Masco Corporation (MAS)

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Masco (MAS)

Q3 2013 Earnings Call

October 29, 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

Dennis McGill - Zelman & Associates, LLC

Desi DiPierro - RBC Capital Markets, LLC, Research Division

Susan Maklari - UBS Investment Bank, Research Division

Philip Ng - Jefferies LLC, Research Division

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

Garik S. Shmois - Longbow Research LLC

George L. Staphos - BofA Merrill Lynch, Research Division

Nishu Sood - Deutsche Bank AG, Research Division

Michael Dahl - Crédit Suisse AG, Research Division

Nicholas A. Coppola - Thompson Research Group, LLC

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

Stephen S. Kim - Barclays Capital, Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to Masco Corporation's Third Quarter 2013 Conference Call. My name is Tiffany, and I will be your conference 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.

Maria Duey

Thank you, Tiffany, and good morning to everyone. Welcome to Masco Corporation's Third 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 third 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-Qs 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?

Timothy Wadhams

Thank you, Maria, and thank all of you for joining us today for Masco's Third Quarter 2013 Earnings Call. And if you would please move to Slide #4. As we have for the last several quarters, Masco's third quarter results showed strong revenue growth and margin expansion compared to the prior year quarter. We continue to execute on the strategic initiatives we laid out at the beginning of the year. As a result, this is the first time since the third quarter of 2007 that we have delivered double-digit operating margins. That outcome was driven by a double-digit increase in top line sales and strong operating leverage. We're very pleased with these results. Our leadership position in the building products industry and our focused execution against the housing recovery benefited all of our segments this quarter, with all 5 of our operating segments contributing to our top line growth. In North America, we continue to benefit from increased new home construction activity and improving trends in remodel activity, where we are starting to see an increase in bigger ticket-related items. In addition, the investments we have made to new products and programs have strengthened our business, particularly benefiting our paint and Plumbing business. We are seeing the benefit of our strict focus on cost containment, as well as our ongoing commitment to total cost productivity, as evidenced by our incremental margins. Importantly, our Installation and Cabinetry segments grew both top and bottom line in the quarter, reflecting our strong leverage to a housing recovery and significant improvement compared to last year. Our international sales and profits continue to increase, reflecting the slowly improving economic environment in the Eurozone and a solid performance by our international Plumbing and window businesses.

And if you would please turn to Slide #5. As we've communicated in the past, our strategy is focused on 4 key elements to drive performance. Our commitment and investment to expand our market leadership positions was recognized by one of our major partners, The Home Depot, in its recent Supplier Partnership Meeting. Both Delta and Behr were awarded The Home Depot Partner of the Year award in their respective categories. Both Delta and Behr were also recognized for The Home Depot's top 10 innovations of the year, reflecting the emphasis we place on innovation in Masco. In addition, unrelated, Delta was awarded the EPA WaterSense Partner of the Year. We're extremely proud of Behr and Delta, and congratulate both teams on their recent wins, and thank them for their hard work and dedication. Our company-wide emphasis on cost control as sales increase is demonstrated by our improvement in gross margins, SG&A leverage and our operating margins. John will discuss that in a couple of minutes, but we're very pleased with that outcome. Our Installation segment is capitalizing on improved market dynamics and drove sales in all channels of the business. By remaining focused on profitability, they continued their trend of improving their operating profit. North American Cabinetry is outperforming the new home construction market, and is benefiting from positive trends and remodeling. We had strong growth in the quarter, reflecting the stabilization of the business. The team continues to execute on their strategic plan, positioning the business for future profitable growth. Combined, these 2 segments, Cabinets and Installation, improved by $41 million of operating profit, compared to the third quarter of 2012. In addition, we remain committed to strengthening our balance sheet and continue to improve our working capital management. In addition, in August, we retired a $200 million debt maturity with cash on hand. These strategic highlights demonstrate our continued focus on execution which produced another strong quarterly performance.

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