MAS Masco Corp

Key Highlights

• Sales for the second quarter increased 4 percent to $2.0 billion
• Operating profit grew 20 percent to $335 million; adjusted operating profit grew 22 percent to $342 million
• Operating profit margin for the quarter increased to 16.7 percent, a 220 basis point expansion; adjusted operating profit margin for the quarter increased to 17.1 percent, a 260 basis point expansion
• Earnings per share for the quarter grew 45 percent to $0.45 per common share; adjusted earnings per share for the quarter grew 21 percent to $0.46 per common share
• Board announces intent to increase annual dividend by $0.02 per share to $0.40 per share, beginning in the fourth quarter

Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported strong net sales and operating profit growth in the second quarter of 2016, recording its highest second quarter operating margin since 2002.

“We continued our great start to 2016 with solid execution in the second quarter,” said Masco’s President and CEO, Keith Allman. “Our Plumbing segment in particular had an exceptional second quarter, with strong top- and bottom-line performance both in North America and internationally, and our Cabinetry segment continued to exceed expectations as it executed against its strategic plan to optimize sales mix and increase profitability. Additionally, we continued our disciplined capital allocation by reducing debt by $400 million, as planned, and returning nearly $120 million to shareholders through dividends and share repurchases during the quarter.”

2016 Second Quarter Commentary

• On a reported basis, compared to second quarter 2015:
  • Net sales from continuing operations increased 4 percent to $2.0 billion
  • In local currency, North American sales increased 3 percent and international sales increased 9 percent
  • Gross margins improved to 35.0 percent from 33.0 percent
  • Operating margins improved to 16.7 percent from 14.5 percent
  • Income from continuing operations was $0.45 per common share, which included the $40 million debt extinguishment cost incurred during the quarter, compared to $0.31 per common share

• Compared to second quarter 2015, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate of 36 percent, were as follows:
  • Gross margins improved to 35.2 percent compared to 33.0 percent
  • Operating margins improved to 17.1 percent compared to 14.5 percent
  • Income from continuing operations was $0.46 per common share compared to $0.38 per common share
• Liquidity at the end of the second quarter was approximately $1.1 billion
• 2.8 million shares were repurchased in the second quarter

2016 Second Quarter Operating Segment Highlights

• Plumbing Products’ net sales increased 9 percent (10 percent excluding the impact of foreign currency translation), driven by growth in the retail and wholesale channels
• Decorative Architectural Products’ net sales matched last year, with growth from paints and other coating products and builders’ hardware offset by the timing and amount of promotions
• Cabinetry Products’ net sales decreased 3 percent due to the exit of lower margin business in the builder channel, which was partially offset by growth and improved mix in the retail channel
• Windows and Other Specialty Products’ net sales increased 3 percent (4 percent excluding the impact of foreign currency translation), led by our North American windows business

Outlook

“The fundamental demand drivers of our end markets remain robust,” said Allman. “Combined with these underlying fundamentals, our strong performance this quarter is evidence that we continue to successfully execute against our long-term growth strategies by leveraging our brand portfolio, our industry-leading positions and our Masco Operating System. Reflecting confidence in Masco’s future outlook, our Board of Directors intends to increase our annual dividend by $0.02 per share to $0.40 per share, beginning with the quarterly dividend to be paid in the fourth quarter of 2016.”

About Masco

Headquartered in Taylor, Michigan, Masco Corporation is a global leader in the design, manufacture and distribution of branded home improvement and building products. Our portfolio of industry-leading brands includes Behr® paint; Delta® and Hansgrohe® faucets, bath and shower fixtures; KraftMaid® and Merillat® cabinets; Milgard® windows and doors; and Hot Spring® spas. We leverage our powerful brands across product categories, sales channels and geographies to create value for our customers and shareholders. For more information about Masco Corporation, visit www.masco.com.

The 2016 second quarter supplemental material, including a presentation in PDF format, is available on the Company’s website at www.masco.com.

Conference Call Details

A conference call regarding items contained in this release is scheduled for Tuesday, July 26, 2016 at 8:00 a.m. ET. Participants in the call are asked to register five to ten minutes prior to the scheduled start time by dialing (855) 226-2726 (855-22MASCO) and from outside the U.S. at (706) 679-3614. Please use the conference identification number 34096856. The conference call will be webcast simultaneously and in its entirety through the Company’s website. Shareholders, media representatives and others interested in Masco may participate in the webcast by registering through the Investor Relations section on the Company’s website.

A replay of the call will be available on Masco’s website or by phone by dialing (855) 859-2056 and from outside the U.S. at (404) 537-3406. Please use the conference identification number 34096856. The telephone replay will be available approximately two hours after the end of the call and continue through August 26, 2016.

Safe Harbor Statement

This press release contains statements that reflect our views about our future performance and 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. Our views about future performance 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 the levels of home improvement activity and new home construction, our ability to maintain our strong brands and to develop and introduce new and improved products, our ability to maintain our competitive position in our industries, our reliance on key customers, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to sustain the performance of our cabinetry businesses, the cost and availability of raw materials, our dependence on third party suppliers, and risks associated with international operations and global strategies. 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. The forward-looking statements in this press release speak only as of the date of this press release. 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.

   

MASCO CORPORATION

Condensed Consolidated Statements of Operations - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015

 

(in millions, except per common share data)

        Three Months Ended June 30, Six Months Ended June 30, 2016   2015 2016   2015 Net sales $ 2,001 $ 1,929 $ 3,721 $ 3,588 Cost of sales 1,301   1,292   2,452   2,456   Gross profit 700 637 1,269 1,132   Selling, general and administrative expenses 365   358   700   688   Operating profit 335 279 569 444   Other income (expense), net: Interest expense (87 ) (61 ) (143 ) (117 ) Other, net 5   3   4   4   (82 ) (58 ) (139 ) (113 ) Income from continuing operations before income taxes 253 221 430 331   Income tax expense (90 ) (102 ) (148 ) (142 ) Income from continuing operations 163 119 282 189   Loss from discontinued operations, net —   (4 ) —   (1 ) Net income 163 115 282 188   Less: Net income attributable to noncontrolling interest 13   10   23   19   Net income attributable to Masco Corporation $ 150   $ 105   $ 259   $ 169     Income per common share attributable to Masco Corporation (diluted): Income from continuing operations $ 0.45 $ 0.31 $ 0.77 $ 0.48 Loss from discontinued operations, net —   (0.01 ) —   —   Net income $ 0.45   $ 0.30   $ 0.77   $ 0.48     Average diluted common shares outstanding 331   344   333   346     Amounts attributable to Masco Corporation: Income from continuing operations $ 150 $ 109 $ 259 $ 170 Loss from discontinued operations, net —   (4 ) —   (1 ) Net income attributable to Masco Corporation $ 150   $ 105   $ 259   $ 169    

Historical information is available on our website.

   

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015

 

(in millions, except per common share data)

        Three Months Ended June 30, Six Months Ended June 30, 2016   2015 2016   2015

Gross Profit, Selling, General and Administrative Expenses, and Operating Profit Reconciliations

  Net sales $ 2,001   $ 1,929   $ 3,721   $ 3,588     Gross profit, as reported $ 700 $ 637 $ 1,269 $ 1,132 Rationalization charges 5   —   6   1   Gross profit, as adjusted $ 705   $ 637   $ 1,275   $ 1,133     Gross margin, as reported 35.0 % 33.0 % 34.1 % 31.5 % Gross margin, as adjusted 35.2 % 33.0 % 34.3 % 31.6 %   Selling, general and administrative expenses, as reported $ 365 $ 358 $ 700 $ 688 Rationalization charges 2   1   4   6   Selling, general and administrative expenses, as adjusted $ 363   $ 357   $ 696   $ 682     Selling, general and administrative expenses as percent of net sales, as reported 18.2 % 18.6 % 18.8 % 19.2 % Selling, general and administrative expenses as percent of net sales, as adjusted 18.1 % 18.5 % 18.7 % 19.0 %   Operating profit, as reported $ 335 $ 279 $ 569 $ 444 Rationalization charges 7   1   10   7   Operating profit, as adjusted $ 342   $ 280   $ 579   $ 451     Operating margin, as reported 16.7 % 14.5 % 15.3 % 12.4 % Operating margin, as adjusted 17.1 % 14.5 % 15.6 % 12.6 %  

Earnings Per Common Share Reconciliation

  Income from continuing operations before income taxes, as reported $ 253 $ 221 $ 430 $ 331 Rationalization charges 7 1 10 7 Gain from auction rate securities (1 ) — (1 ) — Gains from private equity funds, net (1 ) (2 ) (1 ) (4 ) Earnings from equity investments, net —   (2 ) (1 ) (2 ) Income from continuing operations before income taxes, as adjusted 258 218 437 332 Tax at 36% rate (93 ) (78 ) (157 ) (120 ) Less: Net income attributable to noncontrolling interest 13   10   23   19   Income from continuing operations, as adjusted $ 152   $ 130   $ 257   $ 193     Income per common share, as adjusted $ 0.46   $ 0.38   $ 0.77   $ 0.56     Average diluted common shares outstanding 331   344   333   346    

Historical information is available on our website.

           

MASCO CORPORATION

Condensed Consolidated Balance Sheets and

Other Financial Data - Unaudited

 

(dollars in millions)

  June 30, 2016

December 31, 2015

Balance Sheet Assets Current Assets: Cash and cash investments $ 956 $ 1,468 Short-term bank deposits 135 248 Receivables 1,113 853 Inventories 765 687 Prepaid expenses and other 88   72 Total Current Assets 3,057 3,328   Property and equipment, net 1,039 1,027 Goodwill 840 839 Other intangible assets, net 156 160 Other assets 232   310 Total Assets $ 5,324   $ 5,664   Liabilities Current Liabilities: Accounts payable $ 913 $ 749 Notes payable 3 1,004 Accrued liabilities 716   752 Total Current Liabilities 1,632 2,505   Long-term debt 2,993 2,403 Other liabilities 629   698 Total Liabilities 5,254 5,606   Equity 70   58 Total Liabilities and Equity $ 5,324   $ 5,664     As of June 30, 2016 June 30, 2015 Other Financial Data Working Capital Days Receivable days 50 51 Inventory days 57 58 Payable days 71 68 Working capital $ 965 $ 995 Working capital as a % of sales (LTM) 13.3 % 14.0 %  

Historical information is available on our website.

   

MASCO CORPORATION

Condensed Consolidated Statements of Cash Flows

and Other Financial Data - Unaudited

 

(dollars in millions)

      Six Months EndedJune 30, 2016   2015 Cash Flows From (For) Operating Activities: Cash provided by operating activities $ 357 $ 355 Working capital changes (243 ) (216 ) Net cash from operating activities 114   139     Cash Flows From (For) Financing Activities: Retirement of notes (1,300 ) (500 ) Purchase of Company common stock (168 ) (207 ) Cash dividends paid (63 ) (62 ) Dividend paid to noncontrolling interest (31 ) (36 ) Cash distributed to TopBuild Corp. — (63 ) Issuance of TopBuild Corp. debt — 200 Issuance of notes, net of issuance costs 889 497 Issuance of Company common stock 1 — Excess tax benefit from stock-based compensation 12 15 Credit Agreement and other financing costs — (3 ) Decrease in debt, net (2 ) —   Net cash for financing activities (662 ) (159 )   Cash Flows From (For) Investing Activities: Capital expenditures (79 ) (70 ) Other, net 124   10   Net cash from (for) investing activities 45   (60 )   Effect of exchange rate changes on cash and cash investments (9 ) (6 )   Cash and Cash Investments: Decrease for the period (512 ) (86 ) At January 1 1,468   1,383   At June 30 $ 956   $ 1,297       As of June 30, 2016 2015 Liquidity Cash and cash investments $ 956 $ 1,297 Short-term bank deposits 135   210   Total Liquidity $ 1,091   $ 1,507    

Historical information is available on our website.

   

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015

           

(dollars in millions)

  Three Months EndedJune 30, Six Months EndedJune 30, 2016   2015 Change 2016   2015 Change Plumbing Products Net sales $ 923   $ 846   9 % $ 1,736   $ 1,642   6 %   Operating profit, as reported $ 188 $ 138 $ 317 $ 249 Operating margin, as reported 20.4 % 16.3 % 18.3 % 15.2 %   Rationalization charges 4   —   6   1   Operating profit, as adjusted 192 138 323 250 Operating margin, as adjusted 20.8 % 16.3 % 18.6 % 15.2 %   Depreciation and amortization 14   14   28   28     EBITDA, as adjusted $ 206   $ 152   $ 351   $ 278     Decorative Architectural Products Net sales $ 620   $ 622   — % $ 1,113   $ 1,073   4 %   Operating profit, as reported $ 139 $ 133 $ 244 $ 216 Operating margin, as reported 22.4 % 21.4 % 21.9 % 20.1 %   Depreciation and amortization 4   4   8   8     EBITDA $ 143   $ 137   $ 252   $ 224     Cabinetry Products Net sales $ 261   $ 269   (3 )% $ 497   $ 518   (4 )%   Operating profit, as reported $ 34 $ 15 $ 58 $ 11 Operating margin, as reported 13.0 % 5.6 % 11.7 % 2.1 %   Rationalization charges 3   —   4   2   Operating profit, as adjusted 37 15 62 13 Operating margin, as adjusted 14.2 % 5.6 % 12.5 % 2.5 %   Depreciation and amortization 5   6   10   13     EBITDA, as adjusted $ 42   $ 21   $ 72   $ 26    

Historical information is available on our website.

   

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015

           

(dollars in millions)

  Three Months EndedJune 30, Six Months Ended June 30, 2016   2015 Change 2016   2015 Change Windows and Other Specialty Products Net sales $ 197   $ 192   3 % $ 375   $ 355   6 %   Operating (loss) profit, as reported $ (2 ) $ 21 $ 1 $ 27 Operating margin, as reported (1.0 )% 10.9 % 0.3 % 7.6 %   Depreciation and amortization 5   4   10   8     EBITDA $ 3   $ 25   $ 11   $ 35     Total Net sales $ 2,001   $ 1,929   4 % $ 3,721   $ 3,588   4 %   Operating profit, as reported - segment $ 359 $ 307 $ 620 $ 503 General corporate expense, net (GCE) (24 ) (28 ) (51 ) (59 ) Operating profit, as reported 335 279 569 444 Operating margin, as reported 16.7 % 14.5 % 15.3 % 12.4 %   Rationalization charges - segment 7 — 10 3 Rationalization charges - GCE —   1   —   4   Operating profit, as adjusted 342 280 579 451 Operating margin, as adjusted 17.1 % 14.5 % 15.6 % 12.6 %   Depreciation and amortization - segment 28 28 56 57 Depreciation and amortization - non-operating 6   3   10   5     EBITDA, as adjusted $ 376   $ 311   $ 645   $ 513    

Historical information is available on our website.

             

MASCO CORPORATION

North American and International Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015

 

(dollars in millions)

  Three Months Ended June 30, Six Months Ended June 30, 2016   2015 Change 2016   2015 Change North American Net sales $ 1,598   $ 1,554   3 % $ 2,948   $ 2,836   4 %   Operating profit, as reported $ 299 $ 260 $ 514 $ 411 Operating margin, as reported 18.7 % 16.7 % 17.4 % 14.5 %   Rationalization charges 5   —   7   2   Operating profit, as adjusted 304 260 521 413 Operating margin, as adjusted 19.0 % 16.7 % 17.7 % 14.6 %   Depreciation and amortization 19   19   38   39     EBITDA, as adjusted $ 323   $ 279   $ 559   $ 452     International Net sales $ 403   $ 375   7 % $ 773   $ 752   3 %   Operating profit, as reported $ 60 $ 47 $ 106 $ 92 Operating margin, as reported 14.9 % 12.5 % 13.7 % 12.2 %   Rationalization charges 2   —   3   1   Operating profit, as adjusted 62 47 109 93 Operating margin, as adjusted 15.4 % 12.5 % 14.1 % 12.4 %   Depreciation and amortization 9   9   18   18     EBITDA, as adjusted $ 71   $ 56   $ 127   $ 111     Total Net sales $ 2,001   $ 1,929   4 % $ 3,721   $ 3,588   4 %   Operating profit, as reported - segment $ 359 $ 307 $ 620 $ 503 General corporate expense, net (GCE) (24 ) (28 ) (51 ) (59 ) Operating profit, as reported 335 279 569 444 Operating margin, as reported 16.7 % 14.5 % 15.3 % 12.4 %   Rationalization charges - segment 7 — 10 3 Rationalization charges - GCE —   1   —   4   Operating profit, as adjusted 342 280 579 451 Operating margin, as adjusted 17.1 % 14.5 % 15.6 % 12.6 %   Depreciation and amortization - segment 28 28 56 57 Depreciation and amortization - non-operating 6   3   10   5     EBITDA, as adjusted $ 376   $ 311   $ 645   $ 513    

Historical information is available on our website.

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Masco CorporationInvestor ContactDavid ChaikaVice President, Treasurer and Investor Relations313.792.5500david_chaika@mascohq.com