NAVIGATION

MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS

August 02, 2005

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for the 2004 dispositions of Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group, and the 2005 dispositions of Gebhardt Consolidated and the GMU Group as discontinued operations.

Second Quarter 2005


  • Net sales from continuing operations increased nine percent, with North American sales increasing 10 percent and International sales increasing six percent. Second quarter net sales in North America benefited from strong housing starts and improved retail sales. In local currencies, International sales increased two percent compared with the second quarter of 2004.


  • Sales of assembled cabinets, installation services, paints and stains and windows were particularly strong in the quarter.


  • Key retailer sales from continuing operations improved significantly from recent quarters to an increase of 10 percent in the 2005 second quarter compared with a two percent decrease in the first quarter of 2005 and a 14 percent increase in the second quarter of 2004.


  • Sales by segment in the 2005 second quarter versus the 2004 second quarter were:

    • Cabinets and Related Products sales increased 13 percent;


    • Plumbing Products sales increased five percent;


    • Installation and Other Services sales increased 11 percent;


    • Decorative Architectural Products sales increased 12 percent; and


    • Other Specialty Products sales increased four percent.

  • Income from continuing operations was $274 million compared with $294 million for the second quarter of 2004.


  • Earnings from continuing operations were $.64 per common share compared with the Company's guidance of $.58 to $.62 per common share and compared with $.65 per common share for the 2004 second quarter.


  • Results for the second quarter of 2005 benefited from other income of $.04 per common share, principally net gains from financial investments. The second quarter of 2004 included $.03 per common share of other income, principally net gains from financial investments and other non-operating assets, as well as $.01 per common share of income related to insurance proceeds from the Behr litigation settlement.


  • Results for the second quarter of 2005 include realized currency transaction losses of $14 million ($.02 per common share, after tax) compared with $6 million of realized currency transaction gains ($.01 per common share, after tax) in the second quarter of 2004.


  • The Company previously announced, in the first quarter of 2004, the planned disposition of several European businesses that are not core to the Company's long-term growth strategy. Net income for the second quarter of 2005 was $274 million or $.64 per common share and did not include any net income (loss) related to discontinued operations, since the Company completed the disposition process in the first quarter of 2005. The second quarter of 2004 results include after-tax income from discontinued operations of $11 million, and an additional after-tax charge aggregating $44 million ($.10 per common share) for those businesses that were expected to be divested at a loss, both of which are included in discontinued operations. Including the operating results of these discontinued operations and the charge for certain of these businesses, net income for the 2004 second quarter was $261 million or $.58 per common share. Total net proceeds for the dispositions completed in 2005 and 2004 aggregated $281 million.


  • The Company's 2005 second quarter results benefited from strong organic sales growth, partially offset by continued increases in commodity, energy and freight costs, which have not been fully recovered due, in part, to the lag in implementing selling price increases to customers.


  • Gross margins were 29.4 percent in the 2005 second quarter compared with 31.8 percent in the second quarter of 2004. Operating profit margins, as reported, were 14.1 percent in the second quarter of 2005 compared with 15.6 percent in the second quarter of 2004. Excluding the pre-tax income regarding the litigation settlement of $3 million and $7 million in 2005 and 2004, respectively, operating profit margins were 14.0 percent in the second quarter of 2005 compared with 15.4 percent in the second quarter of 2004. Operating profit margins in the second quarter of 2005 were adversely impacted by increases in certain operating expenses, including increased commodity, energy and freight costs, as well as product mix.


  • SG&A expenses as a percent of sales, including general corporate expense, were 15.4 percent in the second quarter of 2005 compared with 16.5 percent in the 2004 second quarter.


  • General corporate expense was 1.4 percent of sales in the second quarter of 2005 compared with 1.5 percent in the comparable period of 2004.


  • Inventory days were 50 days at June 30, 2005 compared with 52 days at June 30, 2004.


  • Accounts receivable days at the end of the second quarter were 50 days compared with 54 days a year ago.


  • Accounts payable days were 38 days at both June 30, 2005 and 2004.
  • Working capital at June 30, 2005 (defined as accounts receivable and inventories less accounts payable) improved to 17.8 percent of the last twelve months' sales from 19.2 percent a year earlier.


  • The Company's tax rate was 35.4 percent for the second quarter of 2005 compared with 35.8 percent for the comparable period of the prior year. The Company estimates that its effective tax rate for the full-year 2005 should approximate 35 percent.


  • On June 10, 2005, the Company issued $500 million of fixed-rate 4.80% notes due 2015, resulting in net proceeds of $494 million.


  • At the end of the quarter, the Company had a strong balance sheet with over $1.6 billion in cash and marketable securities and $2 billion in unused bank lines. The Company intends to use a portion of its cash to retire $800 million of 6.75% notes due in March 2006.


  • In the second quarter of 2005, the Company generated approximately $48 million of cash from the net sale of financial investments.


  • Debt as a percent of total capitalization was 49 percent at June 30, 2005 compared with 47 percent at June 30, 2004.


  • For the twelve months ended June 30, 2005 and June 30, 2004, return on invested capital (as reported) was 11.7 percent and 12.2 percent, respectively. For the twelve months ended June 30, 2005 and June 30, 2004, return on invested capital (as reconciled) was 12.9 percent and 12.1 percent, respectively. The Company continues to believe that it will achieve its 15 percent return on invested capital goal by the end of 2006 and 18 percent by 2010.


  • During the quarter, the Company repurchased approximately five million common shares. The Company had approximately 42 million common shares remaining under its repurchase authorization at June 30, 2005.


  • The Company's diluted common shares for purposes of calculating earnings per common share were 430 million for the second quarter of 2005 compared with 453 million for the second quarter of 2004.
Full-Year Outlook

  • The Company remains committed to its strategy of value creation and is focused on the simplification of its business model, cash flow generation, improvement in return on invested capital and the return of cash to shareholders through share repurchases and dividends.


  • Consistent with this strategy, the Company is pursuing a variety of initiatives to increase operating income, including sourcing programs, the restructuring of certain of its businesses (including consolidations), manufacturing rationalization, headcount reductions and other profit improvement programs. As previously disclosed, the Company believes these initiatives will reduce annual costs by $200 million by the end of 2007. Costs and charges related to the acceleration of these profit improvement programs, when combined with recent additional energy-related and commodity cost increases and the adverse effect of changes in currency values, are expected to result in the Company's full-year 2005 earnings from continuing operations being closer to $2.30 per common share than the previous guidance of the low end of a range of $2.40 to $2.50 per common share. Implementing these initiatives should improve the Company's earnings outlook for 2006 and beyond.


  • Based on current business trends, the Company anticipates that third quarter 2005 earnings from continuing operations will be in the range of $.60 to $.64 per common share compared with third quarter 2004 earnings from continuing operations of $.64 per common share.


  • The Company's guidance is based on no additional share repurchases beyond the 18 million common shares repurchased in the first half of 2005, modest margin improvement in the second half of 2005 compared with the first half of 2005, reflecting selling price increases further offsetting higher commodity costs, and anticipated income from financial investments, and excludes any other items.


  • The Company expects to return a minimum of $1 billion annually to shareholders, on average, over the next several years through share repurchases and dividends as part of its ongoing commitment to value creation. In 2004 and 2003, the Company returned $2.3 billion, in aggregate, to shareholders through share repurchases and dividends. In the first half of 2005, the Company returned $774 million to shareholders through share repurchases and dividends.


  • Based on the current market price for the Company's common stock, diluted common shares for the computation of earnings per common share at July 1, 2005 are 429 million. This excludes the impact of any third quarter repurchases of common stock.
Statements contained herein may include certain forward-looking statements regarding Masco's future sales, earnings growth potential and other developments. Actual results may vary materially because of external factors such as interest rate fluctuations, changes in consumer spending and other factors over which management has no control. The Company believes that certain non-GAAP performance measures and ratios, 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 our products, markets and conditions, which could affect the Company's future performance, 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 undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.