Q3 2012 Masco Earnings Presentation

Third Quarter 2012Masco Earnings Presentation

October 30, 2012

2

Safe Harbor Statement

Written and oral statements made in this presentation that reflect our views about our future performance 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. 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 forward-looking 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, and our ability to achieve cost savings through business rationalizations and other initiatives. These and other factors are discussed in detail in Item 1A, “Risk Factors” in our 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.

Certain of the financial and statistical data included in this presentation and the related materials are non-GAAP financial measures as defined under Regulation G. The Company believes that non-GAAP performance measures and ratios used in managing the business may provide attendees of this presentation 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 SEC and is available on Masco’s Web Site, www.masco.com.

http://www.masco.com/

3

Masco Q3 2012 Results – Agenda

Topic

• Summary of Results Tim Wadhams

• Financial/Operations Review John Sznewajs

• Outlook Tim Wadhams

• Q&A

4

Key Messages Today

• Strengthening new home construction activity positively impacting sales

• Sales growth in North America of 4% offset by challenging economic conditions in Europe

• Repair and remodel activity improved modestly; big ticket remodel remains weak

• Successful execution on price/commodity relationships and total cost productivity continue to improve margins

5

Masco’s Strategic Initiatives

Outperformthe

recovery

• Leverage brands

• Innovative productsExpand market leadership

• Total cost productivity

• Drive lean benefitsReduce costs

• Focus on Cabinets, Installation

• Return to profitability

Improve underperforming businesses

1

2

3

• Debt reduction

• Strong liquidityStrengthen Balance Sheet

4

6

Strategy Execution Highlights

Expand market leadership

Reduce costs

Improve underperforming businesses

1

2

3

Strengthen Balance Sheet

4

• New Delta brand extensions at retail with toilets

• Expansion of Behr Paint with The Home Depot Mexico

• New Builder’s Hardware programs driving share gains

• Exceeding total cost productivity targets

• Additional headcount reductions and plant closures

• Installation segment nearly break even in Q3

• Additional rationalization actions taken in the Cabinet segment

• Debt pay down in July 2012

• Cash at 9/30/2012 is $1.2 billion

7

Laser Focus on Achieving Breakeven

Cabinets YTD operating profit improvement of $20M, principally

driven by cost reductions in North America

Benefits from increased new home construction activity offset by:

• Market conditions in European economies

• Challenges implementing North American dealer and countertop strategies

Plant closure and headcount reduction actions announced in the third quarter expected to reduce costs by $20M annually

Installation

Almost breakeven in Q3 2012

YTD operating profit improvement of $41M driven by new home construction activity, cost reductions from lean, ERP leverage, and supply chain management

Continued penetration of retrofit and commercial channels

8


Topic




• Q&A

9

Profit Margin Growth on Flat Sales

($ in Millions)Third Quarter

2012

Revenue Y-O-Y Change

$1,976 (0%)*

Adjusted Operating Profit** Y-O-Y Change

$142$14

Adjusted Operating Margin** Y-O-Y Change

7.2%70 bps

Adjusted EPS** $0.13

*Excluding the effect of currency, third quarter 2012 sales increased 2% compared to 2011.

** As reported operating profit $101M; operating margin 5.1%; E.P.S. of $.06; see appendix for reconciliation.

10

Q3 2012 Operating Profit Reflects Successful Price/ Commodity Management

Y-O-Y Change in AdjustedOperating Profit $14M

*See appendix for reconciliation

Q3 2011Adjusted Op-erating Profit*

Net Price / Commodity

Net Total Cost Produc-

tivity

Net Volume / Mix

Q3 2012Adjusted Op-erating Profit*

$128M

$31M $(1M) $(16M) $142M

11

Plumbing Products: Strong Performance in North American Faucets

Highlights

• Sales of North American faucets increased high single digits

• International sales flat in local currency

• Margin negatively impacted by:

• Incremental program costs of $5 million

• Currency of $5 million


2012


$736(4%)*

Adjusted Operating Profit**Y-O-Y Change

$81($11)

Adjusted Operating Margin**Y-O-Y Change

11%(100) bps

*Excluding the effect of currency, third quarter sales 2012 increased 1% compared to 2011.**Excludes business rationalization charges of $6M and $1M in the third quarter of 2012 and 2011, respectively.

12

Decorative Architectural Products:Top Line Growth, Y-O-Y Margin Improvement

Highlights

• Revenues benefitted by Behr Paint and Primer in One sales and price increases

• Operating profit margin impacted by favorable price/commodity relationship and improved results in Builder’s Hardware


2012

Revenue Growth

$4816%

Operating Profit Y-O-Y Change

$96$8

Operating MarginY-O-Y Change

20.0%70 bps

13

Cabinets and Related Products:International Weakness Slowing Segment Improvement

Highlights

• North American new home construction and home center sales strength offset by weaker dealer sales

• International sales impacted by continued weak European macro-economic conditions

• North American profit improvement partially offset by International results


2012


$291(5%)*

Adjusted Operating Loss**Y-O-Y Change

$(26)$1

Adjusted Operating Margin** Y-O-Y Change

(8.9%)(10) bps

*Excluding the effect of currency, third quarter 2012 sales decreased 2% compared to 2011.**Excludes business rationalization charges of $9M and $7M in the third quarter of 2012 and 2011, respectively.

14

Installation and Other Services: Strong Execution Reflected in Top & Bottom Line Performance

Highlights

• Continued growth in new home construction, commercial and retrofit

• Strong insulation installation sales growth of ~20%

• Margins reflect operating leverage and profit improvement initiatives


2012

Revenue Growth

$3129%

Adjusted Operating LossY-O-Y Change*

($1)$12

Adjusted Operating MarginY-O-Y Change*

(0.3%)420 bps

*Excludes business rationalization charges of $1M and $2M in the third quarter of 2012 and 2011, respectively.

15

Other Specialty Products:Strong North American Window Performance

Highlights

• North American window sales increased high single digits driven by new home construction and replacement window sales, partially offset by the exit of select US window markets in late 2011

• Margin improvement fueled by profit improvement initiatives

• Softness in hand tools sales principally driven by a weaker roofing market


2012


$156(3%)

Adjusted Operating Profit*Y-O-Y Change

$16$2

Adjusted Operating Margin* Y-O-Y Change

10.3%160 bps

*Excludes business rationalization charges of $1M and $2M in the third quarter of 2012 and 2011, respectively. Also excludes warranty change in estimate of $12M in the third quarter of 2012.

16


Topic




• Q&A

17

Delivering on 2012 Priorities – Q3 Highlights

Investment in strategic growth initiatives

Geographic expansion

Total cost productivity

Reduce debt by ~$400M/refinance $400M

Cabinet profit improvement

Installation profit improvement

Grow share of key brands

Successfully launch new products and programs

üü

üü

ü

ü

üü

18

Outlook

Tailwinds Headwinds

• Improving demand in new home construction

• Successful product introductions at retail

• Favorable price/commodity relationships

• Improved balance sheet

• Additional profit improvement opportunities identified and actions taken

• Continued slow economic activity in European economies

• Aggressive promotional environment at retail

• International Plumbing mix impact

• Commodity cost volatility

• Slow and uneven recovery in U.S. repair and remodel activity

Q&A

Appendix

21

Appendix – Profit Reconciliation($ in Millions) Q3 2012 Q3 2011

Sales $ 1,976 $ 1,978

Gross Profit – As Reported $ 500 $ 495

Rationalization Charges 11 8

Other Specialty Products - Warranty 12 -

Gross Profit – As Adjusted $ 523 $ 503

Gross Margin - As Reported 25.3% 25.0%

Gross Margin - As Adjusted 26.5% 25.4%

Operating Income – As Reported $ 101 $ 114


Litigation Charge 1 1


Operating Profit – As Adjusted $ 142 $ 128

Operating Margin - As Reported 5.1% 5.8%

Operating Margin - As Adjusted 7.2% 6.5%

22

Appendix – EPS Reconciliation

(in Millions) Q3 2012 Q3 2011

Income from Continuing Operations before Income Taxes – As Reported $ 45 $ 73


Litigation Charge 1 1

Financial Investment (Income), Net (2) (19)


Income from Continuing Operations before Income Taxes – As Adjusted 84 68

Tax at 36% rate benefit (expense) (30) (24)

Less: Net income attributable to non-controlling interest (9) (13)

Net Income – as adjusted $ 45 $ 31

Income per common share – as adjusted $ 0.13 $ 0.09

Shares 350 348

($ in Millions) 2012 Estimate 2011 Actual

Rationalization Charges1

~ $65 $121

Tax Rate2 ~ 110% 18%

Interest Expense ~ $250 $254

General Corp. Expense3 ~ $125 $118

Capital Expenditures ~ $130 $151

Depreciation & Amortization4

~ $210 $263

Outstanding Shares 350 million 348 million

2012 Guidance Estimates

1 – Based on current business plans.

2 – Tax rate for 2011 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge for goodwill and other intangible assets.

3 – Excludes rationalization expenses of $11M incurred through September 30, 2012.

4 – Includes accelerated depreciation of $58M for the year ended December 31, 2011 and $12M for the nine months ended September 30, 2012. Such expenses are also included in the rationalization charges.23

Documents

Q3 2012 Masco Earnings Presentation