Masco Corporation Reports Third Quarter 2017 Results

Key Highlights

  • Sales for the third quarter increased 3 percent to $1.9 billion; in local currency, sales increased 2 percent
  • Operating profit for the quarter grew 10 percent to $295 million; adjusted operating profit grew 8 percent to $296 million
  • Earnings per share for the quarter grew 15 percent to $0.46 per common share; adjusted earnings per share grew 22 percent to $0.50 per common share
  • Updating 2017 earnings per share target to $1.93 to $1.97 from $1.93 to $2.00 per common share which reflects the impact of the severe hurricanes

LIVONIA, Mich.--()--Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported net sales and operating profit growth in the third quarter of 2017.

“We are pleased with our performance and the progress we made towards our growth initiatives during the quarter, especially in light of the impact from the severe hurricanes experienced in Texas, Florida, and Puerto Rico,” said Masco President and CEO, Keith Allman. “Growth was once again led by our Plumbing Products and Decorative Architectural Products segments, and we continued to invest in our strong plumbing brands and our pro paint initiative. Additionally, we returned approximately $210 million to shareholders through dividends and share repurchases in the quarter.”

2017 Third Quarter Commentary

  • On a reported basis, compared to third quarter 2016:
    • Net sales increased 3 percent to $1.9 billion; in local currency net sales increased 2 percent
    • In local currency, North American sales increased 2 percent and international sales increased 4 percent
    • Gross margins improved 90 basis points to 33.6 percent from 32.7 percent
    • Operating margins improved 90 basis points to 15.2 percent from 14.3 percent
    • Net income was $0.46 per common share compared to $0.40 per common share
  • Compared to third quarter 2016, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate of 34 percent (36 percent in 2016), were as follows:
    • Gross margins improved to 33.6 percent compared to 32.9 percent
    • Operating margins improved to 15.3 percent compared to 14.7 percent
    • Net income was $0.50 per common share, compared to $0.41 per common share
  • Liquidity at the end of the third quarter was approximately $1.2 billion
  • 4.0 million shares were repurchased in the third quarter

2017 Third Quarter Operating Segment Highlights

  • Plumbing Products’ net sales increased 6 percent (4 percent excluding the impact of foreign currency translation), driven by North American and international growth
  • Decorative Architectural Products’ net sales increased 3 percent with growth from Behr’s pro initiative and Liberty’s builders’ hardware business
  • Cabinetry Products’ net sales decreased 4 percent due to decreased sales to U.S. and U.K. builders
  • Windows and Other Specialty Products’ net sales were flat due to the divestiture of Arrow Fastener. Excluding the impact of this divestiture, net sales increased 9 percent, driven by strong sales of windows in North America

Outlook

“The demand drivers underlying our industry continue to be strong and very supportive of long-term growth,” said Allman. “The negative effects of the hurricanes are expected to be short-term for our business, and we are confident in our plans to leverage our strong brands, industry leading positions, and our Masco Operating System to capitalize on these robust, long-term demand drivers. Considering the impact of the severe weather experienced recently, we are updating our 2017 earnings per share target to a range of $1.93 to $1.97. Looking forward, we are committed to achieving our 2019 earnings per share target of $2.50 that we announced at our Investor Day in May.”

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; and Hot Spring® 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 2017 third 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, October 24, 2017 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 89235746. 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 89235746. The telephone replay will be available approximately two hours after the end of the call and continue through November 24, 2017.

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 “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 home improvement activity and new home construction, our ability to maintain our strong brands and to develop and introduce new and improved products, our ability to maintain our competitive position in our industries, our reliance on key customers, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to improve our under-performing U.S. window business, the cost and availability of raw materials, our dependence on third party suppliers, and risks associated with international operations and global strategies. 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. The forward-looking statements in this press release speak only as of the date of this press release. 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 Nine Months Ended September 30, 2017 and 2016
 
(in millions, except per common share data)
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
Net sales $ 1,936 $ 1,877 $ 5,770 $ 5,598
Cost of sales 1,286   1,263   3,775   3,715  
Gross profit 650 614 1,995 1,883
 
Selling, general and administrative expenses 355   345   1,090   1,045  
Operating profit 295 269 905 838
 
Other income (expense), net:
Interest expense (43 ) (43 ) (239 ) (186 )
Other, net 4   1   58   5  
(39 ) (42 ) (181 ) (181 )
Income before income taxes 256 227 724 657
 
Income tax expense 96   81   243   229  
Net income 160 146 481 428
Less: Net income attributable to noncontrolling interest 12   12   35   35  
Net income attributable to Masco Corporation $ 148   $ 134   $ 446   $ 393  
 
Income per common share attributable to Masco Corporation (diluted):
Net income $ 0.46   $ 0.40   $ 1.38   $ 1.17  
 
Average diluted common shares outstanding 316   329   319   332  
 

Historical information is available on our website.

   
MASCO CORPORATION
Exhibit A: Reconciliations - Unaudited
For the Three Months and Nine Months Ended September 30, 2017 and 2016
 

(in millions)

 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016

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

 
Net sales $ 1,936   $ 1,877   $ 5,770   $ 5,598  
 
Gross profit, as reported $ 650 $ 614 $ 1,995 $ 1,883
Rationalization charges 1   4   3   10  
Gross profit, as adjusted $ 651   $ 618   $ 1,998   $ 1,893  
 
Gross margin, as reported 33.6 % 32.7 % 34.6 % 33.6 %
Gross margin, as adjusted 33.6 % 32.9 % 34.6 % 33.8 %
 
Selling, general and administrative expenses, as reported $ 355 $ 345 $ 1,090 $ 1,045
Rationalization charges   2     6  
Selling, general and administrative expenses, as adjusted $ 355   $ 343   $ 1,090   $ 1,039  
 
Selling, general and administrative expenses as percent of net sales, as reported 18.3 % 18.4 % 18.9 % 18.7 %
Selling, general and administrative expenses as percent of net sales, as adjusted 18.3 % 18.3 % 18.9 % 18.6 %
 
Operating profit, as reported $ 295 $ 269 $ 905 $ 838
Rationalization charges 1   6   3   16  
Operating profit, as adjusted $ 296   $ 275   $ 908   $ 854  
 
Operating margin, as reported 15.2 % 14.3 % 15.7 % 15.0 %
Operating margin, as adjusted 15.3 % 14.7 % 15.7 % 15.3 %
 

Historical information is available on our website.

   

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Nine Months Ended September 30, 2017 and 2016

 

(in millions, except per common share data)

 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016   2017   2016

Income Per Common Share Reconciliations

   
 
Income before income taxes, as reported $ 256 $ 227 $ 724 $ 657
Rationalization charges 1 6 3 16
(Gain) from auction rate securities (1 )
(Gains) from private equity funds, net (1 ) (2 ) (2 )
(Earnings) from equity investments, net (1 ) (1 )
Impairment of private equity funds 2 2
Loss on extinguishment of debt 107
(Gain) on sale of business (2 )   (51 )  
Income before income taxes, as adjusted 257 232 782 669
Tax at 34% rate (36% for 2016) (87 ) (84 ) (266 ) (241 )
Less: Net income attributable to noncontrolling interest 12   12   35   35  
Net income, as adjusted $ 158   $ 136   $ 481   $ 393  
 
Net income per common share, as adjusted $ 0.50   $ 0.41   $ 1.51   $ 1.18  
 
Average diluted common shares outstanding 316   329   319   332  
 

Outlook for the Twelve Months Ended December 31, 2017

 
Twelve Months Ended
December 31, 2017
Low End   High End

Income Per Common Share Outlook

 
Net income per common share $ 1.80 $ 1.84
Loss on extinguishment of debt 0.22 0.22
(Gain) on sale of business (0.11 ) (0.11 )
Allocation to participating securities per share (1) 0.02   0.02  
Net income per common share, as adjusted $ 1.93   $ 1.97  
 

(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
September 30, 2017 and December 31, 2016
 
(dollars in millions)
 
September 30, 2017 December 31, 2016
Balance Sheet
Assets
Current Assets:
Cash and cash investments $ 1,141 $ 990
Short-term bank deposits 77 201
Receivables 1,128 917
Inventories 866 712
Prepaid expenses and other 96   114  
Total Current Assets 3,308 2,934
 
Property and equipment, net 1,097 1,060
Goodwill 801 832
Other intangible assets, net 156 154
Other assets 121   157  
Total Assets $ 5,483   $ 5,137  
 
Liabilities
Current Liabilities:
Accounts payable $ 916 $ 800
Notes payable 117 2
Accrued liabilities 675   658  
Total Current Liabilities 1,708 1,460
 
Long-term debt 2,969 2,995
Other liabilities 746   785  
Total Liabilities 5,423 5,240
 
Equity 60   (103 )
Total Liabilities and Equity $ 5,483   $ 5,137  
 

As of September 30,

2017

2016

Other Financial Data

Working Capital Days

Receivable days

51

50

Inventory days

63

56

Payable days

72

72

Working capital

$

1,078

$

946

Working capital as a % of sales (LTM)

14.3

%

12.9

%

 

Historical information is available on our website.

 
MASCO CORPORATION
Condensed Consolidated Statements of Cash Flows and Other Financial Data - Unaudited
For the Nine Months Ended September 30, 2017 and 2016
 
(dollars in millions)
 
Nine Months Ended September 30,
2017   2016
Cash Flows From (For) Operating Activities:
Cash provided by operating activities $ 745 $ 670
Working capital changes (278 ) (187 )
Net cash from operating activities 467   483  
 
Cash Flows From (For) Financing Activities:
Retirement of notes (535 ) (1,300 )
Purchase of Company common stock (312 ) (242 )
Cash dividends paid (96 ) (95 )
Dividend paid to noncontrolling interest (35 ) (31 )
Issuance of notes, net of issuance costs 593 889
Debt extinguishment costs (104 ) (40 )
Issuance of Company common stock 1
Employee withholding taxes paid on stock-based compensation (29 ) (40 )
Decrease in debt, net   (2 )
Net cash for financing activities (518 ) (860 )
 
Cash Flows From (For) Investing Activities:
Capital expenditures (113 ) (117 )
Proceeds from disposition of business 128
Other, net 142   77  

Net cash from (for) investing activities

157   (40 )
 
Effect of exchange rate changes on cash and cash investments 45 (10 )
 
Cash and Cash Investments:
Increase (decrease) for the period 151 (427 )
At January 1 990   1,468  
At September 30 $ 1,141   $ 1,041  
 

As of September 30,

2017

2016

Liquidity

Cash and cash investments

$

1,141

$

1,041

Short-term bank deposits

 

77

   

182

 

Total Liquidity

$

1,218

 

$

1,223

 
 

Historical information is available on our website.

       

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Nine Months Ended September 30, 2017 and 2016

 

(dollars in millions)

 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 Change 2017   2016 Change
Plumbing Products
Net sales $ 951   $ 899   6 % $ 2,763   $ 2,635   5 %
 
Operating profit, as reported $ 175 $ 174 $ 529 $ 491
Operating margin, as reported 18.4 % 19.4 % 19.1 % 18.6 %
 
Rationalization charges 5 11
Accelerated depreciation related to rationalization activity 1     1    
Operating profit, as adjusted 176 179 530 502
Operating margin, as adjusted 18.5 % 19.9 % 19.2 % 19.1 %
 
Depreciation and amortization 16   14   45   42  
 
EBITDA, as adjusted $ 192   $ 193   $ 575   $ 544  
 
Decorative Architectural Products
Net sales $ 553   $ 536   3 % $ 1,711   $ 1,649   4 %
 
Operating profit, as reported $ 104 $ 111 $ 346 $ 355
Operating margin, as reported 18.8 % 20.7 % 20.2 % 21.5 %
 
Depreciation and amortization 4   4   12   12  
 
EBITDA $ 108   $ 115   $ 358   $ 367  
 
Cabinetry Products
Net sales $ 229   $ 239   (4 )% $ 711   $ 736   (3 )%
 
Operating profit, as reported $ 19 $ 19 $ 65 $ 77
Operating margin, as reported 8.3 % 7.9 % 9.1 % 10.5 %
 
Rationalization charges 2 4
Accelerated depreciation related to rationalization activity   1     1  
Operating profit, as adjusted 19 20 67 82
Operating margin, as adjusted 8.3 % 8.4 % 9.4 % 11.1 %
 
Depreciation and amortization 3   4   11   14  
 
EBITDA, as adjusted $ 22   $ 24   $ 78   $ 96  
 

Historical information is available on our website.

 
MASCO CORPORATION
Segment Data - Unaudited
For the Three Months and Nine Months Ended September 30, 2017 and 2016
 
(dollars in millions)
       
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 Change 2017   2016 Change
Windows and Other Specialty Products
Net sales $ 203   $ 203   % $ 585   $ 578   1 %
 
Operating profit (loss), as reported $ 23 $ (10 ) $ 47 $ (9 )
Operating margin, as reported 11.3 % (4.9 )% 8.0 % (1.6 )%
 
Depreciation and amortization 5   6   16   16  
 
EBITDA $ 28   $ (4 ) $ 63   $ 7  
 
Total
Net sales $ 1,936   $ 1,877  

 

% $ 5,770   $ 5,598   3 %
 
Operating profit, as reported - segment $ 321 $ 294 $ 987 $ 914
General corporate expense, net (GCE) (26 ) (25 ) (82 ) (76 )
Operating profit, as reported 295 269 905 838
Operating margin, as reported 15.2 % 14.3 % 15.7 % 15.0 %
 
Rationalization charges - segment 5 2 15
Accelerated depreciation - segment 1   1   1   1  
Operating profit, as adjusted 296 275

 

908 854

 

Operating margin, as adjusted 15.3 % 14.7 % 15.7 % 15.3 %
 
Depreciation and amortization - segment 28 28 84 84
Depreciation and amortization - non-operating 2   5   10   15  
 

EBITDA, as adjusted

$ 326   $ 308   $ 1,002   $ 953  
 

Historical information is available on our website.

       
MASCO CORPORATION
North American and International Data - Unaudited
For the Three Months and Nine Months Ended September 30, 2017 and 2016
 
(dollars in millions)
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 Change   2017   2016 Change
North American
Net sales $ 1,529   $ 1,497   2 % $ 4,600   $ 4,445   3 %
 
Operating profit, as reported $ 266 $ 235 $ 835 $ 749
Operating margin, as reported 17.4 % 15.7 % 18.2 % 16.9 %
 
Rationalization charges 4 2 11
Accelerated depreciation related to rationalization activity 1   1   1   1  
Operating profit, as adjusted 267 240 838 761
Operating margin, as adjusted 17.5 % 16.0 % 18.2 % 17.1 %
 
Depreciation and amortization 18   19   56   57  
 
EBITDA, as adjusted $ 285   $ 259   $ 894   $ 818  
 
International
Net sales $ 407   $ 380   7 % $ 1,170   $ 1,153   1 %
 
Operating profit, as reported $ 55 $ 59 $ 152 $ 165
Operating margin, as reported 13.5 % 15.5 % 13.0 % 14.3 %
 
Rationalization charges   1     4  
Operating profit, as adjusted 55 60 152 169
Operating margin, as adjusted 13.5 % 15.8 % 13.0 % 14.7 %
 
Depreciation and amortization 10   9   28   27  
 
EBITDA, as adjusted $ 65   $ 69   $ 180   $ 196  
 
Total
Net sales $ 1,936   $ 1,877   3 % $ 5,770   $ 5,598   3 %
 
Operating profit, as reported - segment $ 321 $ 294 $ 987 $ 914
General corporate expense, net (GCE) (26 ) (25 ) (82 ) (76 )
Operating profit, as reported 295 269 905 838
Operating margin, as reported 15.2 % 14.3 % 15.7 % 15.0 %
 
Rationalization charges - segment 5 2 15
Accelerated depreciation - segment 1   1   1   1  
Operating profit, as adjusted 296 275 908 854
Operating margin, as adjusted 15.3 % 14.7 % 15.7 % 15.3 %
 
Depreciation and amortization - segment 28 28 84 84
Depreciation and amortization - non-operating 2   5   10   15  
 
EBITDA, as adjusted $ 326   $ 308   $ 1,002   $ 953  
 

Historical information is available on our website.

Contacts

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

Contacts

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