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Masco Corporation Reports First Quarter 2019 Results

April 25, 2019

Key Results

  • Sales decreased 1 percent to $1.9 billion; excluding acquisitions and currency, sales decreased 2 percent
  • Earnings per share decreased 17 percent to $0.39 per share; adjusted earnings per share decreased 2 percent to $0.44 per share
  • Returned approximately $157 million to shareholders through share repurchases and dividends
  • Anticipate 2019 earnings per share to be in the range of $2.52 - $2.72 per share, and reaffirming 2019 adjusted earnings per share to be in the range of $2.60 - $2.80 per share

LIVONIA, Mich.--(BUSINESS WIRE)-- Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported its first quarter results.

“We experienced a challenging start to 2019, which resulted in reduced sales and operating profits for the first quarter,” said Masco President and CEO, Keith Allman. “While we anticipated many of the factors that led to our results, our performance was also impacted by inventory rebalancing by certain customers and softness in some of our end markets. We continued to focus on creating shareholder value and returned $157 million to shareholders through share repurchases and dividends during the quarter.”

2019 First Quarter Commentary

  • On a reported basis, compared to first quarter 2018:
    • Net sales decreased 1 percent to $1.9 billion; in local currency and excluding acquisition, net sales decreased 2 percent
    • In local currency, North American sales increased 2 percent and international sales decreased 1 percent
    • Gross margins decreased 80 basis points to 31.4 percent from 32.2 percent
    • Operating profit decreased 14 percent to $211 million
    • Operating margins decreased 160 basis points to 11.1 percent from 12.7 percent
    • Net income decreased to $0.39 per share, compared to $0.47 per share
  • Compared to first quarter 2018, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate of 25 percent, were as follows:
    • Gross margins decreased 120 basis points to 31.4 percent compared to 32.6 percent
    • Operating profit decreased 8 percent to $230 million from $250 million
    • Operating margins decreased 90 basis points to 12.1 percent compared to 13.0 percent
    • Net income decreased to $0.44 per share, compared to $0.45 per share
  • Liquidity at the end of the first quarter was $316 million
  • Repurchased 3.5 million shares in the quarter

2019 First Quarter Operating Segment Results

  • Plumbing Products’ net sales decreased 3 percent (sales were flat excluding the impact of foreign currency translation) due to lower volume and unfavorable mix, partially offset by pricing
  • Decorative Architectural Products’ net sales increased 5 percent; excluding the acquisition of Kichler, sales decreased 7 percent due to sales of paints and other coating products pulled forward into the fourth quarter of 2018, soft end markets and channel inventory rebalancing
  • Cabinetry Products’ net sales increased 9 percent due to growth in both the repair and remodel and new construction businesses
  • Windows and Other Specialty Products’ net sales decreased 16 percent due to planned reduced volume resulting from an ERP implementation in North America and continued softness in the UK market

“We are optimistic about the remainder of the year, as sales trends started to improve in March, and we are reaffirming our full year adjusted earnings per share guidance range of $2.60 to $2.80,” said Allman. “We remain confident in the fundamentals of our business and will continue to execute on our strategies to create shareholder value. Additionally, we expect to reach a decision on our review of strategic alternatives for our Cabinetry and Windows businesses by the end of June.”

About Masco

Headquartered in Livonia, Michigan, 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 2019 first 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 Thursday, April 25, 2019 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 9087682. 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 9087682. The telephone replay will be available approximately two hours after the end of the call and continue through May 25, 2019.

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 and increasing tariffs, 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, risks associated with our reliance on information systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology. 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 Ended March 31, 2019 and 2018

 

(in millions, except per common share data)

 
Three Months Ended March 31,
2019   2018
Net sales $ 1,908 $ 1,920
Cost of sales 1,309   1,301  
Gross profit 599 619
 
Selling, general and administrative expenses 372 375
Impairment charges for goodwill and other intangible assets 16   —  
Operating profit 211 244
 
Other income (expense), net:
Interest expense (39 ) (41 )
Other, net (4 ) (3 )
(43 ) (44 )
Income before income taxes 168 200
 
Income tax expense 41   39  

Net income

127 161
 
Less: Net income attributable to noncontrolling interest 11   12  
Net income attributable to Masco Corporation $ 116   $ 149  
 
Income per common share attributable to Masco Corporation (diluted):
Net income $ 0.39   $ 0.47  
 
Average diluted common shares outstanding 294   313  
 

Historical information is available on our website.

 

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months Ended March 31, 2019 and 2018

 

(dollars in millions)

 
Three Months Ended March 31,
2019   2018

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

 
Net sales $ 1,908   $ 1,920  
 
Gross profit, as reported $ 599 $ 619
Rationalization charges — 1
Kichler inventory step up adjustment —   5  
Gross profit, as adjusted $ 599   $ 625  
 
Gross margin, as reported 31.4 % 32.2 %
Gross margin, as adjusted 31.4 % 32.6 %
 
Selling, general and administrative expenses, as reported $ 372 $ 375
Professional fees related to strategic alternatives 3   —  
Selling, general and administrative expenses, as adjusted $ 369   $ 375  
 
Selling, general and administrative expenses as percent of net sales, as reported 19.5 % 19.5 %
Selling, general and administrative expenses as percent of net sales, as adjusted 19.3 % 19.5 %
 
Operating profit, as reported $ 211 $ 244
Rationalization charges — 1
Kichler inventory step up adjustment — 5
Impairment charges for goodwill and other intangible assets 16 —
Professional fees related to strategic alternatives 3   —  
Operating profit, as adjusted $ 230   $ 250  
 
Operating margin, as reported 11.1 % 12.7 %
Operating margin, as adjusted 12.1 % 13.0 %
 

Historical information is available on our website.

 

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months Ended March 31, 2019 and 2018

 

(in millions, except per common share data)

 
Three Months Ended March 31,
2019   2018

Income Per Common Share Reconciliations

 
 
Income before income taxes, as reported $ 168 $ 200
Rationalization charges — 1
Kichler inventory step up adjustment — 5
Impairment charges for goodwill and other intangible assets 16 —
Professional fees related to strategic alternatives 3   —  
Income before income taxes, as adjusted 187 206
Tax at 25% rate (47 ) (52 )
Less: Net income attributable to noncontrolling interest 11   12  
Net income, as adjusted $ 129   $ 142  
 
Net income per common share, as adjusted $ 0.44   $ 0.45  
 
Average diluted common shares outstanding 294   313  
 
 

Outlook for the Twelve Months Ended December 31, 2019

 
Twelve Months Ended December 31, 2019
Low End   High End

Income Per Common Share Outlook

 
Net income per common share $ 2.52 $ 2.72
Rationalization charges 0.01 0.01
Impairment charges for goodwill and other intangible assets 0.04 0.04
Professional fees related to strategic alternatives 0.01 0.01
Allocation to participating securities per share (1) 0.02   0.02
Net income per common share, as adjusted $ 2.60   $ 2.80
 

(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

March 31, 2019 and December 31, 2018

 

(dollars in millions)

   
March 31, 2019 December 31, 2018
Balance Sheet
Assets
Current Assets:
Cash and cash investments $ 316 $ 559
Receivables 1,321 1,153
Inventories 1,011 946
Prepaid expenses and other 110   108
Total Current Assets 2,758 2,766
 
Property and equipment, net 1,222 1,223
Operating lease right-of-use assets 225 —
Goodwill 889 898
Other intangible assets, net 392 406
Other assets 116   100
Total Assets $ 5,602   $ 5,393
 
Liabilities
Current Liabilities:
Accounts payable $ 954 $ 926
Notes payable 295 8
Accrued liabilities 680   750
Total Current Liabilities 1,929 1,684
 
Long-term debt 2,771 2,971
Other liabilities 860   669
Total Liabilities 5,560 5,324
 
Equity 42   69
Total Liabilities and Equity $ 5,602   $ 5,393
 
 
As of March 31,
2019   2018
Other Financial Data
Working Capital Days
Receivable days 56 57
Inventory days 69 71
Payable days 72 71
Working capital $ 1,378 $ 1,398
Working capital as a % of sales (LTM) 16.5 % 18.0 %
 

Historical information is available on our website.

 

MASCO CORPORATION

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

For the Three Months Ended March 31, 2019 and 2018

 

(dollars in millions)

 
Three Months Ended March 31,
2019   2018
Cash Flows From (For) Operating Activities:
Cash provided by operating activities $ 183 $ 210
Working capital changes (314 ) (265 )
Net cash for operating activities (131 ) (55 )
 
Cash Flows From (For) Financing Activities:
Purchase of Company common stock (116 ) (150 )
Proceeds from revolving credit borrowings, net 87 —
Cash dividends paid (35 ) (33 )
Proceeds from the exercise of stock options 9 —
Employee withholding taxes paid on stock-based compensation (14 ) (32 )
Payment of debt (1 ) —
Credit Agreement and other financing costs (2 ) —  
Net cash for financing activities (72 ) (215 )
 
Cash Flows From (For) Investing Activities:
Capital expenditures (38 ) (40 )
Acquisition of business, net of cash acquired — (548 )
Other, net —   14  
Net cash for investing activities (38 ) (574 )
 
Effect of exchange rate changes on cash and cash investments (2 ) 20
 
Cash and Cash Investments:
Decrease for the period (243 ) (824 )
At January 1 559   1,194  
At March 31 $ 316   $ 370  
 
 
As of March 31,
2019   2018
Liquidity
Cash and cash investments $ 316 $ 370
Short-term bank deposits —   99
Total Liquidity $ 316   $ 469
 

Historical information is available on our website.

 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months Ended March 31, 2019 and 2018

 

(dollars in millions)

   
Three Months Ended March 31,
2019   2018 Change
Plumbing Products
Net sales $ 940   $ 971   (3)%
 
Operating profit, as reported $ 153 $ 163
Operating margin, as reported 16.3 % 16.8 %
 
Rationalization charges —   1  
Operating profit, as adjusted 153 164
Operating margin, as adjusted 16.3 % 16.9 %
 
Depreciation and amortization 19   18  
EBITDA, as adjusted $ 172   $ 182  
 
Decorative Architectural Products
Net sales $ 573   $ 545   5%
 
Operating profit, as reported $ 73 $ 89
Operating margin, as reported 12.7 % 16.3 %
 
Kichler inventory step up adjustment — 5
Impairment charge for other intangible assets 9   —  
Operating profit, as adjusted 82 94
Operating margin, as adjusted 14.3 % 17.2 %
 
Depreciation and amortization 10   5  
EBITDA, as adjusted $ 92   $ 99  
 
Cabinetry Products
Net sales $ 237   $ 217   9%
 
Operating profit, as reported $ 20 $ 6

Operating margin, as reported

8.4 % 2.8 %
 
Professional fees related to strategic alternatives 2   —  
Operating profit, as adjusted 22 6
Operating margin, as adjusted 9.3 % 2.8 %
 
Depreciation and amortization 3   3  
EBITDA, as adjusted $ 25   $ 9  
 

Historical information is available on our website.

 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months Ended March 31, 2019 and 2018

 

(dollars in millions)

   
Three Months Ended March 31,
2019   2018 Change
Windows and Other Specialty Products
Net sales $ 158   $ 187   (16)%
 
Operating (loss) profit, as reported $ (11 ) $ 4
Operating margin, as reported (7.0 )% 2.1 %
 
Impairment charge for goodwill 7 —
Professional fees related to strategic alternatives 1   —  
Operating (loss) profit, as adjusted (3 ) 4
Operating margin, as adjusted (1.9 )% 2.1 %
 
Depreciation and amortization 6   6  
EBITDA, as adjusted $ 3   $ 10  
 
Total
Net sales $ 1,908   $ 1,920   (1)%
 
Operating profit, as reported - segment $ 235 $ 262
General corporate expense, net (24 ) (18 )
Operating profit, as reported 211 244
Operating margin, as reported 11.1 % 12.7 %
 
Rationalization charges - segment — 1
Kichler inventory step up adjustment — 5
Impairment charges for goodwill and other intangible assets 16 —
Professional fees related to strategic alternatives 3   —  
Operating profit, as adjusted 230 250
Operating margin, as adjusted 12.1 % 13.0 %
 
Depreciation and amortization - segment 38 32
Depreciation and amortization - non-operating 2   2  
EBITDA, as adjusted $ 270   $ 284  
 

Historical information is available on our website.

 

MASCO CORPORATION

North American and International Data - Unaudited

For the Three Months Ended March 31, 2019 and 2018

 

(dollars in millions)

   
Three Months Ended March 31,
2019   2018 Change
North American
Net sales $ 1,535   $ 1,516   1%
 
Operating profit, as reported $ 202 $ 218
Operating margin, as reported 13.2 % 14.4 %
 
Rationalization charges — 1
Kichler inventory step up adjustment — 5
Impairment charge for other intangible assets 9 —
Professional fees related to strategic alternatives 3   —  
Operating profit, as adjusted 214 224
Operating margin, as adjusted 13.9 % 14.8 %
 
Depreciation and amortization 27   21  
EBITDA, as adjusted $ 241   $ 245  
 
International
Net sales $ 373   $ 404   (8)%
 
Operating profit, as reported $ 33 $ 44
Operating margin, as reported 8.8 % 10.9 %
 
Impairment charge for goodwill 7   —  
Operating profit, as adjusted 40 44
Operating margin, as adjusted 10.7 % 10.9 %
 
Depreciation and amortization 11   11  
EBITDA, as adjusted $ 51   $ 55  
 
Total
Net sales $ 1,908   $ 1,920   (1)%
 
Operating profit, as reported - segment $ 235 $ 262
General corporate expense, net (24 ) (18 )
Operating profit, as reported 211 244
Operating margin, as reported 11.1 % 12.7 %
 
Rationalization charges - segment — 1
Kichler inventory step up adjustment — 5
Impairment charges for goodwill and other intangible assets 16 —
Professional fees related to strategic alternatives 3   —  
Operating profit, as adjusted 230 250
Operating margin, as adjusted 12.1 % 13.0 %
 
Depreciation and amortization - segment 38 32
Depreciation and amortization - non-operating 2   2  
EBITDA, as adjusted $ 270   $ 284  
 

Historical information is available on our website.

 

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

Source: Masco Corporation

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