OREANDA-NEWS. Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported strong net sales and operating profit growth in the second quarter of 2016, recording its highest second quarter operating margin since 2002.

“We continued our great start to 2016 with solid execution in the second quarter,” said Masco’s President and CEO, Keith Allman. “Our Plumbing segment in particular had an exceptional second quarter, with strong top- and bottom-line performance both in North America and internationally, and our Cabinetry segment continued to exceed expectations as it executed against its strategic plan to optimize sales mix and increase profitability. Additionally, we continued our disciplined capital allocation by reducing debt by $400 million, as planned, and returning nearly $120 million to shareholders through dividends and share repurchases during the quarter.”

2016 Second Quarter Commentary

  • On a reported basis, compared to second quarter 2015:
    • Net sales from continuing operations increased 4 percent to $2.0 billion
    • In local currency, North American sales increased 3 percent and international sales increased 9 percent
    • Gross margins improved to 35.0 percent from 33.0 percent
    • Operating margins improved to 16.7 percent from 14.5 percent
    • Income from continuing operations was $0.45 per common share, which included the $40 million debt extinguishment cost incurred during the quarter, compared to $0.31 per common share
  • Compared to second quarter 2015, results for key financial measures, as adjusted for certain items (see Exhibit A) and with a normalized tax rate of 36 percent, were as follows:
    • Gross margins improved to 35.2 percent compared to 33.0 percent
    • Operating margins improved to 17.1 percent compared to 14.5 percent
    • Income from continuing operations was $0.46 per common share compared to $0.38 per common share
  • Liquidity at the end of the second quarter was approximately $1.1 billion
  • 2.8 million shares were repurchased in the second quarter

2016 Second Quarter Operating Segment Highlights

  • Plumbing Products’ net sales increased 9 percent (10 percent excluding the impact of foreign currency translation), driven by growth in the retail and wholesale channels
  • Decorative Architectural Products’ net sales matched last year, with growth from paints and other coating products and builders’ hardware offset by the timing and amount of promotions
  • Cabinetry Products’ net sales decreased 3 percent due to the exit of lower margin business in the builder channel, which was partially offset by growth and improved mix in the retail channel
  • Windows and Other Specialty Products’ net sales increased 3 percent (4 percent excluding the impact of foreign currency translation), led by our North American windows business

Outlook

“The fundamental demand drivers of our end markets remain robust,” said Allman. “Combined with these underlying fundamentals, our strong performance this quarter is evidence that we continue to successfully execute against our long-term growth strategies by leveraging our brand portfolio, our industry-leading positions and our Masco Operating System. Reflecting confidence in Masco’s future outlook, our Board of Directors intends to increase our annual dividend by $0.02 per share to $0.40 per share, beginning with the quarterly dividend to be paid in the fourth quarter of 2016.”

About Masco

Headquartered in Taylor, 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; and Hot Spring® spas. We leverage our powerful brands across product categories, sales channels and geographies to create value for our customers and shareholders.

 
 

MASCO CORPORATION

Condensed Consolidated Statements of Operations - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015
 

(in millions, except per common share data)
             
        Three Months Ended June 30,   Six Months Ended June 30,
        2016   2015   2016   2015
Net sales       $ 2,001     $ 1,929     $ 3,721     $ 3,588  
Cost of sales       1,301     1,292     2,452     2,456  
Gross profit       700     637     1,269     1,132  
                     
Selling, general and administrative expenses       365     358     700     688  
Operating profit       335     279     569     444  
                     
Other income (expense), net:                    
Interest expense       (87 )   (61 )   (143 )   (117 )
Other, net       5     3     4     4  
        (82 )   (58 )   (139 )   (113 )
Income from continuing operations before income taxes       253     221     430     331  
                     
Income tax expense       (90 )   (102 )   (148 )   (142 )
Income from continuing operations       163     119     282     189  
                     
Loss from discontinued operations, net       —     (4 )   —     (1 )
Net income       163     115     282     188  
                     
Less: Net income attributable to noncontrolling interest       13     10     23     19  
Net income attributable to Masco Corporation       $ 150     $ 105     $ 259     $ 169  
                     
Income per common share attributable to Masco Corporation (diluted):                    
Income from continuing operations       $ 0.45     $ 0.31     $ 0.77     $ 0.48  
Loss from discontinued operations, net       —     (0.01 )   —     —  
Net income       $ 0.45     $ 0.30     $ 0.77     $ 0.48  
                     
Average diluted common shares outstanding       331     344     333     346  
                     
Amounts attributable to Masco Corporation:                    
Income from continuing operations       $ 150     $ 109     $ 259     $ 170  
Loss from discontinued operations, net       —     (4 )   —     (1 )
Net income attributable to Masco Corporation       $ 150     $ 105     $ 259     $ 169  
                                     

Historical information is available on our website.
 
 

MASCO CORPORATION

Exhibit A: Reconciliations - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015
 

(in millions, except per common share data)
             
        Three Months Ended June 30,   Six Months Ended June 30,
        2016   2015   2016   2015

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

                    
                     
Net sales       $ 2,001     $ 1,929     $ 3,721     $ 3,588  
                     
Gross profit, as reported       $ 700     $ 637     $ 1,269     $ 1,132  
Rationalization charges       5     —     6     1  
Gross profit, as adjusted       $ 705     $ 637     $ 1,275     $ 1,133  
                     
Gross margin, as reported       35.0 %   33.0 %   34.1 %   31.5 %
Gross margin, as adjusted       35.2 %   33.0 %   34.3 %   31.6 %
                     
Selling, general and administrative expenses, as reported       $ 365     $ 358     $ 700     $ 688  
Rationalization charges       2     1     4     6  
Selling, general and administrative expenses, as adjusted       $ 363     $ 357     $ 696     $ 682  
                     
Selling, general and administrative expenses as percent of net sales, as reported       18.2 %   18.6 %   18.8 %   19.2 %
Selling, general and administrative expenses as percent of net sales, as adjusted       18.1 %   18.5 %   18.7 %   19.0 %
                     
Operating profit, as reported       $ 335     $ 279     $ 569     $ 444  
Rationalization charges       7     1     10     7  
Operating profit, as adjusted       $ 342     $ 280     $ 579     $ 451  
                     
Operating margin, as reported       16.7 %   14.5 %   15.3 %   12.4 %
Operating margin, as adjusted       17.1 %   14.5 %   15.6 %   12.6 %
                     

Earnings Per Common Share Reconciliation

                    
                     
Income from continuing operations before income taxes, as reported       $ 253     $ 221     $ 430     $ 331  
Rationalization charges       7     1     10     7  
Gain from auction rate securities       (1 )   —     (1 )   —  
Gains from private equity funds, net       (1 )   (2 )   (1 )   (4 )
Earnings from equity investments, net       —     (2 )   (1 )   (2 )
Income from continuing operations before income taxes, as adjusted       258     218     437     332  
Tax at 36% rate       (93 )   (78 )   (157 )   (120 )
Less: Net income attributable to noncontrolling interest       13     10     23     19  
Income from continuing operations, as adjusted       $ 152     $ 130     $ 257     $ 193  
                     
Income per common share, as adjusted       $ 0.46     $ 0.38     $ 0.77     $ 0.56  
                     
Average diluted common shares outstanding       331     344     333     346  
                             

Historical information is available on our website.
               
               

MASCO CORPORATION

Condensed Consolidated Balance Sheets and

Other Financial Data - Unaudited
 

(dollars in millions)
               
          June 30, 2016  

December 31,
2015
Balance Sheet              
Assets              
Current Assets:              
Cash and cash investments         $ 956     $ 1,468
Short-term bank deposits         135     248
Receivables         1,113     853
Inventories         765     687
Prepaid expenses and other         88     72
Total Current Assets         3,057     3,328
               
Property and equipment, net         1,039     1,027
Goodwill         840     839
Other intangible assets, net         156     160
Other assets         232     310
Total Assets         $ 5,324     $ 5,664
               
Liabilities              
Current Liabilities:              
Accounts payable         $ 913     $ 749
Notes payable         3     1,004
Accrued liabilities         716     752
Total Current Liabilities         1,632     2,505
               
Long-term debt         2,993     2,403
Other liabilities         629     698
Total Liabilities         5,254     5,606
               
Equity         70     58
Total Liabilities and Equity         $ 5,324     $ 5,664
           
           
          As of
          June 30, 2016   June 30, 2015
Other Financial Data              
Working Capital Days              
Receivable days         50     51  
Inventory days         57     58  
Payable days         71     68  
Working capital         $ 965     $ 995  
Working capital as a % of sales (LTM)         13.3 %   14.0 %
                   

Historical information is available on our website.
 
 

MASCO CORPORATION

Condensed Consolidated Statements of Cash Flows

and Other Financial Data - Unaudited
 

(dollars in millions)
         
        Six Months Ended
June 30,
        2016   2015
Cash Flows From (For) Operating Activities:            
Cash provided by operating activities       $ 357     $ 355  
Working capital changes       (243 )   (216 )
Net cash from operating activities       114     139  
             
Cash Flows From (For) Financing Activities:            
Retirement of notes       (1,300 )   (500 )
Purchase of Company common stock       (168 )   (207 )
Cash dividends paid       (63 )   (62 )
Dividend paid to noncontrolling interest       (31 )   (36 )
Cash distributed to TopBuild Corp.       —     (63 )
Issuance of TopBuild Corp. debt       —     200
Issuance of notes, net of issuance costs       889     497  
Issuance of Company common stock       1     —  
Excess tax benefit from stock-based compensation       12     15  
Credit Agreement and other financing costs       —     (3 )
Decrease in debt, net       (2 )   —  
Net cash for financing activities       (662 )   (159 )
             
Cash Flows From (For) Investing Activities:            
Capital expenditures       (79 )   (70 )
Other, net       124     10  
Net cash from (for) investing activities       45     (60 )
             
Effect of exchange rate changes on cash and cash investments       (9 )   (6 )
             
Cash and Cash Investments:            
Decrease for the period       (512 )   (86 )
At January 1       1,468     1,383  
At June 30       $ 956     $ 1,297  
         
         
        As of June 30,
        2016   2015
Liquidity            
Cash and cash investments       $ 956     $ 1,297  
Short-term bank deposits       135     210  
Total Liquidity       $ 1,091     $ 1,507  
                     

Historical information is available on our website.
 
 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015
                     

(dollars in millions)
                     
        Three Months Ended
June 30,		       Six Months Ended
June 30,		    
        2016   2015   Change   2016   2015   Change
Plumbing Products                            
Net sales       $ 923     $ 846     9 %   $ 1,736     $ 1,642     6 %
                             
Operating profit, as reported       $ 188     $ 138         $ 317     $ 249      
Operating margin, as reported       20.4 %   16.3 %       18.3 %   15.2 %    
                             
Rationalization charges       4     —         6     1      
Operating profit, as adjusted       192     138         323     250      
Operating margin, as adjusted       20.8 %   16.3 %       18.6 %   15.2 %    
                             
Depreciation and amortization       14     14         28     28      
                             
EBITDA, as adjusted       $ 206     $ 152         $ 351     $ 278      
                             
Decorative Architectural Products                            
Net sales       $ 620     $ 622     — %   $ 1,113     $ 1,073     4 %
                             
Operating profit, as reported       $ 139     $ 133         $ 244     $ 216      
Operating margin, as reported       22.4 %   21.4 %       21.9 %   20.1 %    
                             
Depreciation and amortization       4     4         8     8      
                             
EBITDA       $ 143     $ 137         $ 252     $ 224      
                             
Cabinetry Products                            
Net sales       $ 261     $ 269     (3 )%   $ 497     $ 518     (4 )%
                             
Operating profit, as reported       $ 34     $ 15         $ 58     $ 11      
Operating margin, as reported       13.0 %   5.6 %       11.7 %   2.1 %    
                             
Rationalization charges       3     —         4     2      
Operating profit, as adjusted       37     15         62     13      
Operating margin, as adjusted       14.2 %   5.6 %       12.5 %   2.5 %    
                             
Depreciation and amortization       5     6         10     13      
                             
EBITDA, as adjusted       $ 42     $ 21         $ 72     $ 26      
                                             

Historical information is available on our website.
 
 

MASCO CORPORATION

Segment Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015
                     

(dollars in millions)
                     
        Three Months Ended
June 30,		       Six Months Ended June 30,    
        2016   2015   Change   2016   2015   Change
Windows and Other Specialty Products                            
Net sales       $ 197     $ 192     3 %   $ 375     $ 355     6 %
                             
Operating (loss) profit, as reported       $ (2 )   $ 21         $ 1     $ 27      
Operating margin, as reported       (1.0 )%   10.9 %       0.3 %   7.6 %    
                             
Depreciation and amortization       5     4         10     8      
                             
EBITDA       $ 3     $ 25         $ 11     $ 35      
                             
Total                            
Net sales       $ 2,001     $ 1,929     4 %   $ 3,721     $ 3,588     4 %
                             
Operating profit, as reported - segment       $ 359     $ 307         $ 620     $ 503      
General corporate expense, net (GCE)       (24 )   (28 )       (51 )   (59 )    
Operating profit, as reported       335     279         569     444      
Operating margin, as reported       16.7 %   14.5 %       15.3 %   12.4 %    
                             
Rationalization charges - segment       7     —         10     3      
Rationalization charges - GCE       —     1         —     4      
Operating profit, as adjusted       342     280         579     451      
Operating margin, as adjusted       17.1 %   14.5 %       15.6 %   12.6 %    
                             
Depreciation and amortization - segment       28     28         56     57      
Depreciation and amortization - non-operating       6     3         10     5      
                             
EBITDA, as adjusted       $ 376     $ 311         $ 645     $ 513      
                                             

Historical information is available on our website.
                     
                     

MASCO CORPORATION

North American and International Data - Unaudited

For the Three Months and Six Months Ended June 30, 2016 and 2015
                     

(dollars in millions)
                     
        Three Months Ended June 30,       Six Months Ended June 30,    
        2016   2015   Change   2016   2015   Change
North American                            
Net sales       $ 1,598     $ 1,554     3 %   $ 2,948     $ 2,836     4 %
                             
Operating profit, as reported       $ 299     $ 260         $ 514     $ 411      
Operating margin, as reported       18.7 %   16.7 %       17.4 %   14.5 %    
                             
Rationalization charges       5     —         7     2      
Operating profit, as adjusted       304     260         521     413      
Operating margin, as adjusted       19.0 %   16.7 %       17.7 %   14.6 %    
                             
Depreciation and amortization       19     19         38     39      
                             
EBITDA, as adjusted       $ 323     $ 279         $ 559     $ 452      
                             
International                            
Net sales       $ 403     $ 375     7 %   $ 773     $ 752     3 %
                             
Operating profit, as reported       $ 60     $ 47         $ 106     $ 92      
Operating margin, as reported       14.9 %   12.5 %       13.7 %   12.2 %    
                             
Rationalization charges       2     —         3     1      
Operating profit, as adjusted       62     47         109     93      
Operating margin, as adjusted       15.4 %   12.5 %       14.1 %   12.4 %    
                             
Depreciation and amortization       9     9         18     18      
                             
EBITDA, as adjusted       $ 71     $ 56         $ 127     $ 111      
                             
Total                            
Net sales       $ 2,001     $ 1,929     4 %   $ 3,721     $ 3,588     4 %
                             
Operating profit, as reported - segment       $ 359     $ 307         $ 620     $ 503      
General corporate expense, net (GCE)       (24 )   (28 )       (51 )   (59 )    
Operating profit, as reported       335     279         569     444      
Operating margin, as reported       16.7 %   14.5 %       15.3 %   12.4 %    
                             
Rationalization charges - segment       7     —         10     3      
Rationalization charges - GCE       —     1         —     4      
Operating profit, as adjusted       342     280         579     451      
Operating margin, as adjusted       17.1 %   14.5 %       15.6 %   12.6 %    
                             
Depreciation and amortization - segment       28     28         56     57      
Depreciation and amortization - non-operating       6     3         10     5      
                             
EBITDA, as adjusted       $ 376     $ 311         $ 645     $ 513      
                                             

Historical information is available on our website.