Masco Corporation (MAS)

MAS 
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Masco (MAS)

Q1 2013 Earnings Call

April 30, 2013 8:00 am ET

Executives

Maria Duey - Vice President - Investor Relations

Timothy Wadhams - Chief Executive Officer, President and Director

John G. Sznewajs - Chief Financial Officer, Vice President and Treasurer

Analysts

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Dennis McGill - Zelman & Associates, LLC

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Sam Darkatsh - Raymond James & Associates, Inc., Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Rob Hansen - Deutsche Bank AG, Research Division

Susan Maklari - UBS Investment Bank, Research Division

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

David S. MacGregor - Longbow Research LLC

George L. Staphos - BofA Merrill Lynch, Research Division

Mike Wood - Macquarie Research

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to Masco Corporation's First Quarter 2013 Conference Call. My name is Tiffany, and I will be your operator for today's call. As a reminder, today's conference is being recorded for replay purposes. [Operator Instructions]

I will now turn the call over to Vice President of Investor Relations, Maria Duey. Maria, you may begin your conference.

Maria Duey

Thank you, Tiffany, and good morning to everyone. Welcome to Masco Corporation's First Quarter 2013 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 first quarter earnings release and the presentation slides that we will refer to during the call are available on the Investor Relations portion on our website. Following our prepared remarks, the call will be open for analyst questions. [Operator Instructions] If we are unable to take your question during the call, please feel free to call me directly at (313) 792-5500.

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 have 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 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?

Timothy Wadhams

Thank you, Maria, and thank all of you for joining us today for Masco's First Quarter 2013 Earnings Call. And if you would please move to Slide #4. We're pleased with our first quarter results, and that gets pretty tough comparison given the first quarter of 2012. And we certainly feel like we're off to a good start in 2013.

Our Q1 performance reflects the strength of Masco's brands, our leadership position within the building products markets and our leverage to a continuing housing recovery. Our sales growth was driven by our execution against an increase in North American new home construction activity, which particularly benefited our Cabinet, Installation and window-related businesses. Our top line also benefited from the new products that we've introduced at retail that continue to outperform our expectations and reinforce our strength in the repair and remodel channel.

We also reached a major milestone by achieving profitability in our North American Cabinet business and a breakeven level of profitability at the segment level for cabinets. And obviously, we're very pleased with that outcome. The improvement in Cabinets, together with our focus on cost containment and our operating leverage, helped us continue our margin expansion. Our segments with European market exposure, which include Cabinets, Other Specialty Products and plumbing, were impacted by the continued weakness in the eurozone, which, coupled with unusually harsh weather in Europe, caused a drag on our stronger North American results.

And if you would please move to Slide #5. As we communicated in the past, our strategy is focused on 4 key elements to drive performance. We expanded our market leadership by continuing our legacy of introducing new products and programs which matter to our customers and consumers. In North America, our faucet and toilet businesses benefited -- benefiting from recent product introductions, delivered high-teens growth. And our Decorative Architectural business, which includes our paint and builders' hardware, continue to win new opportunities. Installation services is responding to new home construction growth by strategically adding greenfield locations in markets where activity is strong and the recovery is well underway.

We also had another good quarter from a cost reduction standpoint. We continue to benefit from restructuring actions, our focus on lean and our efforts in the supply chain. And John will talk a little bit more about the outcome later on, but certainly pleased with our continued progress there.

We're coming off a solid 2012 in terms of our Cabinet and Installation segments in their improvement and had a lot of momentum coming into the first quarter, and I'm really pleased with our first quarter results as it relates to Cabinets and Installation. On a combined basis, in aggregate again, those 2 segments improved by $24 million in terms of operating profit compared to the first quarter of 2012, and that's despite the first quarter generally being a little bit slower from a seasonality standpoint.

While there's still a lot of work to do, the potential of Installation and Cabinetry is promising when considering their operating leverage and exposure to recovering markets. Our commitment to strengthen our balance sheet is evident in our working capital improvement and our ability to successfully negotiate a new 5-year revolving credit facility. These execution highlights represent what we feel is a very good start to 2013, and we're certainly pleased with our performance coming out of the gate.

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