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Masco Corporation Reports Fourth Quarter and 2018 Year-End Results

February 7, 2019 7:00 AM

2018 Fourth Quarter Key Highlights

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 for the fourth quarter and full year of 2018.

2018 Fourth Quarter Commentary

2018 Fourth Quarter Operating Segment Highlights

“We delivered strong sales and profit growth in the fourth quarter of 2018, despite an increasingly challenging environment,” said Keith Allman, Masco’s President and CEO. “This growth was led by our Plumbing and Decorative Architectural Products segments. Additionally, we returned $336 million to shareholders through share buybacks and dividends during the quarter.”

2018 Full Year Key Highlights

2018 Full Year Commentary

“We continued to execute on our long-term growth and capital allocation strategies to deliver strong sales, operating profit, and earnings per share growth in 2018, despite significant headwinds from increased commodity and logistics costs,” said Allman. “We achieved top- and bottom-line growth in our Plumbing Products segment led by strong 8 percent sales growth in North America. We grew sales and operating profit in our Decorative Architectural Products segment with the acquisition of Kichler Lighting, and continued growth in our paints and other coating products and builders’ hardware businesses. Our Cabinetry Products segment returned to growth in 2018 driven by its significant new retail program win, and we grew our Windows and Other Specialty Products segment excluding divestitures. We also continued our balanced capital allocation strategy by completing the $549 million acquisition of Kichler Lighting, repurchasing 18.6 million shares for $654 million, increasing our dividend for the fifth year in a row, and reducing debt by $106 million.”

“While we expect growth in some of our markets to moderate in 2019, we believe we are well positioned to drive profitable growth and create shareholder value by continuing to execute on our strategies in 2019,” continued Allman. “The fundamentals of the repair and remodel industry, which represents approximately 85% of our business, remain strong, and we anticipate our adjusted earnings per share to be in the range of $2.60 to $2.80 for 2019.”

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 2018 fourth quarter and full year supplemental material, including a presentation in PDF format, is available on the Company’s website at www.masco.com.

Conference Call Details

A conference call regarding items contained in this release is scheduled for Thursday, February�7, 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 9775649. The conference call will be webcast simultaneously and in its entirety through the Company’s website. Shareholders, media representatives and others interested in Masco may participate in the webcast by registering through the Investor Relations section on the Company’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 9775649. The telephone replay will be available approximately two hours after the end of the call and continue through March 9, 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 “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.

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MASCO CORPORATION
Condensed Consolidated Statements of Operations - Unaudited
For the Three Months and Years Ended December 31, 2018 and 2017

�

(in millions, except per common share data)

�
Three Months Ended
December 31, 		Year Ended
December 31,
2018 � 2017 2018 � 2017
Net sales $ 2,041 $ 1,853 $ 8,359 $ 7,642
Cost of sales 1,388 � 1,249 � 5,670 � 5,030 �
Gross profit 653 604 2,689 2,612
�
Selling, general and administrative expenses 344 � 348 � 1,478 � 1,418 �
Operating profit 309 256 1,211 1,194
�
Other income (expense), net:
Interest expense (39 ) (39 ) (156 ) (278 )
Other, net (2 ) (69 ) (13 ) (32 )
(41 ) (108 ) (169 ) (310 )
Income before income taxes 268 148 1,042 884
�
Income tax expense 60 � 56 � 258 � 304 �
Net income 208 92 784 580
�
Less: Net income attributable to noncontrolling interest 14 � 12 � 50 � 47 �
Net income attributable to Masco Corporation $ 194 � $ 80 � $ 734 � $ 533 �
�
Income per common share attributable to Masco Corporation (diluted): � � � �
Net income $ 0.64 � $ 0.25 � $ 2.37 � $ 1.66 �
�
Average diluted common shares outstanding 299 � 314 � 307 � 318 �

Historical information is available on our website.

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MASCO CORPORATION
Exhibit A: Reconciliations - Unaudited
For the Three Months and Years Ended December 31, 2018 and 2017
�
(dollars in millions)
�
Three Months Ended
December 31, 		Year Ended
December 31,
2018 � 2017 2018 � 2017

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

�
Net sales $ 2,041 � $ 1,853 � $ 8,359 � $ 7,642 �
�
Gross profit, as reported $ 653 $ 604 $ 2,689 $ 2,612
Rationalization charges 6 1 14 4
Kichler inventory step up adjustment — � — � 40 � — �
Gross profit, as adjusted $ 659 � $ 605 � $ 2,743 � $ 2,616 �
�
Gross margin, as reported 32.0 % 32.6 % 32.2 % 34.2 %
Gross margin, as adjusted 32.3 % 32.6 % 32.8 % 34.2 %
�
Selling, general and administrative expenses, as reported $ 344 � $ 348 � $ 1,478 � $ 1,418 �
�
Selling, general and administrative expenses as percent of net sales, as reported 16.9 % 18.8 % 17.7 % 18.6 %
�
Operating profit, as reported $ 309 $ 256 $ 1,211 $ 1,194
Rationalization charges 6 1 14 4
Kichler inventory step up adjustment — � — � 40 � — �
Operating profit, as adjusted $ 315 � $ 257 � � $ 1,265 � $ 1,198 �
�
Operating margin, as reported 15.1 % 13.8 % 14.5 % 15.6 %
Operating margin, as adjusted 15.4 % 13.9 % 15.1 % 15.7 %
� Year Ended
December 31, 2018

Free Cash Flow Reconciliation and Free Cash Flow Conversion Rate

�
Net cash from operating activities $ 1,032
Capital expenditures (219 )
Displays (10 )
Free Cash Flow $ 803 �
�
Net income $ 784
�
Free cash flow conversion rate 102 %

Historical information is available on our website.

�

�

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Years Ended December 31, 2018 and 2017

�

(in millions, except per common share data)

�
Three Months Ended
December 31, 		Year Ended
December 31,
2018 � 2017 2018 � 2017

Income Per Common Share Reconciliation

�
Income before income taxes, as reported $ 268 $ 148 $ 1,042 $ 884
Rationalization charges 6 1 14 4
Kichler inventory step up adjustment — — 40 —
(Gains) from private equity funds, net (1 ) (1 ) (1 ) (3 )
(Earnings) from equity investments, net (1 ) — (3 ) (1 )
Impairment of private equity funds — — — 2
Loss on extinguishment of debt — — — 107
Loss on sales of businesses, net — � 64 � — � 13 �
Income before income taxes, as adjusted 272 212 1,092 1,006
Tax at 25% rate (34% for 2017) (68 ) (72 ) (273 ) (342 )
Less: Net income attributable to noncontrolling interest 14 � 12 � 50 � 47 �
Net income, as adjusted $ 190 � $ 128 � $ 769 � $ 617 �
�
Net income per common share, as adjusted $ 0.64 � $ 0.41 � $ 2.50 � $ 1.94 �
�
Average diluted common shares outstanding 299 � 314 � 307 � 318 �
�

Outlook for the Year Ended December 31, 2019

�
Year Ended
December 31, 2019
Low End � High End

Income Per Common Share Reconciliation

�
Net income per common share $ 2.56 $ 2.76
Rationalization charges 0.01 0.01
Allocation to participating securities per share (1) 0.03 � 0.03
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.

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MASCO CORPORATION
Condensed Consolidated Balance Sheets and Other Financial Data - Unaudited
December 31, 2018 and 2017
�
(dollars in millions)
�
December 31, December 31,
2018 2017
Balance Sheet
Assets
Current Assets:
Cash and cash investments $ 559 $ 1,194
Short-term bank deposits — 108
Receivables 1,153 1,066
Inventories 946 784
Prepaid expenses and other 108 � 111
Total Current Assets 2,766 3,263
�
Property and equipment, net 1,223 1,129
Goodwill 898 841
Other intangible assets, net 406 187
Other assets 100 � 114
Total Assets $ 5,393 � $ 5,534
�
Liabilities
Current Liabilities:
Accounts payable $ 926 $ 824
Notes payable 8 116
Accrued liabilities 750 � 727
Total Current Liabilities 1,684 1,667
�
Long-term debt 2,971 2,969
Other liabilities 669 � 715
Total Liabilities 5,324 5,351
�
Equity 69 � 183
Total Liabilities and Equity $ 5,393 � $ 5,534
�
As of
December 31, � December 31,
2018 2017
Other Financial Data
Working Capital Days
Receivable days 53 51
Inventory days 64 59
Payable days 71 72
Working capital $ 1,173 $ 1,026
Working capital as a % of sales (LTM) 14.0 % 13.4 %

Historical information is available on our website.

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MASCO CORPORATION
Condensed Consolidated Statements of Cash Flows and Other Financial Data - Unaudited
For the Years Ended December 31, 2018 and 2017
�
(dollars in millions)
�
Year Ended
December 31,
2018 � 2017
Cash Flows From (For) Operating Activities:
Cash provided by operating activities $ 981 $ 902
Working capital changes 51 � (151 )
Net cash from operating activities 1,032 � 751 �
�
Cash Flows From (For) Financing Activities:
Retirement of notes (114 ) (535 )
Purchase of Company common stock (654 ) (331 )
Cash dividends paid (134 ) (129 )
Dividends paid to noncontrolling interest (89 ) (35 )
Issuance of notes, net of issuance costs — 593
Decrease in debt, net (1 ) (3 )
Debt extinguishment costs — (104 )
Proceeds from the exercise of stock options 14 —
Employee withholding taxes paid on stock-based compensation (42 ) (33 )
Net cash for financing activities (1,020 ) (577 )
�
Cash Flows From (For) Investing Activities:
Capital expenditures (219 ) (173 )
Acquisition of businesses, net of cash acquired (549 ) (89 )
Proceeds from disposition of businesses, net of cash disposed — 128
Other, net 117 � 109 �
Net cash for investing activities (651 ) (25 )
�
Effect of exchange rate changes on cash and cash investments 4 55
�
Cash and Cash Investments:
(Decrease) increase for the period (635 ) 204
At January 1 1,194 � 990 �
At December 31 $ 559 � $ 1,194 �
�
As of
December 31, � December 31,
2018 2017
Liquidity
Cash and cash investments $ 559 $ 1,194
Short-term bank deposits — � 108
Total Liquidity $ 559 � $ 1,302

Historical information is available on our website.

� � �
MASCO CORPORATION
Segment Data - Unaudited
For the Three Months and Years Ended December 31, 2018 and 2017
�
(dollars in millions)
�
Three Months Ended
December 31, 		Year Ended
December 31,
2018 � 2017 Change 2018 � 2017 Change
Plumbing Products
Net sales $ 1,003 � $ 961 � 4 % $ 3,998 � $ 3,732 � 7 %
�
Operating profit, as reported $ 181 $ 165 $ 715 $ 702
Operating margin, as reported 18.0 % 17.2 % 17.9 % 18.8 %
�
Rationalization charges 3 1 7 1
Accelerated depreciation related to rationalization activity 1 � — � 2 � 1 �
Operating profit, as adjusted 185 166 724 704
Operating margin, as adjusted 18.4 % 17.3 % 18.1 % 18.9 %
�
Depreciation and amortization 19 � 17 � 75 � 62 �
EBITDA, as adjusted $ 204 � $ 183 � $ 799 � $ 766 �
�
Decorative Architectural Products
Net sales $ 632 � $ 487 � 30 % $ 2,656 � $ 2,206 � 20 %
�
Operating profit, as reported $ 118 $ 83 $ 456 $ 438
Operating margin, as reported 18.7 % 17.0 % 17.2 % 19.9 %
�
Kichler inventory step up adjustment — � — � 40 � — �
Operating profit, as adjusted 118 83 496 438
Operating margin, as adjusted 18.7 % 17.0 % 18.7 % 19.9 %
�
Depreciation and amortization 10 � 4 � 35 � 16 �
EBITDA, as adjusted $ 128 � $ 87 � $ 531 � $ 454 �
�
Cabinetry Products
Net sales $ 226 � $ 223 � 1 % $ 950 � $ 934 � 2 %
�
Operating profit, as reported $ 24 $ 25 $ 86 $ 92
Operating margin, as reported 10.6 % 11.2 % 9.1 % 9.9 %
�
Rationalization charges — � — � — � 2 �
Operating profit, as adjusted 24 25 86 94
Operating margin, as adjusted 10.6 % 11.2 % 9.1 % 10.1 %
�
Depreciation and amortization 3 � 3 � 13 � 14 �
EBITDA, as adjusted $ 27 � $ 28 � $ 99 � $ 108 �

Historical information is available on our website.

� � �

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Years Ended December 31, 2018 and 2017

�

(dollars in millions)

�
Three Months Ended
December 31, 		Year Ended
December 31,
2018 � 2017 Change 2018 � 2017 Change
Windows and Other Specialty Products
Net sales $ 180 � $ 182 � (1 )% $ 755 � $ 770 � (2 )%
�
Operating profit, as reported $ 6 $ 4 $ 34 $ 54
Operating margin, as reported 3.3 % 2.2 % 4.5 % 7.0 %
�
Rationalization charges 2 � — � 5 � — �
Operating profit, as adjusted 8 4 39 54
Operating margin, as adjusted 4.4 % 2.2 % 5.2 % 7.0 %
�
Depreciation and amortization 6 � 5 � 23 � 21 �
EBITDA, as adjusted $ 14 � $ 9 � $ 62 � $ 75 �
�
Total
Net sales $ 2,041 � $ 1,853 � 10 % $ 8,359 � $ 7,642 � 9 %
�
Operating profit, as reported - segment $ 329 $ 277 $ 1,291 $ 1,286
General corporate expense, net (GCE) (20 ) (21 ) (80 ) (92 )
Operating profit, as reported 309 256 1,211 1,194
Operating margin, as reported 15.1 % 13.8 % 14.5 % 15.6 %
�
Rationalization charges - segment 5 1 12 3
Accelerated depreciation related to rationalization activity - segment 1 — 2 1
Kichler inventory step up adjustment — � — � 40 � — �
Operating profit, as adjusted 315 257 1,265 1,198
Operating margin, as adjusted 15.4 % 13.9 % 15.1 % 15.7 %
�
Depreciation and amortization - segment 38 29 146 113
Depreciation and amortization - non-operating 2 � 3 � 8 � 13 �
�
EBITDA, as adjusted $ 355 � $ 289 � $ 1,419 � $ 1,324 �

Historical information is available on our website.

� � �
MASCO CORPORATION
North American and International Data - Unaudited
For the Three Months and Years Ended December 31, 2018 and 2017
�
(dollars in millions)
�

Three Months Ended
December 31,

Year Ended
December 31,
2018 � 2017 Change 2018 � 2017 Change
North American
Net sales $ 1,651 � $ 1,449 � 14 % $ 6,763 � $ 6,067 � 11 %
�
Operating profit, as reported $ 281 $ 226 $ 1,094 $ 1,080
Operating margin, as reported 17.0 % 15.6 % 16.2 % 17.8 %
�
Rationalization charges 3 1 7 3
Accelerated depreciation related to rationalization activity 1 — 2 1
Kichler inventory step up adjustment — � — � 40 � � — �
Operating profit, as adjusted 285 227 1,143 1,084
Operating margin, as adjusted 17.3 % 15.7 % 16.9 % 17.9 %
�
Depreciation and amortization 28 � 18 � 104 � 74 �
EBITDA, as adjusted $ 313 � $ 245 � $ 1,247 � $ 1,158 �
�
International
Net sales $ 390 � $ 404 � (3 )% $ 1,596 � $ 1,575 � 1 %
�
Operating profit, as reported $ 48 $ 51 $ 197 $ 206
Operating margin, as reported 12.3 % 12.6 % 12.3 % 13.1 %
�
Rationalization charges 2 � — � 5 � — �
Operating profit, as adjusted 50 51 202 206
Operating margin, as adjusted 12.8 % 12.6 % 12.7 % 13.1 %
�
Depreciation and amortization 10 � 11 � 42 � 39 �
EBITDA, as adjusted $ 60 � $ 62 � $ 244 � $ 245 �
�
Total
Net sales $ 2,041 � $ 1,853 � 10 % $ 8,359 � $ 7,642 � 9 %
�
Operating profit, as reported - segment $ 329 $ 277 $ 1,291 $ 1,286
General corporate expense, net (GCE) (20 ) (21 ) (80 ) (92 )
Operating profit, as reported 309 256 1,211 1,194
Operating margin, as reported 15.1 % 13.8 % 14.5 % 15.6 %
�
Rationalization charges - segment 5 1 12 3
Accelerated depreciation related to rationalization activity - segment 1 — 2 1
Kichler inventory step up adjustment — � — � 40 � — �
Operating profit, as adjusted 315 257 1,265 1,198
Operating margin, as adjusted 15.4 % 13.9 % 15.1 % 15.7 %
�
Depreciation and amortization - segment 38 29 146 113
Depreciation and amortization - non-operating 2 � 3 � 8 � 13 �
EBITDA, as adjusted $ 355 � $ 289 � $ 1,419 � $ 1,324 �

Historical information is available on our website.

Investor Contact

David Chaika

Vice President, Treasurer and Investor Relations

313.792.5500

[email protected]

Source: Masco Corporation

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