News Details

In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for the 2007 planned disposition of a European business unit in the Decorative Architectural Products segment and the September 2006 disposition of a business unit in the Other Specialty Products segment as discontinued operations.

In April 2007 and July 2007, the Company also completed the sale of two relatively small business units in the Plumbing Products segment; these business units were included in continuing operations through their respective dates of sale.

Third Quarter 2007

• Net sales from continuing operations declined seven percent, with North American sales declining 11 percent and International sales increasing 13 percent. In local currencies, International sales increased five percent compared with the third quarter of 2006.
  
  
• Key retailer sales from continuing operations decreased one percent in the 2007 third quarter compared with an increase of two percent in the 2007 second quarter and a decline of two percent in the 2007 first quarter.
  
  
• Retail sales of paints and stains continued relatively strong in the third quarter of 2007.
  
  
• International sales were strong, particularly for plumbing products, due to stronger European economies, market share gains and the favorable effect of currency translation.
  
  
• Sales changes by segment in the third quarter of 2007 versus the third quarter of 2006 were:
  • Cabinets and Related Products sales declined 11 percent;
    
    
  • Plumbing Products sales increased four percent;
    
    
  • Installation and Other Services sales declined 15 percent;
    
    
  • Decorative Architectural Products sales increased two percent; and
    
    
  • Other Specialty Products sales declined 13 percent.
  
  
  
• Third quarter 2007 results were positively affected by increased sales volume of paints and stains and International operations, particularly plumbing products, and sales from recent acquisitions, as well as benefits from the Company's profit improvement programs and selling price increases (which partially offset commodity cost increases).
  
  
• Third quarter 2007 results were adversely affected by lower sales volume of installation and other services, assembled cabinets and windows and doors in the new home construction market and a continued moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets.
• Income from continuing operations was $209 million or $.57 per common share and $225 million or $.57 per common share in the third quarters of 2007 and 2006, respectively.
  
  
• Net income in the third quarter of 2007 was $205 million or $.56 per common share, including loss from discontinued operations, net, of $4 million. Net income in the third quarter of 2006 was $252 million or $.64 per common share, including income from discontinued operations, net, of $27 million.
  
  
• As part of its profit improvement programs, the Company has been focused on the rationalization of its businesses, including sourcing programs, business consolidations, plant closures, headcount reductions and other initiatives. During the third quarters of 2007 and 2006, the Company incurred costs and charges of $12 million pre-tax ($.02 per common share, after tax, net of an $8 million gain from the sale of fixed assets) and $9 million pre-tax ($.01 per common share, after tax), respectively, related to profit improvement programs.
• Results included non-cash impairment charges for financial investments of $12 million pre-tax ($.02 per common share, after tax) and $8 million pre-tax ($.01 per common share, after tax) in the third quarters of 2007 and 2006, respectively.
  
  
• Results benefited from net gains related to financial investments of $11 million pre-tax ($.02 per common share, after tax) and $9 million pre-tax ($.01 per common share, after tax) in the third quarters of 2007 and 2006, respectively.
  
  
• Results benefited from realized currency gains of $8 million pre-tax ($.01 per common share, after tax) and $3 million pre-tax ($.01 per common share, after tax) in the third quarters of 2007 and 2006, respectively.
  
  
• Gross margins were 28.2 percent in the third quarter of 2007 compared with 28.0 percent in the third quarter of 2006. Operating profit margins were 12.2 percent in the third quarters of 2007 and 2006. Operating profit margins in the third quarters of 2007 and 2006 include the negative effect of costs and charges related to profit improvement programs, as well as reduced sales volume in both years.
  
  
• SG&A expenses as a percent of sales, including general corporate expense, were 16.0 percent in the 2007 third quarter compared with 15.9 percent in the 2006 third quarter.
  
  
• General corporate expense was 1.4 percent of sales in the 2007 third quarter and 1.6 percent in the 2006 third quarter.
  
  
• Accounts receivable days at the end of the third quarter were 51 days compared with 50 days a year ago.
  
  
• Inventory days at the end of the third quarter were 49 days compared with 50 days a year ago.
  
  
• Accounts payable days at the end of the third quarter were 42 days compared with 39 days a year ago.
  
  
• Working capital at September 30, 2007 (defined as accounts receivable and inventories less accounts payable) was 17.7 percent of the last twelve months' sales compared with 17.6 percent a year earlier.
  
  
• The Company's tax rate was 33.1 percent in the third quarter of 2007 compared with the Company's previous estimate of 35 to 36 percent and 34.6 percent in the comparable period of the prior year. The decrease in the effective tax rate for the third quarter of 2007 is principally due to a decrease in certain deferred tax liabilities resulting from the reduction in the German income tax rate enacted in the third quarter of 2007 and due to the adjustment of estimated U.S. Federal tax accruals to actual tax results. The Company estimates that its effective tax rate on income from continuing operations for the full-year 2007 should approximate 35 to 36 percent.
  
  
• At the end of the quarter, the Company had a strong balance sheet with approximately $700 million of cash and $2 billion in unused bank lines.
  
  
• During the third quarter, the Company retired $300 million of 4.625% notes due August, 15, 2007.
  
  
• Debt as a percent of total capitalization was 49 percent at September 30, 2007 compared with 46 percent a year ago.
  
  
• For the twelve months ended September 30, 2007 and September 30, 2006, return on invested capital (as reported) was 8.0 percent and 12.4 percent, respectively. For the twelve months ended September 30, 2007 and September 30, 2006, return on invested capital (as reconciled) was 10.4 percent and 12.9 percent, respectively. While the Company remains committed to the continued improvement in its ROIC, recent macro business trends have resulted in a reduction in operating profit over the last several quarters, which has negatively impacted ROIC. The Company continues to believe that it will achieve its long-term ROIC goal of 18 percent and will provide guidance as to the timing when there is more clarity in the recovery of the housing market.
  
  
• During the quarter, the Company repurchased seven million shares of Company common stock.
  
  
• The Company's diluted common shares for purposes of calculating earnings per common share were 367 million for the third quarter of 2007 compared with 393 million for the third quarter of 2006.

Outlook for 2007

• Economic conditions remain uncertain in a number of the Company's markets. Housing starts have declined dramatically in the last 18 months due to previous excessive speculative buying, reduced affordability, excessive inventories of homes and less attractive mortgage terms. The subprime mortgage issues that have plagued the new home construction and credit markets in recent months have made it more difficult to obtain a mortgage, adding to an already difficult housing market. As a result, the Company, as previously communicated, reduced its full-year 2007 housing starts estimate to approximately 1.35 million from 1.4 million and the Company expects further declines in housing starts over the next several quarters. In addition, the Company continues to see a moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets, and currently estimates that the Company's fourth quarter and full-year 2007 sales will decline mid-to-high single digits compared with the same periods in 2006.
  
  
• While forecasting future business conditions in the current environment remains challenging, the Company currently believes that its stronger than anticipated third quarter performance should result in 2007 full-year earnings from continuing operations approximating or modestly exceeding the high end of its previous guidance of $1.55 to $1.65 per common share. This guidance includes net costs of approximately $75 million pre-tax ($.13 per common share, after tax), compared with $.12 per common share in the Company's previous guidance, related to plant start-up, severance, systems implementations and other initiatives.
  
  
• Given the difficult housing environment, the Company is very pleased with its third quarter operating performance, particularly its operating margins, which approximated last year's third quarter operating performance on sales that were down seven percent. While the Company expects market conditions in its industry, in the next several quarters, to be even more challenging, the Company is confident that the continued focus on its strategy of concentrating on organic growth, improving returns and generating superior cash flow, together with the leveraging of the combined market strength of its retail service, distribution and installation capabilities, brands and scale will allow the Masco team to continue to drive long-term value for its shareholders.
  
  
• In the first nine months of 2007, the Company returned approximately $1.1 billion to shareholders through dividends and share repurchases (29 million shares).
  
  
• The Company expects to continue to return a minimum of $1 billion annually to shareholders, on average, through share repurchases and dividends as part of its ongoing commitment to value creation. The Company has returned $4.8 billion to shareholders over the last four calendar years, including the repurchases of 126 million common shares and dividends.
  
  
• In July 2007, the Company's Board of Directors, as previously announced, authorized the repurchase of up to 50 million shares for retirement of the Company's common stock in open-market transactions or otherwise. The Company had approximately 43 million shares remaining under this repurchase authorization.
  
  
• Diluted common shares for the computation of earnings per common share at October 1, 2007 were 364 million. This excludes the impact of any subsequent repurchases of common stock.
  
  
• Despite current industry conditions, the Company is pleased with its third quarter and year-to-date 2007 results and remains optimistic about its long-term outlook based on the Company's growth initiatives including new product development, expansion into developing markets, market share gains and benefits from its profit improvement programs.

Statements contained herein that reflect the Company's views about its future performance constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These views involve risks and uncertainties that are difficult to predict and, accordingly, the Company's results may differ materially from the results discussed in such forward-looking statements. For an explanation of various factors that may affect our performance, refer to our most recent Annual Report on Form 10-K (particularly the "Risk Factors" section) and to any subsequent Quarterly Reports on Form 10-Q, all of which are on file with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The Company believes that certain non-GAAP performance measures and ratios that may be 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.