q&A

Ninth Consecutive Quarter of Sales & Profit Growth

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Full Year Highlights

• North American sales increased 10%; international sales increased 4% in local currency

• Sales growth driven by new products at retail and improved new home construction and repair and remodeling activity

• Margin expansion reflects operating leverage and cost control

• Q4 was impacted by approx. $6 million of unanticipated insurance costs

*See appendix for GAAP reconciliation.

($ in Millions) Fourth Quarter

2013 Full Year

2013

Revenue Y-O-Y Growth

$1,998 9%

$8,173 9%

Adjusted Operating Profit* Y-O-Y Growth

$153 49%

$721 44%

Adjusted Operating Margin* Y-O-Y Growth

7.7% 210 bps

8.8% 210 bps

Adjusted EPS* $0.15 $0.77

Continued Improvement in Operating Profit

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Y-O-Y Change in Adjusted Operating Profit $221M*

*See appendix for GAAP reconciliation

Plumbing Products: Strong Faucet Sales Drive Segment Growth

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Quarter Highlights

• Strong performance with both trade and retail driven by increased repair and remodel activity

• International growth drives mid-single-digit percentage gains, outpacing Eurozone economies

• New programs continue to drive growth

• Improved margins due to increased volume

*Excluding business rationalization charges of $9 million and $7 million in the fourth quarters of 2013 and 2012, respectively, and $24 million and $25 million for the full year 2013 and 2012, respectively.


2013 Full Year

2013


$799 8%

$3,183 8%


$97 35%

$418 26%


12.1% 240 bps

13.1% 190 bps

Decorative Architectural Products: New Products Continue to Drive Growth

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Quarter Highlights

• New product introductions, Pro, and international drive high-single-digit percentage paint gallon growth

• Share gains and new programs drive high-teens percentage growth in builder hardware

• Investment in promotions/advertising to drive gallon growth impacted margins


2013 Full Year

2013


$408 6%

$1,927 6%


$66 2%

$353 7%


16.2% (60) bps

18.3% 20 bps

*Excluding business rationalization charges of $1 million and $2 million in the fourth quarter and full year 2013, respectively.

Cabinets and Related Products: Focused Execution Drives Profitable Growth

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Quarter Highlights

• Increased KraftMaid dealer channel sales driven by strong repair and remodel activity and new product introductions

• Sales growth benefitted from increased new housing starts

• U.K. demand continues to improve

• Improved operating results by $13 million ($57 million for the year)


2013 Full Year

2013


$251 9%

$1,014 8%

Adjusted Operating (Loss) Profit* Y-O-Y Growth

($4) 76%

$2 104%


(1.6%) 580 bps

0.2% 610 bps

*Excluding business rationalization charges of $2 million and $23 million in the fourth quarters of 2013 and 2012, respectively, and $12 million and $34 million for the full year 2013 and 2012, respectively.

Installation and Other Services: Ten Quarters of Consecutive Y-O-Y Sales and Profit Growth

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Quarter Highlights

• Sales growth driven by higher volumes in residential new home construction, commercial, distribution and retrofit channels

• Increased take-per-unit, upgrades and share gains drive growth

• Margins continue to improve as a result of operating leverage and productivity improvements

• Improved operating profit by $9 million ($56 million for the year)

*Excluding business rationalization charges of $1 million in each of the full years 2013 and 2012.


2013 Full Year

2013


$373 15%

$1,412 17%


$15 150%

$38 311%


4.0% 210 bps

2.7% 420 bps

Other Specialty Products: Strong Performance by North American Windows

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Quarter Highlights

• North American window sales volume growth percentage in the low teens driven by increases across all channels

• Milgard continues to gain share in existing and new markets

• Continued traction with new products and favorable mix

• Margin expansion driven by operating leverage

*Excluding business rationalization charge of $6 million and $1 million in the full year 2013 and 2012, respectively. Excluding warranty change in estimate of $12 million in the full year of 2012. Also excludes impairment charges for goodwill and other intangible assets of $42 million in the fourth quarter and full year 2012.


2013 Full Year

2013


$167 9%

$637 11%


$9 29%

$41 71%


5.4% 80 bps

6.4% 220 bps

Strengthening the Balance Sheet

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Balance Sheet Liquidity as of 12/31/2013

Cash and cash investments $1.2B

Short-term bank deposits $0.3B

Total $1.5B

2013 Accomplishments

• Retired $200M debt maturity in August with existing cash

• Working capital as a percent of LTM sales improved to 10.6% in 2013, compared to 12.1% in 2012

• Free cash flow exceeds $500M


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Topic




• Q&A

Outlook

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Risks Opportunities

• Velocity of global economic recovery

• Consumer confidence

• Commodity volatility

• Housing affordability/financing costs/mortgage availability

• Improving repair and remodel demand, including big ticket items

• Continued growth/demand in new home construction

• Share gains at retail and with big builders

• Strong liquidity

• Capitalize on operating leverage

2014 Priorities

Grow share of market-leading brands

Focus on execution to drive profitable growth in cabinets and installation

Further penetrate international markets

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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

Q&A

Appendix – Profit Reconciliation – Fourth Quarter

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($ in M ill ions) Q4 2013 Q4 2012

Sales $ 1,998 $ 1,831

Gross Profit – As Reported $ 531 $ 451 Rationalization charges 10 27 Gross Profit – As Adjusted $ 541 $ 478 Gross Margin - As Reported 26.6% 24.6% Gross Margin - As Adjusted 27.1% 26.1%

Operating Profit – As Reported $ 141 $ 31 Rationalization charges 12 30 Impairment of goodwill and other intangible assets - 42 Charge for litigation settlements, net - 3 Gain from sales of fixed assets, net - (3)

Operating Profit – As Adjusted $ 153 $ 103 Operating Margin - As Reported 7.1% 1.7% Operating Margin - As Adjusted 7.7% 5.6%

Appendix – Profit Reconciliation – Full-Year

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($ in M ill ions) 2013 2012 Sales $ 8,173 $ 7,495

Gross Profit – As Reported $ 2,255 $ 1,956 Rationalization charges 33 50 Other Specialty Products - Warranty - 12 Gross Profit – As Adjusted $ 2,288 $ 2,018 Gross Margin - As Reported 27.6% 26.1% Gross Margin - As Adjusted 28.0% 26.9%

Operating Profit – As Reported $ 673 $ 302 Rationalization charges 48 75 Impairment of goodwill and other intangible assets - 42 Charge for litigation settlements, net - 77 Gain from sales of fixed assets, net - (8) Other Specialty Products - warranty - 12

Operating Profit – As Adjusted $ 721 $ 500 Operating Margin - As Reported 8.2% 4.0% Operating Margin - As Adjusted 8.8% 6.7%

Appendix – EPS Reconciliation – Fourth Quarter

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(in Mill ions, Except per Common Share Data) Q4 2013 Q4 2012

Income (Loss) from Continuing Operations before Income Taxes – As Reported $ 70 $ (26)

Rationalization charges 12 30

Currency translation expense – Masco Denmark 18 -

Gains from financial investments, net (3) (4)

Charge for litigation settlements, net - 3

Impairment of goodwill and other intangible assets - 42

Gain from sales of fixed assets - (3)

Income from Continuing Operations before Income Taxes – As Adjusted $ 97 $ 42

Tax at 36% rate (35) (15)

Less: Net income attributable to non-controlling interest 11 7

Net Income, as adjusted $ 51 $ 20

Income per common share, as adjusted $ 0.15 $ 0.06

Average Diluted Shares Outstanding 352 349

Appendix – EPS Reconciliation – Full-Year

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(in Mill ions, Except per Common Share Data) 2013 2012

Income from Continuing Operations before Income Taxes – As Reported $ 434 $ 73

Rationalization charges 48 75 Currency translation expense – Masco Denmark 18 - Gains from financial investments, net (11) (22) Charge for litigation settlements, net - 77 Impairment of goodwill and other intangible assets - 42 Gain from sales of fixed assets, net - (8) Other Specialty Products - warranty - 12 Interest carry costs - 7

Income from Continuing Operations before Income Taxes – As Adjusted $ 489 $ 256 Tax at 36% rate (176) (92) Less: Net income attributable to non-controlling interest 41 35

Net Income, as adjusted $ 272 $ 129 Income per common share, as adjusted $ 0.77 $ 0.37 Shares Outstanding 352 349

($ 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*

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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

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

*Based on Company estimates.

12% 57% 93%

2013 International Revenue Split*

26 *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

Economy & Finance

Masco Q4 2013 Earnings Presentation