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Masco Corporation Reports Second Quarter 2018 Results

July 31, 2018

Key Highlights

  • Sales increased 11 percent to $2.3 billion; excluding acquisitions, divestitures and currency, sales increased 6 percent
  • Earnings per share grew 33 percent to $0.68 per share; adjusted earnings per share grew 21 percent to $0.75 per share
  • Returned approximately $147 million to shareholders through share repurchases and dividends
  • Updating 2018 anticipated earnings per share to be in the range of $2.34-$2.41 per share, and on an adjusted basis, to be in the range of $2.48-$2.55 per share compared to a previous range of $2.48-$2.63
  • Board announces intent to increase annual dividend by $0.06 per share to $0.48 per share, beginning in the fourth quarter

LIVONIA, Mich.--(BUSINESS WIRE)-- Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported strong net sales and earnings per share growth in the second quarter of 2018.

“We delivered strong growth across our decorative, plumbing and cabinetry segments this quarter,” said Masco President and CEO, Keith Allman. “This performance was driven by our acquisition of Kichler Lighting, increased volume and pricing actions. We navigated the inflationary environment to deliver adjusted operating profit growth for the quarter. Additionally, we accelerated our planned share repurchases for the year and returned approximately $147 million to shareholders through share repurchases and dividends.”

2018 Second Quarter Commentary

  • On a reported basis, compared to second quarter 2017:
    • Net sales increased 11 percent to $2.3 billion; in local currency and excluding acquisitions and divestitures, net sales increased 6 percent
    • In local currency, North American sales increased 12 percent and international sales matched prior year
    • Gross margins decreased 340 basis points to 32.7 percent from 36.1 percent
    • Operating profit decreased 4 percent to $358 million primarily due to the acquisition related inventory step up adjustment of $20 million
    • Operating margins decreased 240 basis points to 15.6 percent from 18.0 percent
    • Net income increased to $0.68 per share compared to $0.51 per share
  • Compared to second quarter 2017, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate of 26 percent (34 percent in 2017), were as follows:
    • Gross margins decreased 250 basis points to 33.6 percent compared to 36.1 percent
    • Operating profit increased 2 percent to $380 million from $372 million
    • Operating margins decreased 150 basis points to 16.5 percent compared to 18.0 percent
    • Net income increased to $0.75 per share, compared to $0.62 per share
  • Liquidity at the end of the second quarter was $384 million
  • 3.0 million shares were repurchased in the second quarter

2018 Second Quarter Operating Segment Highlights

  • Plumbing Products’ net sales increased 9 percent (6 percent excluding the impact of foreign currency translation), driven by North American and international growth
  • Decorative Architectural Products’ net sales increased 22 percent due to the acquisition of Kichler and growth in paints and other coatings products and builders’ hardware; excluding the acquisition, net sales grew 6 percent
  • Cabinetry Products’ net sales increased 7 percent due to strong growth in the repair and remodel business, partially offset by the divestiture of Moores
  • Windows and Other Specialty Products’ net sales decreased 7 percent; excluding the impact of foreign currency translation and the divestiture of Arrow Fastener, sales matched prior year

“We delivered solid performance in the first half of the year,” said Allman. “I am pleased with our strong top-line growth and our response to the cost pressures we experienced as we implemented price increases to offset inflation and leveraged our SG&A expense. With these actions, we believe we are well positioned for strong top- and bottom-line growth as we enter the second half of the year. Expressing confidence in our future, our Board has announced its intention to raise our annual dividend to $.48 per share beginning in the fourth quarter, a 14 percent increase. Additionally, with our strong free cash flow, we expect to deploy approximately $200 million in the second half of 2018 in either acquisitions or share buybacks, on top of the more than $800 million deployed year to date.”

About Masco

Headquartered in Livonia, Mich., 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; Kichler® decorative and outdoor lighting; and HotSpring® 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 2018 second quarter supplemental material, including a presentation in PDF format, is available on Masco’s website at www.masco.com.

Conference Call Details

A conference call regarding items contained in this release is scheduled for Tuesday, July 31, 2018 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 9292969. The conference call will be webcast simultaneously and in its entirety through Masco’s website. Shareholders, media representatives and others interested in Masco may participate in the webcast by registering through the Investor Relations section on Masco’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 9292969. The telephone replay will be available approximately two hours after the end of the call and continue through August 31, 2018.

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 “outlook,” “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 residential repair and remodel activity and new home construction, our ability to maintain our strong brands and reputation and to develop new products, our ability to maintain our competitive position in our industries, our reliance on key customers, the cost and availability of raw materials, our dependence on third-party suppliers, risks associated with international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to successfully execute our acquisition strategy and integrate businesses that we have and may acquire, our ability to attract, develop and retain talented personnel, our ability to achieve the anticipated benefits from our investments in new technology, risks associated with our reliance on information systems and technology, and our ability to sustain the improved results of our U.S. window business. 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. Any forward-looking statement made by us speaks only as of the date on which it was made. 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, 2018 and 2017

 

(in millions, except per common share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Net sales $ 2,297 $ 2,066 $ 4,217 $ 3,844
Cost of sales 1,547   1,320   2,848   2,493  
Gross profit 750 746 1,369 1,351
 
Selling, general and administrative expenses 392   374   767   722  
Operating profit 358 372 602 629
 
Other income (expense), net:
Interest expense (38 ) (153 ) (79 ) (196 )
Other, net (8 ) 43   (11 ) 39  
(46 ) (110 ) (90 ) (157 )
Income before income taxes 312 262 512 472
 
Income tax expense 88   86   127   148  
Net income 224 176 385 324
 
 
Less: Net income attributable to noncontrolling interest 13   13   25   23  
Net income attributable to Masco Corporation $ 211   $ 163   $ 360   $ 301  
 
Income per common share attributable to Masco Corporation (diluted):
Net income $ 0.68   $ 0.51   $ 1.15   $ 0.93  
 
Average diluted common shares outstanding 309   319   311   320  
 

Historical information is available on our website.

     
 

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Six Months Ended June 30, 2018 and 2017

 

(dollars in millions)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017

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

 
Net sales $ 2,297   $ 2,066   $ 4,217   $ 3,844  
 
Gross profit, as reported $ 750 $ 746 $ 1,369 $ 1,351
Rationalization charges 2 — 3 2
Kichler inventory step up adjustment 20   —   25   —  
Gross profit, as adjusted $ 772   $ 746   $ 1,397   $ 1,353  
 
Gross margin, as reported 32.7 % 36.1 % 32.5 % 35.1 %
Gross margin, as adjusted 33.6 % 36.1 % 33.1 % 35.2 %
 
Selling, general and administrative expenses, as reported $ 392   $ 374   $ 767     $ 722  
 
Selling, general and administrative expenses as percent of net sales, as reported 17.1 % 18.1 % 18.2 % 18.8 %
 
Operating profit, as reported $ 358 $ 372 $ 602 $ 629
Rationalization charges 2 — 3 2
Kichler inventory step up adjustment 20   —   25   —  
Operating profit, as adjusted $ 380   $ 372   $ 630   $ 631  
 
Operating margin, as reported 15.6 % 18.0 % 14.3 % 16.4 %
Operating margin, as adjusted 16.5 % 18.0 % 14.9 % 16.4 %
 

Historical information is available on our website.

     
 

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Six Months Ended June 30, 2018 and 2017

 

(in millions, except per common share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017

Income Per Common Share Reconciliations

   
 
Income before income taxes, as reported $ 312 $ 262 $ 512 $ 472
Rationalization charges 2 — 3 2
Kichler inventory step up adjustment 20 — 25 —
(Gains) from private equity funds, net — (1 ) — (2 )
(Earnings) from equity investments, net (2 ) (1 ) (2 ) (1 )
Loss on extinguishment of debt — 107 — 107
(Gain) on sale of business —   (49 ) —   (49 )
Income before income taxes, as adjusted 332 318 538 529
Tax at 26% rate (34% for 2017) (86 ) (108 ) (140 ) (180 )
Less: Net income attributable to noncontrolling interest 13   13   25   23  
Net income, as adjusted $ 233   $ 197   $ 373   $ 326  
 
Net income per common share, as adjusted $ 0.75   $ 0.62   $ 1.20   $ 1.02  
 
Average diluted common shares outstanding 309   319   311   320  
 

Outlook for the Twelve Months Ended December 31, 2018

   
Twelve Months Ended

December 31, 2018

Low End   High End

Income Per Common Share Outlook

 
Net income per common share $ 2.34 $ 2.41
Rationalization charges 0.02 0.02
Kichler inventory purchase accounting adjustment 0.10 0.10
Allocation to participating securities per share (1) 0.02   0.02
Net income per common share, as adjusted $ 2.48   $ 2.55
 

(1) Represents the impact of distributed dividends and undistributed earnings to unvested restricted stock awards in accordance with the two-class method of calculating earnings per share.

 

Historical information is available on our website.

     
 

MASCO CORPORATION

Condensed Consolidated Balance Sheets and Other Financial Data - Unaudited

June 30, 2018 and December 31, 2017

 

(dollars in millions)

 
June 30, 2018 December 31, 2017
Balance Sheet
Assets
Current Assets:
Cash and cash investments $ 384 $ 1,194
Short-term bank deposits — 108
Receivables 1,444 1,066
Inventories 1,017 784
Prepaid expenses and other 117   111
Total Current Assets 2,962 3,263
 
Property and equipment, net 1,187 1,129
Goodwill 890 841
Other intangible assets, net 417 187
Other assets 109   114
Total Assets $ 5,565   $ 5,534
 
Liabilities
Current Liabilities:
Accounts payable $ 1,093 $ 824
Notes payable 2 116
Accrued liabilities 675   727
Total Current Liabilities 1,770 1,667
 
Long-term debt 2,970 2,969
Other liabilities 699   715
Total Liabilities 5,439 5,351
 
Equity 126   183
Total Liabilities and Equity $ 5,565   $ 5,534
 
As of June 30,
2018 2017
Other Financial Data
Working Capital Days
Receivable days 56 52
Inventory days 70 63
Payable days 72 72
Working capital $ 1,368 $ 1,138
Working capital as a % of sales (LTM) 17.1 % 15.2 %
 

Historical information is available on our website.

   
 

MASCO CORPORATION

Condensed Consolidated Statements of Cash Flows and Other Financial Data - Unaudited

For the Six Months Ended June 30, 2018 and 2017

 

(dollars in millions)

 
Six Months Ended June 30,
2018   2017
Cash Flows From (For) Operating Activities:
Cash provided by operating activities $ 499 $ 535
Working capital changes (206 ) (380 )
Net cash from operating activities 293   155  
 
Cash Flows From (For) Financing Activities:
Retirement of notes (114 ) (535 )
Purchase of Company common stock (265 ) (134 )
Cash dividends paid (65 ) (64 )
Dividends paid to noncontrolling interest (89 ) (35 )
Issuance of notes, net of issuance costs — 593
(Decrease) increase in debt, net (1 ) 1
Debt extinguishment costs — (104 )
Employee withholding taxes paid on stock-based compensation (33 ) (27 )
Net cash for financing activities (567 ) (305 )
 
Cash Flows From (For) Investing Activities:
Capital expenditures (103 ) (77 )
Acquisition of business, net of cash acquired (548 ) —
Proceeds from disposition of business, net of cash disposed — 126
Other, net 107   75  
Net cash (for) from investing activities (544 ) 124  
 
Effect of exchange rate changes on cash and cash investments 8 28
 
Cash and Cash Investments:
(Decrease) increase for the period (810 ) 2
At January 1 1,194   990  
At June 30 $ 384   $ 992  
 
As of June 30,
2018 2017
Liquidity
Cash and cash investments $ 384 $ 992
Short-term bank deposits —   144  
Total Liquidity $ 384   $ 1,136  
 

Historical information is available on our website.

         
 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2018 and 2017

 

(dollars in millions)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 Change 2018   2017 Change
Plumbing Products
Net sales $ 1,032   $ 949   9 % $ 2,003   $ 1,821   10 %
 
Operating profit, as reported $ 194 $ 200 $ 357 $ 362
Operating margin, as reported 18.8 % 21.1 % 17.8 % 19.9 %
 
Rationalization charges 1 — 2 —
Accelerated depreciation related to rationalization activity 1   —   1   —  
Operating profit, as adjusted 196 200 360 362
Operating margin, as adjusted 19.0 % 21.1 % 18.0 % 19.9 %
 
Depreciation and amortization 18   15   36   29  
 
EBITDA, as adjusted $ 214   $ 215   $ 396   $ 391  
 
Decorative Architectural Products
Net sales $ 806   $ 661   22 % $ 1,351   $ 1,157   17 %
 
Operating profit, as reported $ 145 $ 149 $ 234 $ 243
Operating margin, as reported 18.0 % 22.5 % 17.3 % 21.0 %
 
Kichler inventory step up adjustment 20   —   25   —  
Operating profit, as adjusted 165 149 259 243
Operating margin, as adjusted 20.5 % 22.5 % 19.2 % 21.0 %
 
Depreciation and amortization 10   4   15   8  
 
EBITDA, as adjusted $ 175   $ 153   $ 274   $ 251  
 
Cabinetry Products
Net sales $ 268   $ 251   7 % $ 485   $ 482   1 %
 
Operating profit, as reported $ 33 $ 31 $ 39 $ 47
Operating margin, as reported 12.3 % 12.4 % 8.0 % 9.8 %
 
Rationalization charges —   —   —   2  
Operating profit, as adjusted 33 31 39 49
Operating margin, as adjusted 12.3 % 12.4 % 8.0 % 10.2 %
 
Depreciation and amortization 4   4   7   8  
 
EBITDA, as adjusted $ 37   $ 35   $ 46   $ 57  
 

Historical information is available on our website.

         
 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2018 and 2017

 

(dollars in millions)

 
 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 Change 2018   2017 Change
Windows and Other Specialty Products
Net sales $ 191   $ 205   (7 )% $ 378   $ 384   (2 )%
 
Operating profit, as reported $ 8 $ 18 $ 12 $ 26
Operating margin, as reported 4.2 % 8.8 % 3.2 % 6.8 %
 
Depreciation and amortization 5   6   11   11  
 
EBITDA $ 13   $ 24   $ 23   $ 37  
 
Total
Net sales $ 2,297   $ 2,066   11 % $ 4,217   $ 3,844   10 %
 
Operating profit, as reported - segment $ 380 $ 398 $ 642 $ 678
General corporate expense, net (GCE) (22 ) (26 ) (40 ) (49 )
Operating profit, as reported 358 372 602 629
Operating margin, as reported 15.6 % 18.0 % 14.3 % 16.4 %
 
Rationalization charges - segment 1 — 2 2
Accelerated depreciation related to rationalization activity - segment 1 — 1 —
Kichler inventory step up adjustment 20   —   25   —  
Operating profit, as adjusted 380 372 630 631
Operating margin, as adjusted 16.5 % 18.0 % 14.9 % 16.4 %
 
Depreciation and amortization - segment 37 29 69 56
Depreciation and amortization - non-operating 2   4   4   8  
 
EBITDA, as adjusted $ 419   $ 405   $ 703   $ 695  
 

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, 2018 and 2017

 

(dollars in millions)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 Change   2018   2017 Change
North American
Net sales $ 1,872   $ 1,668   12 % $ 3,388   $ 3,080   10 %
 
Operating profit, as reported $ 323 $ 340 $ 541 $ 578
Operating margin, as reported 17.3 % 20.4 % 16.0 % 18.8 %
 
Rationalization charges 1 — 2 2
Accelerated depreciation related to rationalization activity 1 — 1 —
Kichler inventory step up adjustment 20   —   25   —  
Operating profit, as adjusted 345 340 569 580
Operating margin, as adjusted 18.4 % 20.4 % 16.8 % 18.8 %
 
Depreciation and amortization 27   20   48   38  
 
EBITDA, as adjusted $ 372   $ 360   $ 617   $ 618  
 
International
Net sales $ 425   $ 398   7 % $ 829   $ 764   9 %
 
Operating profit, as reported $ 57 $ 58 $ 101 $ 100
Operating margin, as reported 13.4 % 14.6 % 12.2 % 13.1 %
 
Depreciation and amortization 10   9   21   18  
 
EBITDA $ 67   $ 67   $ 122   $ 118  
 
Total
Net sales $ 2,297   $ 2,066   11 % $ 4,217   $ 3,844   10 %
 
Operating profit, as reported - segment $ 380 $ 398 $ 642 $ 678
General corporate expense, net (GCE) (22 ) (26 ) (40 ) (49 )
Operating profit, as reported 358 372 602 629
Operating margin, as reported 15.6 % 18.0 % 14.3 % 16.4 %
 
Rationalization charges - segment 1 — 2 2
Accelerated depreciation related to rationalization activity - segment 1 — 1 —
Kichler inventory step up adjustment 20   —   25   —  
Operating profit, as adjusted 380 372 630 631
Operating margin, as adjusted 16.5 % 18.0 % 14.9 % 16.4 %
 
Depreciation and amortization - segment 37 29 69 56
Depreciation and amortization - non-operating 2   4   4   8  
 
EBITDA, as adjusted $ 419   $ 405   $ 703   $ 695  
 

Historical information is available on our website.

Masco Corporation
Investor Contact
David Chaika
Vice President, Treasurer and Investor Relations
313.792.5500
david_chaika@mascohq.com

Source: Masco Corporation

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