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Q4 2012 Earnings Call
February 12, 2013 8:00 am ET
Maria Duey - Vice President - Investor Relations
Timothy Wadhams - Chief Executive Officer, President and Director
John G. Sznewajs - Chief Financial Officer, Vice President and Treasurer
George L. Staphos - BofA Merrill Lynch, Research Division
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
Daniel Oppenheim - Crédit Suisse AG, Research Division
Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division
Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division
David S. MacGregor - Longbow Research LLC
Adam Rudiger - Wells Fargo Securities, LLC, Research Division
Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division
Nishu Sood - Deutsche Bank AG, Research Division
Dennis McGill - Zelman & Associates, LLC
Previous Statements by MAS
» Masco Management Discusses Q3 2012 Results - Earnings Call Transcript
» Masco Management Discusses Q2 2012 Results - Earnings Call Transcript
» Masco's CEO Discusses Q1 2012 Results - Earnings Call Transcript
I will now turn the call over to the Vice President of Investor Relations, Maria Duey. Maria, you may begin.
Thank you, Brent, and good morning to everyone. Welcome to Masco Corporation's Fourth Quarter 2012 Earnings Conference Call. Joining me on our call today are Tim Wadhams, President and CEO of Masco; and John Sznewajs, Masco's Vice President, Treasurer and Chief Financial Officer.
Our fourth quarter earnings release and the presentation slides that we will refer to during the call are available on the Investor Relations portion of our website. Following our prepared remarks, the call will be open for analyst questions. [Operator Instructions]
I'd like to remind you that statements in today's presentation will include our views about Masco's future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission.
Today's presentation also includes non-GAAP financial measures. We've provided a reconciliation of these adjusted measurements to GAAP on our website at www.masco.com.
With that, I'll now turn the call over to our President and Chief Executive Officer, Tim Wadhams. Tim?
Thank you, Maria, and thank all of you for joining us today for Masco's Fourth Quarter 2012 Earnings Call. And if you would please move to Slide #4. We're pleased with our fourth quarter results, which wrapped up a relatively solid 2012 for Masco. Our fourth quarter sales were up 9%, 12% in North America, and we go into 2013 with a fair amount of momentum. To that point, our January sales were up low double digits on a consolidated basis.
While general economic conditions in both North America and Europe were challenging and bigger ticket remodel activity continued to be slow, our top line benefited from new home construction activity, with housing starts up approximately 28%, and our top line also benefited from new product introductions in several of our product categories. As it relates to our bottom line, we benefited from operating leverage, good execution on pricing and profit improvements to expand our margins. In addition to improving the math related to our financial results, we also accomplished each of the priorities we identified at the beginning of 2012, which are included on Slide #5.
In essence, we delivered on what we said we were going to do at the beginning of the year. We'll touch on each of these items as we work our way through the presentation. They represent areas of emphasis in support of our strategic initiatives, which are included on Slide #6.
We communicated these strategic initiatives to the investment community at the beginning of the year, and they include expanding our market leadership positions. In that regard, we felt like we made a lot of progress in 2012. We had a lot of new product and program introductions in Plumbing, paint and decorative hardware. In the fourth quarter, our sales to key retail customers were up low double digits. For the full year, our sales to key retail customers were up mid-single digits.
We also did a nice job in the Installation segment with adjacencies and retrofit and commercial, a couple of areas we entered a couple of years ago during the downturn. Our window businesses in both North America and the United Kingdom continue to take share. Our vitality index for 2012 exceeded 30%, and that's the percentage of our products that were introduced in the last 3 years, manufactured products to our total sales. So a very healthy outcome there.
In addition to expanding our market leadership positions, another strategy that we focused on is our cost structure. We had a good outcome there. John will talk about that a little later on. We did exceed the targets we set early this year. We continue to benefit from restructuring activities, actions that we've taken over the course of the last couple of years and our continued emphasis on supply chain and lean initiatives.
We also had made progress with our balance sheet. We had a net debt reduction. We ended the year with solid liquidity and good borrowing capacity. Our fourth strategic initiative is improving the performance of our Installation- and Cabinet-related segments, and we had a pretty good outcome there in terms of full year performance. On a combined basis in aggregate, those businesses improved $85 million in terms of year-over-year comparison, and that's $85 million of loss reductions. We did get some help from the marketplace. Obviously, both of these segments are impacted by new home construction, but we also had good execution. Our Installation business was profitable in the fourth quarter. Now you might remember we just missed breakeven in the third quarter. We were profitable in the fourth quarter.