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.
First Quarter 2005
- Net sales from continuing operations increased six percent with
North American sales increasing six percent and International sales
increasing five percent. In local currencies, International sales
increased one percent compared with the first quarter of 2004.
Quarterly comparisons are challenging since net sales from continuing
operations increased a strong 19 percent in the first quarter of 2004
compared with 2003.
- Sales in the new construction
market of installed products, assembled cabinets, and windows were
particularly strong in the quarter.
- Retail sales of paints and stains, faucets and cabinets were
lower-than-expected.
- Key retailer sales from continuing
operations decreased two percent in the 2005 first quarter compared
with a strong 20 percent increase in the first quarter of 2004 compared
with 2003.
- Sales by segment in the 2005 first quarter versus the 2004 first quarter were:
- Cabinets and Related Products sales increased eight percent;
- Plumbing Products sales increased three percent;
- Installation and Other Services sales increased ten percent;
- Decorative Architectural Products sales were flat; and
- Other Specialty Products sales increased seven percent.
- Income from continuing operations was $212 million compared with $241 million for the first quarter of 2004.
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Earnings from continuing operations were $.48 per common share compared
with the Company's guidance of $.44 to $.47 per common share and
compared with $.52 per common share for the 2004 first quarter.
-
Results for the first quarter of 2005 benefited from other income of
$.06 per common share, principally net gains from the sale of financial
investments and tax benefits of $.02 per common share related to the
adjustment of estimated tax accruals, principally for actual tax results
of International operations, which offset realized currency translation
losses of $.02 per common share. The first quarter of 2004 benefited
from other income, principally net gains from the sale of financial
investments, of $.07 per common share and income related to the Behr
litigation of $.03 per common share.
- The Company
previously announced, in the first quarter of 2004, the planned
disposition of several European businesses that were not core to the
Company's long-term growth strategy. First quarter 2004 results included
an after-tax charge of $.16 per common share to reflect those
businesses expected to be divested at a loss. During the first quarter
of 2005, the Company completed the disposition process with the
additional sale of two of these businesses, Gebhardt Consolidated and
the GMU Group, realizing an after-tax net gain of $.04 per common share.
Including the results of the European businesses disposed, which have
been treated as discontinued operations, net income for the first
quarter of 2005 increased to $231 million compared with $168 million for
the 2004 first quarter; earnings for the first quarter of 2005
increased to $.52 per common share compared with $.36 per common share
for the 2004 first quarter. Total net proceeds for the dispositions
completed in 2004 and 2005 aggregated $282 million.
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First quarter 2005 results were adversely affected by
lower-than-expected consumer spending impacting certain of the Company's
products sold through retail markets, product mix, as well as recent
increases in commodity, energy, and freight costs, much of which have
not yet been recovered due to the lag in implementing selling price
increases to customers.
- Gross margins were 28.3
percent in the 2005 first quarter compared with 30.3 percent in the
first quarter of 2004. Operating profit margins, as reported, were 11.6
percent in the first quarter of 2005 compared with 13.8 percent in the
first quarter of 2004. Excluding the income regarding the litigation
settlement of $2 million and $21 million in 2005 and 2004, respectively,
operating profit margins were 11.5 percent in the first quarter of 2005
compared with 13.0 percent in the first quarter of 2004. Operating
profit margins in the first quarter of 2005 were adversely impacted by
increases in certain operating expenses, including increased commodity,
energy, and freight costs, as well as lower-than-expected sales volume
to the retail markets.
- SG&A expenses as a percent
of sales, including general corporate expense, were 16.8 percent in the
first quarter 2005 compared with 17.3 percent in the 2004 first quarter.
- General corporate expense was 1.5 percent of sales
in the first quarter of 2005 compared with 1.3 percent in the comparable
period of 2004.
- Inventory days were 50 days at March 31, 2005 compared with 49 days at March 31, 2004.
- Accounts receivable days at the end of the first quarter were 51 days compared with 53 days a year ago.
-
Accounts payable days at the end of the first quarter improved to 37
days from 36 days a year ago, as the Company continues to negotiate more
favorable supplier terms.
- Working capital at March 31,
2005 (defined as accounts receivable and inventories less accounts
payable) improved to 18.0 percent of the last twelve months' sales from
18.5 percent a year earlier.
- The Company's tax rate was
32.4 percent for the first quarter of 2005 compared with 36.3 percent
for the comparable period of the prior year. The decrease in the tax
rate was due to the adjustment of estimated tax accruals principally for
actual tax results of International operations. The Company estimates
that its effective tax rate for the full-year 2005 should approximate 35
percent.
- At the end of the quarter, the Company had a
strong balance sheet with over $1 billion in cash and marketable
securities and $2 billion in unused bank lines.
- In the
first quarter of 2005, the Company generated approximately $69 million
of cash from the net sale of financial investments and $63 million of
net cash from the disposition of two European businesses.
- Debt as a percent of total capitalization was 46 percent at March 31, 2005 compared with 47 percent at March 31, 2004.
-
For the twelve months ended March 31, 2005 and March 31, 2004, return
on invested capital (as reported) was 11.6 percent and 11.5 percent,
respectively. For the twelve months ended March 31, 2005 and March 31,
2004, return on invested capital (as reconciled) was 12.7 percent and
11.6 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 13 million common shares. The Board of
Directors authorized the repurchase of up to an additional 50 million
shares of common stock, replacing the Company's previous authorization.
The Company had approximately 47 million common shares remaining under
the new repurchase authorization at March 31, 2005.
-
The Company's diluted common shares for purposes of calculating earnings
per common share were 443 million for the first quarter of 2005
compared with 468 million for the first quarter of 2004.
-
During the quarter, the Board of Directors increased the quarterly
dividend by 11 percent, from $.18 to $.20 per common share, marking the
47th consecutive year in which dividends have been increased.
Full-Year Outlook
- If higher energy costs and recent trends indicating lower consumer
confidence and the related slowing in sales of certain retail products
continue, the Company believes that full-year results may be nearer to
the low end of its previously provided earnings guidance range for
continuing operations of $2.40 to $2.50 per common share.
-
The Company's guidance is based on housing starts approximating 2004
levels, no additional share repurchases beyond the 13 million common
shares repurchased in the first quarter of 2005, modest margin
improvement in the second half of 2005, reflecting selling price
increases offsetting rising commodity costs, and anticipated income from
financial investments. The guidance also assumes no further significant
commodity cost increases.
- Based on current business
trends, the Company anticipates that second quarter 2005 earnings from
continuing operations will be in a range of $.58 to $.62 per common
share compared with second quarter 2004 earnings of $.65 per common
share which included $.04 per common share of previously disclosed other
income, principally net gains from the sale of financial investments.
-
The higher commodity costs experienced late in 2004 are continuing in
2005 and are having an adverse impact on first half results. The
Company is continuing to implement additional price increases for a
number of its products and believes that by the second half of 2005 most
of these commodity cost increases should be largely offset.
-
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 quarter of 2005, the Company returned $545 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 April 1, 2005 are 437 million. This excludes the impact of any
second 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 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.