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 Masco Corporation Reports Fourth Quarter and 2018 Year-End Results
   Thursday, February 07, 2019 7:00:00 AM ET

2018 Fourth Quarter Key Highlights

  • Sales for the fourth quarter increased 10 percent to $2.0 billion; in local currency, sales increased 11 percent
  • Operating profit for the quarter grew 21 percent to $309 million; adjusted operating profit grew 23 percent to $315 million
  • Earnings per share for the quarter increased 156 percent to $0.64 per share; adjusted earnings per share grew 56 percent to $0.64 per share
  • Returned $336 million to shareholders through share repurchases and dividends in the quarter
  • Anticipate 2019 earnings per share to be in the range of $2.56 - $2.76 per share, and on an adjusted basis 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 strong net sales and earnings per share growth for the fourth quarter and full year of 2018.

  • On a reported basis, compared to fourth quarter 2017:
    • Net sales increased 10 percent to $2.0 billion; in local currency, net sales increased 11 percent
    • In local currency, North American sales increased 14 percent and International sales were flat
    • Gross margin decreased 60 basis points to 32.0 percent from 32.6 percent
    • Operating margin increased 130 basis points to 15.1 percent from 13.8 percent
    • Net income was $0.64 per share compared to $0.25 per share
  • Compared to fourth quarter 2017, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate in 2018 of 25 percent (reduced from previously estimated 26 percent due to recently updated IRS guidance, and 34 percent in 2017), were as follows:
    • Gross margin decreased 30 basis points to 32.3 percent compared to 32.6 percent
    • Operating margin increased 150 basis points to 15.4 percent compared to 13.9 percent
    • Net income was $0.64 per share compared to $0.41 per share
  • Liquidity at the end of the fourth quarter was $559 million

  • Plumbing Products’ net sales increased 4 percent (6 percent excluding the impact of foreign currency translation), driven by 8 percent growth in North America
  • Decorative Architectural Products’ net sales increased 30 percent; excluding the acquisition of Kichler, net sales increased 8 percent due to growth in paints and other coating products, partially due to sales pulled-forward from the first quarter of 2019
  • Cabinetry Products’ net sales increased 1 percent; excluding the divestiture of Moores, sales increased 4 percent with growth in both the repair and remodel and new construction businesses
  • Windows and Other Specialty Products’ net sales decreased 1 percent due to continued softness in the UK market, partially offset by growth in North America

“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.”

  • Sales for the year increased 9 percent to $8.4 billion; in local currency, sales increased 9 percent
  • Operating profit grew 1 percent to $1,211 million; adjusted operating profit grew 6 percent to $1,265 million
  • Generated $803 million of free cash flow, for a free cash flow conversion rate of approximately 102 percent
  • Returned $788 million to shareholders through share repurchases and dividends
  • Earnings per share for the year grew 43 percent to $2.37 per share; adjusted earnings per share grew 29 percent to $2.50 per share

  • On a reported basis, compared to full year 2017:
    • Net sales increased 9 percent to $8.4 billion
    • In local currency, North American sales increased 11 percent and International sales decreased 2 percent
    • Gross margin decreased 200 basis points to 32.2 percent from 34.2 percent
    • Operating margin decreased 110 basis points to 14.5 percent from 15.6 percent
    • Net income was $2.37 per share compared to $1.66 per share
  • Compared to full year 2017, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate in 2018 of 25 percent (reduced from previously estimated 26 percent due to recently updated IRS guidance, and 34 percent in 2017), were as follows:
    • Gross margin decreased 140 basis points to 32.8 percent compared to 34.2 percent
    • Operating margin decreased 60 basis points to 15.1 percent compared to 15.7 percent
    • Net income was $2.50 per share compared to $1.94 per share
  • Free cash flow was $803 million

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.”

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 .

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.

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.

   
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.

   
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

 
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

 
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 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

 
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.

   
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.

 
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
david_chaika@mascohq.com

Source: Masco Corporation



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