News Details

MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS

February 13, 2004

Note: 2002 results have been restated to exclude operations which were sold in 2003 and treated as discontinued operations in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

Fourth Quarter 2003

  • Net sales from continuing operations for the quarter, aided by acquisitions, increased 18 percent with North American sales increasing 13 percent and International sales increasing 44 percent.
  • Excluding acquisitions and divestitures, consolidated net sales for the quarter increased 13 percent, with North American internal sales increasing 12 percent; International internal sales increased 18 percent. In local currencies, International sales increased two percent compared with the fourth quarter of 2002.
  • Excluding acquisitions and divestitures, the increase in net sales for the fourth quarter of 2003 was primarily due to stronger sales of assembled cabinets, paints and stains, installation services, vinyl windows and faucets.
  • Income from continuing operations for the quarter was $93 million or $.19 per common share, and included a non-cash, pre-tax charge for goodwill impairment of $137 million ($113 million or $.24 per common share, after tax). Excluding the impairment charge, income from continuing operations was $.43 per common share compared with the Company's previous guidance of $.38 to $.40 per common share.
  • Key retailer sales (excluding discontinued operations) in the quarter increased 22 percent, compared with an eight percent increase in the third quarter of 2003, a seven percent increase in the second quarter of 2003 and a five percent increase in the 2003 first quarter. Combined sales to Home Depot, Lowe's and Wal-Mart in the fourth quarter of 2003 also increased 22 percent compared with an increase of eight percent in the 2003 third quarter, a six percent increase in the second quarter of 2003 and a four percent increase in the first quarter of 2003.
  • Sales by segment in the 2003 fourth quarter versus the 2002 fourth quarter were:
    • Cabinets and Related Products sales increased 13 percent;
    • Plumbing Products sales increased 31 percent;
    • Installation and Other Services sales increased 13 percent;
    • Decorative Architectural Products sales increased 22 percent; and
    • Other Specialty Products sales increased 16 percent.
  • Gross margins were 30.7 percent in the 2003 fourth quarter compared with 30.4 percent in the fourth quarter of 2002.
  • Operating profit margins as reported were 8.9 percent in the fourth quarter of 2003 compared with 15.7 percent in the fourth quarter of 2002. Operating profit margins, before the goodwill impairment charge in 2003, litigation income in 2003 and 2002, and income from the planned disposition of a business in 2002, were 13.6 percent and 14.3 percent in the fourth quarters of 2003 and 2002, respectively.
  • SG&A expenses as a percent of sales, including general corporate expense, were 17.1 percent compared with 16.1 percent in the 2002 fourth quarter. The increase was principally the result of increased advertising and promotion costs.
  • General corporate expense was 0.9 percent of sales in the fourth quarter of 2003 compared with 1.0 percent in the comparable period of 2002.
  • The Company's tax rate was 50.3 percent in the 2003 fourth quarter reflecting the impact of the goodwill impairment charge ($113 million after the tax benefit of $24 million), which had a lower tax benefit than the statutory rate. Excluding the goodwill impairment charge, the Company's tax rate was 36.8 percent in the 2003 fourth quarter compared with 34.7 percent in the 2002 fourth quarter. The increase in the tax rate is due to an increase in domestic earnings (relative to total earnings), which are taxed at a higher rate than earnings from the Company's foreign operations.
Fourth Quarter 2003 (concluded)
  • The Company's diluted common shares for purposes of calculating earnings per common share were 481 million in the fourth quarter of 2003.
Full-Year 2003
  • Net sales from continuing operations for 2003, aided by acquisitions, increased 20 percent to over $10.9 billion compared with $9.1 billion for 2002. North American sales increased 14 percent and International sales increased 49 percent.
  • Excluding acquisitions and divestitures, 2003 consolidated net sales increased 9 percent compared with 2002 sales. North American sales increased 8 percent and International sales increased 17 percent. In local currencies, International sales were flat compared with 2002.
  • For the full-year 2003, income from continuing operations was $740 million or $1.51 per common share, and included a non-cash, pre-tax charge for goodwill impairment of $142 million ($118 million or $.24 per common share, after tax). Excluding such charge, income from continuing operations was $1.75 per common share.
  • Sales of the Company's products continued strong in 2003 with a high single digit increase in combined internal sales growth of assembled cabinets, installation services, faucets, architectural coatings and vinyl windows.
  • For the full-year 2003, key retailer sales were approximately $3.4 billion, an increase of approximately 10 percent over $3.1 billion for 2002.
  • Combined sales to Home Depot, Lowe's and Wal-Mart also increased by approximately 10 percent compared with 2002.
  • Sales by segment for 2003 versus 2002 were:
    • Cabinets and Related Products sales increased nine percent;
    • Plumbing Products sales increased 30 percent;
    • Installation and Other Services sales increased 31 percent;
    • Decorative Architectural Products sales increased 12 percent; and
    • Other Specialty Products sales increased 16 percent.
  • Gross margins were 30.6 percent in 2003 compared with 31.6 percent in 2002.
  • Operating profit margins as reported were 13.0 percent in 2003 compared with 14.2 percent in 2002. Operating profit margins, before the goodwill impairment charge in 2003, litigation income/charge in 2003 and 2002, accelerated benefit expense in 2003, European charges in 2003 and income from the planned disposition of a business in 2002 were 14.3 percent in 2003 compared with 15.7 percent in 2002.
  • Full-year 2003 gross margins and operating margins were adversely affected by:
    • Increased energy, insurance and pension costs;
    • Higher promotion and display costs;
    • Stronger foreign currencies resulting in increased International sales which have lower margins;
    • Product mix and relatively higher sales in product segments with somewhat lower margins; and
    • Recently acquired companies with lower operating margins.
  • SG&A expenses as a percent of sales, including general corporate expense, were 17.0 percent in 2003 compared with 15.9 percent in 2002. The increase was principally the result of increased advertising, promotion and the accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer.
  • General corporate expense was 1.0 percent of sales in 2003 compared with 1.1 percent in 2002.
  • The Company's tax rate for 2003 was 38.1 percent reflecting the impact of the goodwill impairment charge ($118 million after the tax benefit of $24 million), which had a lower tax benefit than the statutory rate. Excluding the goodwill impairment charge, the Company's tax rate was 35.9 percent for 2003 compared with 33.7 percent for 2002. The increase in the tax rate is due to an increase in domestic earnings (relative to total earnings), which are taxed at a higher rate than earnings from the Company's foreign operations. The Company anticipates that its tax rate for 2004 will approximate 36 percent.
  • Accounts receivable at year-end were 54 days, which were comparable with last year.
  • Year-end inventory improved to 47 days for 2003 compared with 56 days for 2002.
  • Accounts payable days at year-end improved to 36 days from 33 days a year ago, as the Company continues to negotiate more favorable supplier terms.
  • Working capital (defined as accounts receivable and inventories less accounts payable) improved to 18.1 percent of sales at December 31, 2003 from 21.9 percent of sales at December 31, 2002.
  • Capital expenditures for 2003 were $271 million or 2.5 percent of sales, compared with $285 million or 3.1 percent of sales in 2002. Depreciation and amortization was $244 million in 2003 compared with $220 million for 2002.
  • During 2003, the Company retired approximately $430 million of its outstanding debt. Debt as a percent of total capitalization was 43 percent at December 31, 2003 compared with 47 percent at December 31, 2002.
  • The Company repurchased approximately 37 million shares of its Common Stock during 2003, of which approximately 9 million shares were repurchased in the fourth quarter. Approximately 2 million of these shares were used for employee long-term stock incentive plans.
Full-Year 2003 (concluded)
  • In December 2003, the Company's Board of Directors authorized the purchase of up to 50 million shares of Common Stock, there are approximately 48 million shares remaining under this authorization.
  • Return on invested capital was 10.6 percent on an as-reported basis for both 2003 and 2002, and 11.5 percent on an as-reconciled basis for both 2003 and 2002. The Company continues to believe it will achieve its 15 percent return on invested capital target by 2008.
  • The Company's liquidity was very strong at year-end with over $1.3 billion in cash and marketable securities. In addition, the Company had unused bank lines of $2 billion.
  • The Company increased its quarterly dividend for the 2003 fourth quarter by 14 percent (a larger percentage increase than in recent years) from $.14 to $.16 per common share. The new quarterly dividend reflects the Company's favorable long-term outlook, strong balance sheet and cash flow and recent tax law changes, and makes this the 45th consecutive year in which dividends have been increased.
  • The Company's diluted common shares for purposes of calculating earnings per common share were 491 million for the year ended December 31, 2003.
  • Final court approval was received for the settlement of all class action lawsuits in the United States involving certain exterior wood coating products manufactured by the Company's subsidiary, Behr Process Corporation.
2004 Outlook
  • The Company reviews its business portfolio on an ongoing basis as part of its corporate strategic planning and has determined that several of its European businesses are not core to the Company's long-term growth strategy and, accordingly, has embarked on a plan of disposition. These businesses had combined 2003 net sales in excess of $350 million and the Company expects net proceeds from the dispositions to exceed $300 million. The dispositions are expected to be completed within the next twelve months and the Company expects to recognize a modest net loss upon the disposition of all of these businesses. First quarter 2004 results will include a charge to reflect those businesses that are expected to be divested at a loss. Any gains resulting from the disposition of individual businesses will be recognized as such transactions are completed.
  • The Company continues to experience favorable sales performance in early 2004, and, based on current business trends, believes that it will achieve record sales and earnings for 2004 with full-year earnings from continuing operations expected to be at an all-time record in a range of $1.80 to $1.90 per common share. This year's earnings guidance includes a reduction of approximately $.05 per common share resulting from the absence of earnings related to the European businesses to be divested.
  • Based on current business trends, the Company anticipates that first quarter 2004 earnings from continuing operations (seasonally the lowest quarter of the year) may be in a range of $.36 to $.38 per common share (excluding any disposition charge), compared with first quarter 2003 reported earnings of $.32 per common share.
  • Based on the current market price for the Company's common stock, diluted common shares for the computation of earnings per common share at January 1, 2004 are 478 million, this excludes the impact of any 2004 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 financial measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results. Additional information about our products, markets and conditions, which could affect our 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.