Masco Corporation (MAS)

MAS 
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Masco Corporation (MAS)

6th Annual J.P. Morgan Homebuilding and Building Products Conference

May 22, 2013 7:45 am ET

Executives

Timothy Wadhams - Chief Executive Officer, President and Director

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

Analysts

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

Presentation

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

All right, well, we're going to kick it off this morning, the second day of our Sixth Annual Homebuilding and Building Products Conference. Good morning, everyone. My name is Mike Rehaut, I'm the senior analyst in covering the homebuilding and building products sector for -- at the equity research group at JPMorgan. We have a great second day lineup.

First day, yesterday, it was a little bit more homebuilding heavy, and today, it's a little bit more building products heavy. And on that team, it's no better way to start than the building products bellwether of the group, Masco Corporation. Masco has a lot of leading brands and positions within the building products industry, including Delta and also being the largest cabinet producer in the -- in North America.

As with prior presentations, we'll try and keep our prepared remarks to roughly 20 minutes, so there'll be plenty of time for Q&A. And with no further ado, I'll turn it over to Tim Wadhams, President and CEO.

Timothy Wadhams

Thank you, Mike, and thank all of you for joining us today. Before I talk about our strategies, some of the strength that we're leveraging across the enterprise in support of those strategies and talk little bit about growth. I thought it'd be a good idea to introduce the company at a relatively high level, especially for those of you who are new to Masco.

Last year, in 2012, our sales were $7.5 billion, and we estimate that about 3/4 of that was related to repair/remodel activity, the other 25%, 27% related to new home construction. And just to give you a little bit of perspective, if you went back to our peak year in 2006, we did with the same portfolio of businesses about $11.5 billion in sales. And at that point, our mix would've been about 55% repair/remodel activity and about 45% new home construction.

We report our financial information in 5 different segments. And while Masco is not necessarily a household name, many of our brands are very well known. As Mike mentioned, in plumbing, we got Delta, along with Hansgrohe, which is our international brand. In an architectural coatings, we have Behr and Kilz. In the cabinet business, we've got KraftMaid and Merillat. And in our window business, on the West Coast, we've got the Millgard brand, which is a very strong brand in that region of the country.

We also are large in the markets where we participate. We have a lot of scale. We believe that we're the largest manufacturer of faucets in the world. The largest non-commodity supplier to Home Depot, the largest supplier to Lowe's kitchen and bath segment, the largest supplier of architectural coatings for the do-it-yourself market in the U.S. and the largest installer of products for new home construction.

In terms of our strategies, there are 4 strategies that we're pursuing to drive value for our shareholders. Those include extending our market leadership positions, continuing to reduce our cost structure, improving our cabinet installation-related businesses and strengthening our balance sheet. As it relates to our extending our market leadership positions, we believe that our major brands have continued to hold or gain share over the course of the last couple of years. Delta, Brizo and Peerless in North America have done very well; Hansgrohe, our international faucet brand, continues to gain share internationally. As I mentioned, Behr is #1 in terms of the do-it-yourself market. And our Installation business, including a couple of adjacencies, has done a nice job over the course of the last couple of 3 years in increasing their share as well. So we think we're in a good position from a share standpoint.

As it relates to cost reduction, we estimate that we have, on a gross basis, reduced our fixed cost by $600 million over the course of the downturn. Now obviously, that's been the result of a lot of difficult decisions. A lot of difficult actions, includes over 30 plant closures, probably 150 installation branch closures, as well as a significant headcount reduction as you can see from this slide, more than half of our workforce over that period of time, but certainly, actions that we thought were appropriate given the circumstances.

As it relates to our cabinet and installation business, those 2 businesses have been hit the most hard by the decline in housing in terms of our financial performance. But we have seen over the course of the last 5 or 6 quarters some very good improvement there. In 2012, we reduced losses by about $85 million in aggregate in both of these segments. And in the fourth quarter of '12, our installation business was profitable.

In terms of cabinets, we've had good improvement there as well. In the first quarter of 2013, our cabinet business was breakeven, and our North American cabinet business made a little bit of money, so really pleased with that outcome. In the first quarter, in aggregate, our installation and cabinet businesses improved by about $24 million on a quarter-to-quarter comparative basis with the prior year. We expect to make continued progress this year, but certainly feel like we're going in the right direction with those businesses.

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