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Masco Q3 2015 Earnings Report

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Third Quarter Earnings Presentation October 27, 2015


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Safe Harbor Statement Statements contained in this presentation that reflect our views about our future performance constitute “forwardlooking 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. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forwardlooking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by our reliance on new home construction and home improvement, our reliance on key customers, the cost and availability of raw materials, uncertainty in the international economy, shifts in consumer preferences and purchasing practices, our ability to improve our underperforming businesses, our ability to maintain our competitive position in our industries, the timing and terms of our share repurchase program, and our ability to reduce corporate expense and simplify our organizational structure. We discuss many of the risks we face 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. Our forward-looking statements in this presentation speak only as of the date of this presentation. 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. The Company believes that the non-GAAP performance measures and ratios that are 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. 2


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Masco Q3 2015 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Q&A 3


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Q3 2015 IN REVIEW Improved Demand, Operating Leverage and Cost Control Drove Performance • Capitalized on improving end market demand • Operating leverage and cost productivity drove profit margin expansion Driving Performance • Disciplined cost control despite underlying top line growth • Cabinets accelerated its turnaround and positioned business for disciplined growth • 7.6 million shares repurchased 4


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Masco Q3 2015 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Q&A 5


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Strong Profitability Across All Segments ($ in Millions) Revenue Y-O-Y Change Operating Profit* Third Quarter 2015 $1,839 0% $257 Y-O-Y Change 16% Operating Margin* 14% Y-O-Y Change 190 bps Adjusted EPS* $0.34 Y-O-Y Change 26% *See Appendix for GAAP reconciliation. Quarter Highlights • Total company sales increased 4% excluding the effects of foreign currency translation • North American sales increased 3%; International increased 4% in local currency • FX negatively impacted sales by $66 million and profit by $10 million 6


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PLUMBING PRODUCTS Retail and Trade Demand Drove Growth ($ in Millions) Revenue Y-O-Y Change Operating Profit* Y-O-Y Change Third Quarter 2015 $853 0% $138 (2%) Operating Margin* 16.2% Y-O-Y Change - 30 bps *Excludes business rationalization charges for the third quarter 2015 of $1 million Quarter Highlights • North American sales increased 8% excluding the impact of Canadian currency; International sales increased 4% in local currency • FX negatively impacted sales by approximately $57 million and profit by $7 million • Continued strong performance in retail and trade channels • Commodity hedge negatively impacted operating profit by $9 million 7


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D E C O R AT I V E A R C H I T E C T U R A L P R O D U C T S Pro Paint Continues to Gain Momentum ($ in Millions) Revenue Y-O-Y Change Operating Profit Y-O-Y Change Third Quarter 2015 $527 1% $102 12% Operating Margin 19.4% Y-O-Y Change 200 bps Quarter Highlights • Behr Pro and core DIY growth partially offset by promotion expense • Realized low to mid-single digit gallon growth in the quarter • Sourcing and lean initiatives drove profit growth 8


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C A B I N E T S A N D R E L AT E D P R O D U C T S Business Turnaround Accelerating ($ in Millions) Revenue Third Quarter 2015 $253 Y-O-Y Change (5%) Operating Profit* $19 Y-O-Y Change N/M Operating Margin* Y-O-Y Change 7.5% 1,010 bps *Excludes business rationalization charges for the third quarter 2015 and 2014 of $1 million and $28 million, respectively and gain from sale of property and equipment for the third quarter 2015 of $3 million Quarter Highlights • Strong retail sales offset by the exit of certain less profitable direct to builder business • KraftMaid® Vantage continued to perform in the dealer channel resulting in positive mix • Improved operating efficiencies drove substantial margin expansion 9


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O T H E R S P E C I A LT Y P R O D U C T S Strong Milgard Window Performance ($ in Millions) Revenue Y-O-Y Change Operating Profit Y-O-Y Change Third Quarter 2015 $206 8% $23 15% Operating Margin 11.2% Y-O-Y Change 70 bps Quarter Highlights • Sales increased 11% excluding the effects of foreign currency translation • North American windows delivered strong growth across all channels and improved mix 10


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Strong Balance Sheet and Disciplined Capital Allocation Liquidity as of 9/30/2015 Cash and cash investments $1.3B Short-term bank deposits $0.2B Total $1.5B Q3 2015 Accomplishments • Repurchased approximately 7.6 million shares 11


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Masco Q3 2015 Results Topic • Summary of Results Keith Allman • Financial/Operations Review John Sznewajs • Q&A 12


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Q&A


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Appendix


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Appendix – Profit Reconciliation – Third Quarter ($ in Millions) Q3 2015 Q3 2014 Net Sales $ 1,839 $ 1,834 Gross Profit – As Reported $ 589 $ 522 Rationalization charges Gain on sale of property and equipment Gross Profit – As Adjusted 1 (3) $ Gross Margin - As Reported Gross Margin - As Adjusted Selling, General and Administrative Expenses – As Reported $ $ Operating Margin - As Reported Operating Margin - As Adjusted $ 330 $ 258 $ 257 14.0% 14.0% 328 18.6% 17.9% $ 2 (3) $ 341 13 18.0% 17.9% Rationalization charges Gain on sale of property and equipment Operating Profit – As Adjusted 331 550 28.5% 30.0% 1 Selling, General and Administrative Expenses as Percent of Net Sales – As Reported Selling, General and Administrative Expenses as Percent of Net Sales – As Adjusted Operating Profit – As Reported $ 32.0% 31.9% Rationalization charges Selling, General and Administrative Expenses – As Adjusted 587 28 - 181 41 - $ 222 9.9% 12.1% 15


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Appendix – EPS Reconciliation – Third Quarter (in Millions, Except per Common Share Data) Income from Continuing Operations before Income Taxes – As Reported Q3 2015 $ Rationalization charges Q3 2014 198 $ 131 2 41 Gains from financial investments, net (1) - Gain on sale of property and equipment (3) - Income from Continuing Operations before Income Taxes – As Adjusted $ Tax at 36% rate 196 $ 172 (71) 10 Less: Net income attributable to noncontrolling interest (62) 13 Income from Continuing Operations, as adjusted $ 115 $ 97 Income per common share, as adjusted $ 0.34 $ 0.27 Average Diluted Shares Outstanding 338 353 16


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2015 Guidance Estimates 2015 Estimate1 2014 Actual1 Rationalization Charges2, 3 ~ $14 $64 Tax Rate4 ~ 40% 34% Interest Expense ~ $225 $225 General Corp. Expense5 ~ $100 $119 Capital Expenditures ~ $160 $115 Depreciation & Amortization3 ~ $130 $141 Shares Repurchased6 $400-500 $158 Shares Outstanding7 344 million 352 million ($ in Millions) 1. 2. 3. 4. 5. 6. 7. Guidance and 2014 results exclude TopBuild. Based on 2015 business plans. Includes accelerated depreciation of $1 million for the year ended December 31, 2014. Such expense is also included in the rationalization charges. 2015 tax rate is impacted by an $18 million valuation allowance as a result of our decision to spin off TopBuild. 2014 tax rate excludes the $529 million release of the valuation allowance. Excludes rationalization expenses of $27 million for the year ended December 31, 2014 and $4 million (estimated) for the year ended December 31, 2015. 2015 and 2014 share repurchases include approximately 720,000 and 1.7 million shares, respectively, to offset grants of long-term stock awards. Reflects weighted average shares outstanding as of September 30, 2015 and assumes no further share repurchases in 2015. 17


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2014 Segment Mix* Business Segment Revenue 2014 % of Total R&R% vs. NC NA% vs. Int’l Plumbing Products $3.3B 47% 82% 59% Decorative Architectural Products $2.0B 29% 99% 100% Cabinets and Related Products $1.0B 14% 55% 91% Other Specialty Products $0.7B 10% 74% 74% $ 7.0B 100% 82% 77% Total Company R&R = % of sales to repair and remodel channels NC = % of sales to new construction channels NA = % of sales within North America Int’l = % of sales outside North America * Based on Company estimates; excludes TopBuild Corp. 18


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2014 International Revenue Split* 9% 28% 14% UK Northern Europe Southern Europe Central Europe Eastern Europe 9% 5% Emerging markets Other 10% 25% International Sales Accounted for ~23% of Total 2014 Masco Sales *Based on Company estimates; excludes TopBuild Corp. 19


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