Morgan stanley 2011

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1 1 Morgan Stanley Global Consumer Conference November 15, 2011

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Transcript of Morgan stanley 2011

Page 1: Morgan stanley 2011

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Morgan Stanley

Global Consumer Conference November 15, 2011

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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,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” “should,” “will,” 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, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through the Masco Business System 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. 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 these 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.

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• 2010 Financial Data

Sales $7.6 billion

Operating Profit* $430 million

Free Cash Flow $300 million

• Cash on Hand at 09/30/2011 $1.6 billion

Global leader in the innovation and

marketing of quality building products

and services.

*Excludes business rationalization charges of $208 million and charges for goodwill

and other intangible assets of $721 million, operating loss as reported ($499) million.

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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Scale – Masco is the Industry Leader

We believe we are the …

Largest faucet manufacturer in the world

Largest cabinet manufacturer in the world

Largest non-commodity supplier to The Home Depot

Largest supplier to Lowe’s Kitchen and Bath segment

Largest supplier of architectural coatings to the

U.S. DIY market

Largest U.S. installer of building products for the new

home construction market

We believe Masco’s scale and position with its customers is unparalleled in the industry

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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Broad Distribution Across Multiple Channels

The breadth of Masco’s product portfolio positions us

to compete at multiple price points across all channels

Homebuilders

• Unique direct-to-builder

channel for certain

products and services

• A leading insulation

contractor in the US

• Value proposition built

upon service reliability

and high quality brands

Big Box Retailers

• Dedicated customer-

specific service

organizations with

over 1,000 field

service employees

• Premier brands that

drive traffic

to retail stores

Wholesalers/Dealers

• Extensive training

programs for branch and

showroom associates

• Superior display and

technology expertise and

support

• Strong trade brands that

drive sales with

contractors and

consumers

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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20

10

Re

ve

nu

es

Installation &

Other Services

Plumbing

Products

Cabinets & Related

Products

Se

lec

ted

Bra

nd

s

$1.5B

$1.1B

Decorative

Architectural

Products

Other Specialty

Products

$2.7B

$1.7B

$600M

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Cabinets and Related Products

Financial Performance Brands

North America

International

New Construction

Repair/Remodel

25%-30% 25%

Segment Comments Business Mix (2010 est.)

®

Sales Drivers Consumer Confidence

Age of Housing Stock/Housing Turnover

Home Prices

Housing Starts

Key Commodities Lumber, Particle Board

New

Products/Programs

Denova Countertops

Kraftmaid Vanity Programs at Home

Centers

($ in Millions)

3 Months Ended

9/30/11

vs.

9/30/10

9/30/2011 9/30/2010 $ %

Net Sales $307 $357 $(50) (14%)

Operating (Loss)* $(27) $(27) $-- N/A

Operating Margin (8.8%) (7.6%)

Incremental Margin N/A

*Excludes business rationalization charges of $7M & $34M in the third quarter of 2011 & 2010, respectively. See

Appendix for GAAP reconciliation.

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Benefitting from the North American cabinet integration

Exit of ready-to-assemble cabinetry completed

Common architecture program completed

Recently idled Los Lunas, New Mexico manufacturing facility

Dealer Advantage Program continues to gain momentum

Gaining share with big builders

Countertop model continues to gain traction

KraftMaid Cabinetry ranked “Highest in Customer Satisfaction with Cabinets” by J.D.

Power and Associates 2011 U.S. Kitchen Cabinet Satisfaction StudySM

Heavy promotional activity continues in retail and dealer channels

European markets continue to be challenging

− U.K. austerity measures impacting the Moore Group and depressed consumer demand for

furniture impacting Tvilum

Cabinets and Related Products Update

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KraftMaid “Tops & Bottoms” Programs Home Centers

KraftMaid Kitchen Tops

Granite Program

KraftMaid Vanity &

Denova™ Tops Program

KraftMaid Vanity & Tops Program

Initial Lowe’s store rollout a

success

Expansion to additional stores

scheduled for Q4

Additional expansion plans for

2012

1100 Lowe’s stores set with

the program

Simplified purchase process

Pushed attachment rates of

tops and vanities

Further sales growth

anticipated in 2012

1500 Home Depot stores scheduled to be over the next

five months, including 180 Canadian stores

Program designs, sells, and ships cabinets, accessories,

lighting, mirrors, countertops and sinks as one package to

the consumer

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Plumbing Products

Financial Performance Brands

Segment Comments Business Mix (2010 est.)

North America

International

60%

New Construction

Repair/Remodel

20%-25% Sales Drivers Age of Housing Stock

Existing Home Sales

Consumer Confidence

Key Commodities Brass, Zinc, Copper

New

Products/Programs

Delta –Touch2O, Peerless Program at

Lowe’s

Hansgrohe – Global Expansion

($ in Millions)

3 Months Ended

9/30/11

vs.

9/30/10

9/30/2011 9/30/2010 $ %

Net Sales $768 $686 $82 12%

Operating Profit* $92 $100 $(8) N/A

Operating Margin 12.0% 14.6%

Incremental

Margin N/A

*Excludes business rationalization charges of $1M & $3M in the third quarter of 2011 & 2010, respectively. See

Appendix for GAAP reconciliation. Includes metal commodity hedging gains (losses) of ($10) million and $4 million

in the third quarter of 2011 & 2010, respectively.

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Continuing to invest in brand building, new product development and international growth

Gaining share in the U.S. with Delta®, Peerless®, and Brizo® brands

− New Peerless and Delta product launches at Lowe’s

Continuing international growth with Hansgrohe products

Extending the Delta and Peerless brands to additional product categories, including tub and shower bathing systems

Gaining share in hot tubs and spas with our HotSpring® and Caldera® brands

− Hotspring’s Aria® spa received the “Best Buy” distinction from Consumers Digest

Hansgrohe has again received the Product Design Award from the Federal

Republic of Germany, a prestigious award in the field of design in Germany

Delta Faucet won the 2011 Silver Effie Award, a prestigious advertising

award, in recognition of the effectiveness of the marketing and

communications campaign for Touch2O® products

Plumbing Products Update

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EPA names Delta Faucet Watersense Partner of the Year

® ®

Delta Faucet Company was recognized for its outstanding support of the

U.S. Environmental Protection Agency’s WaterSense program and

ongoing commitment to promoting advancements in water efficiency

The EPA’s WaterSense program aims to protect the future of the U.S.

water supply by providing people with easy and identifiable ways to

conserve water

WaterSense Partner of the Year awards recognize industry partners that

help advance the overall mission of the WaterSense program,

demonstrate overall excellence in the water-efficiency arena and increase

awareness of the WaterSense brand in a measurable way. Each year, the

program recognizes just one manufacturer that demonstrates

exceptional performance in each of these areas

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Installation and Other Services

Financial Performance Businesses

Segment Comments Business Mix (2010 est.)

North AmericaInternational

100%

New ConstructionRepair/Remodel

90+%

Sales Drivers Housing Starts

Home Size/Design

Energy Efficiency

Key Commodities Insulation

New Products/Programs Retrofit Services

Service Partners Locations

® ®

($ in Millions)

3 Months Ended

9/30/11

vs.

9/30/10

9/30/2011 9/30/2010 $ %

Net Sales $315 $292 $23 8%

Operating (Loss)* $(18) $(20) $2 N/A

Operating Margin (5.7%) (6.8%)

Incremental

Margin 9%

*Excludes business rationalization charges of $2M in both the third quarter of 2011 & 2010. Also excludes

impairment charge of $7M related to intangible assets in the third quarter of 2011. See Appendix for GAAP

reconciliation.

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Year-over-year overall share gains

Continued retrofit sales gains in 2011

Increasing penetration of multi-family channel

Increasing strategic alliances with big builders

ERP system fully implemented

Benefitting from a lean culture that we expect will drive additional cost savings

− Integrating WellHome into MCS to leverage its sales and marketing capability

and further expand this business

Divestitures

− Announced four divestitures in our Installation segment which were focused on

non-core diversified products including framing, commercial drywall installation &

millwork

Installation and Other Services Update

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Decorative Architectural Products

Financial Performance Brands

Segment Comments Business Mix (2010 est.)

100%

North AmericaInternational

New ConstructionRepair/Remodel

<5%

Sales Drivers Existing Home Sales

Lower ticket DIY product

Commodities Titanium Dioxide, Petroleum Based

Resins, Zinc

New

Products/Programs

Liberty – New Hardware reset at THD

Behr – Kilz® Pro-X

($ in Millions)

3 Months Ended

9/30/11

vs.

9/30/10

9/30/2011 9/30/2010 $ %

Net Sales $455 $463 $(8) (2%)

Operating Profit $88 $104 $(16) N/A

Operating Margin 19.3% 22.5%

Decremental

Margin (200%)

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Leveraging our resources to expand top-line growth

− Direct to Pro® program with The Home Depot continues to gain traction

− Continued investment in new product & merchandising innovation

− Focused on the international expansion of our paint business

− Continue to upgrade core Premium Plus® paint line by introducing new

low VOC formula

Behr has once again achieved #1 rankings in a recent leading consumer study

Behr recognized by The Home Depot as 2011 Partner of the Year Department 24 – Paint

Based on 2011 Harris poll, Kilz ranked highest among paint brands

for the second year in a row

Liberty Hardware Manufacturing launching new programs at retail in bath and cabinet hardware

Decorative Architectural Products Update

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Behr Direct to Pro®

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Other Specialty Products

Financial Performance Brands

Segment Comments Business Mix (2010 est.)

North America

International

75%

New Construction

Repair/Remodel

20%-30% Sales Drivers Consumer Confidence

Energy Efficiency

Home Prices

Housing Starts

Key

Commodities

Petroleum Based Resins, Glass, Steel

New Products Milgard – Essence

Arrow – T50 Elite TM staple gun at Lowe’s

($ in Millions)

3 Months Ended

9/30/11

vs.

9/30/10

9/30/2011 9/30/2010 $ %

Net Sales $161 $159 $2 1%

Operating Profit $14 $11 $3 N/A

Operating Margin 8.7% 6.9%

Incremental Margin 150%

*Excludes business rationalization charges of $2M in the third quarter of 2011. See Appendix for GAAP

reconciliation.

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Milgard Manufacturing has outperformed depressed repair and remodel and new home construction markets

− Continuing to gain share in the western United States

− Expanding into new geographies including Texas and western Canada

− Successful new product introductions

− Opportunity to expand further as competitors are exiting the market

The Milgard Essence Series TM windows received the Crystal

Achievement Award for Most Innovative New Window for a Large

Manufacturer from Window and Door Magazine

Milgard Manufacturing exited Tempering Business in September

Milgard Manufacturing announced the closure of 3 plants in October

U.K. Window Group gaining share in the U.K.

Launched the Arrow ® T50 Elite TM staple gun at Lowe’s

Other Specialty Products Update

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Milgard Window New Product Introductions

Essence Series™ Wood Windows

and Doors Vinyl Exterior Frame Colors

Sales exceeded expectations in the

limited market release

We expect sales will continue to expand

as product is now available in all of

Milgard’s sales regions

Received the Crystal Achievement Award

for Most Innovative New Window of the

Year for a Large Manufacturer from

Window & Door Magazine

Currently sold in all of Milgard’s western

markets

Sold as an upgrade option in four

premium colors

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Unparalleled Brand Strength

Masco’s continuing commitment to innovation will create sustainable competitive advantage for our brands

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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Operational Leverage

Aggressively managing capacity

− Gross fixed cost reduction (2006-2010) estimated at

~ $500M

Annual maintenance capex ~ $110M

High contribution margins

− 30% company wide average

Masco’s commitment to lean principles

should drive increased productivity

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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History of Strong Cash Flow

$1.6 Billion of Cash on Hand 09/30/2011

Year Housing

Starts (Thousands)

Sales Free

Cash

Flow

2003 1,848 $10.1B $1.2B

2004 1,959 $11.3B $1.1B

2005 2,068 $12.2B $1.0B

2006 1,801 $12.4B $820M

2007 1,355 $11.4B $980M

2008 906 $9.5B $560M

2009 554 $7.8B $550M

2010 588 $7.6B $300M

Limited capital required to fund

expected growth

Strong working capital

management

Returned $6B to shareholders

from 2003 to 2007 in the form

of dividends and share

buybacks, reducing outstanding

shares by 30%

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Investment Considerations

Scale

Distribution

Brands

Operating Leverage

History of Strong Cash Flow

Long-term Fundamentals For Our Markets Are

Positive

Driving sustainable competitive advantage through

innovation, brand strength and disciplined execution

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Market conditions continue to be challenging

− 2011 total housing starts forecast projected to be flat with 2010

− Repair and remodel activity still slow for larger projects

We continue to take actions to reduce our cost structure

− Multiple plant closures

− Reduced headcount

− Divestitures

− Leveraging our infrastructures

Operational priorities

− Installation and Cabinets

− Driving lean benefits throughout our supply chain

We are confident in the long-term fundamentals for our markets and continue to invest in:

− Increasing our penetration in the North American Cabinet Dealer channel

− Expanding our leadership position in North American DIY coatings

− Increasing our penetration with the professional painter

− Launching new programs this year in Plumbing, Cabinets and Builders’ Hardware

− Developing international opportunities for Paint and Plumbing

Closing Commentary

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Questions & Answers

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Appendix

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Masco Credit Facility

$1.25 billion line established in June 2010 (amended in February

2011) with two financial covenants

− Total debt to adjusted total capitalization threshold (65%)

− Interest coverage (adjusted EBITDA/Interest Expense)

In compliance with all covenants and had no borrowings outstanding

at September 30, 2011

Approximately $1 billion of borrowing availability on the line today

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$0

$400

$800

$1,200

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

Fixed

($ In Millions)

Outstanding Debt Maturities September 30, 2011

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Q3 2011 Results (As Reported)

* Operating margin is before general corporate expense, net and $1M charge for litigation related to Cabinets and Related Products segment.

Change in

Sales

Q3 2011 Q3 2010

Q3 2011 vs. Q3

2010 Q3 2011 Q3 2010

Cabinets and Related Products $ 307 $ 357 -14% -11.1% -17.1%

Plumbing Products 768 686 12% 11.8% 14.1%

Installation and Other Services 315 292 8% -8.6% -7.5%

Decorative Architectural Products 455 463 -2% 19.3% 22.5%

Other Specialty Products 161 159 1% 7.5% 6.9%

Total Segment* $ 2,006 $ 1,957 3% 6.5% 6.6%

North America $ 1,524 $ 1,528 -- 5.2% 5.2%

International 482 429 12% 10.4% 11.7%

Total Segment - Reported $ 2,006 $ 1,957 3% 6.5% 6.6%

Net Sales Operating Margin *

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$494

Gross Profit / Margin

25.2% $495 24.7%

$392

SG&A as a % of SalesQ3 - 2011 Q3 - 2010

20.0%

$393 19.6%

(SG&A includes General Corp. Expense in 2011 and 2010).

Gross profit impacted by:

− Increased material costs

− Under-absorption of fixed costs

− Lower business rationalization costs

Q3 2011 Gross Profit/SG&A

($ in Millions) Third Quarter

SG&A impacted by:

− Increased sales

− Increased expenses to support

strategic initiatives

− Lower business rationalization costs

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Q3 2011 Segment Rationalization Charges

($ in Millions)Q3 2010 2011 YTD 2010 YTD

SeverancePlant

ClosuresERP RTA Exit

Total -

Q3 2011

Total -

Q3 2010

Total

YTD - 2011

Total

YTD - 2010

Cabinets and Related Products $ (1) $ (3) $ (1) $ (2) $ (7) $ (34) $ (35) $ (88)

Plumbing Products - (1) - - (1) (3) (12) (10)

Installation and Other Services (2) - - - (2) (2) (6) (6)

Decorative Architectural Products - - - - - - (1) -

Other Specialty Products - (2) - - (2) - (2) -

Corp. / Other (1) - - - (1) - (5) -

Total Q3 2011 $ (4) $ (6) $ (1) $ (2) $ (13) $ (39) $ (61) $ (104)

Total Q3 2010 $ (2) $ (5) $ (2) $ (30) $ (39)

Change $ (2) $ (1) $ 1 $ 28 $ 26

Rationalization Charges - Q3 2011

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Cabinets & Related Products Current Segment Dynamics

Drivers of Q3 Sales Decline

Product

Exit

Reduced

Activity

Currency

Total

North America $(38) $(10) --$ $(48)

International -- (10) 8 (2)

$(38) $(20) $8 $(50)

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($ in Millions)

2011 Estimate 2010 Actual

Rationalization Charges* ~ $100 $208

Tax Rate** ~ 200% 32%

Interest Expense ~ $250 $251

General Corp. Expense ~ $125 $110

Capital Expenditures ~ $170 $137

Depreciation & Amortization ~ $260 $279

Outstanding Shares 348 million 349 million

2011 Estimate - Other Financial Data

*Based on current business plans.

**Tax rate for 2010 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge

for goodwill and other intangible assets. 2011 is impacted by an increase in the valuation allowance on net operating losses

and losses in certain tax jurisdictions providing no tax benefit.

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Segment International North America New

Construction

Cabinets and

Related Products

25% 75% 25% - 30%

Plumbing

Products

40% 60% 20% - 25%

Installation and

Other Services

-- 100% 90+%

Decorative

Architectural

Products

-- 100% <5%

Other Specialty

Products

25% 75% 20% - 30%

Company Total 22% 78% 25% - 30%

Segment Mix Full-Year 2010 - Estimate

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36%

25%

11%

9%

7%

6%

6%

Central Europe

United Kingdom

Emerging Markets

Eastern Europe

Northern Europe

North America

Southern Europe

Masco International Revenue Split*

*Based on company estimates as of 12/31/2010.

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“Highest in Customer Satisfaction with Cabinets”

KraftMaid Cabinetry received the highest numerical score among cabinetry brands in the

proprietary J.D. Power and Associates 2011 US Kitchen Cabinet Satisfaction StudySM.

Study based on responses from 1,207 consumers measuring 7 companies and measures

opinions of consumers who purchased kitchen cabinets within the previous 12 months.

Proprietary study results are based on experiences and perceptions of consumers

surveyed in March-April 2011. Your experiences may vary. Visit jdpower.com

J.D. Power and the J.D. Power award are the marks of J.D. Power and Associates.

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Additional Inquiries Contact:

Maria Duey

Vice President of Investor Relations

[email protected]

313-792-5500