Masco Corporation (MAS)

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Masco (MAS)

Q4 2011 Earnings Call

February 14, 2012 8:00 am ET

Executives

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

Nishu Sood - Deutsche Bank AG, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Dennis McGill - Zelman & Associates, Research Division

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Unknown Analyst

Joshua Wilson

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2011 Fourth Quarter Conference Call. As a reminder, today's conference is being recorded and simultaneously webcast. If you have not received the press release and supplemental information, they are available on Masco's website along with today's slide presentation under the Investor Relations section at www.masco.com.

Before we begin management’s presentation, the company wants to caution you that written and oral statements made in this presentation that reflect the company's views about its future performance constitute forward-looking statements. The company's actual results may differ materially from the results discussed in the forward-looking statements, and you are cautioned against relying on them. The company's future performance may be affected by factors discussed in the company's risk factors contained in the Form 10-K and its 10-Qs and in other filings with the company makes with the Securities and Exchange Commission. The company also directs your attention to the note at the end of the earnings release, which contains a cautionary reminder about non-GAAP financial measures.

After a brief discussion by management, the call will be open for analyst questions. If we are unable to get to your question during the conference, please call the Masco Corporation Investor Relations office at (313) 792-5500.

I would now like to turn the conference over to Mr. Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead, sir.

Timothy Wadhams

Thank you, Shalon, and thank all of you for joining us today for Masco's Fourth Quarter 2011 Earnings Call. I'm joined by John Sznewajs, our CFO, and if you would please flip to Slide #3.

2011 continued to be a challenging environment. We didn't see any lift in North American housing till very late in the year. Europe continued to be unsettled from an economic standpoint, again, particularly in the second part of the year, and we saw a mix shift in both of our major markets, less favorable. Commodity cost pressures were an issue for us. We ended the year with about $35 million of unfavorable relationship between price and commodities. And the retail environment continue to be very competitive, a lot of promotional activity. And while we had some businesses that performed very well, overall, our financial performance in 2011 was disappointing. We didn't get the improvement we anticipated in certain areas, and that was disappointing to us.

If you flip to Slide #4, I'll talk about some of our key financial data for the year. On a full year basis, our sales were flat. In the fourth quarter, we were up 1%. And to add a little color to that, our sales to key retail customers in the fourth quarter were down low single-digits. And if you adjust for some of the products that were exiting in Cabinets, we would have been up low single-digits. That's pretty much the same performance that we had in the third quarter.

And from a trend standpoint, for us, October was down slightly, but November, December, we started to see a little bit of improvement. We were up 3% in both of those months compared to the prior year. And as we head into 2012, we've got some nice momentum. We're up mid-single-digits in January, and that has continued into February.

In terms of earnings per share, gross margins, operating profit, we adjust those amounts to normalize them for rationalization charges and other items, and those reconciliations are in the back of the Appendix. But for the full year, we were down $0.21 on an adjusted basis in terms of earnings per share. We were also off $114 million in terms of operating profit, again, on an adjusted basis, and $114 million at a 36% tax rate happens to be exactly $0.21. We think about that in 3 big buckets. Mix for us in 2011 was negative to the tune of about $45 million. Price/commodity relationships, as I mentioned earlier, were unfavorable to approximately $35 million. And we had under-absorbed overhead related to the product exit, the exit of the ready-to-assemble products in Cabinets, of about $15 million.

In the fourth quarter, our operating profit was down $6 million from last year, and that's $0.01, and our earnings per share were $0.01 worse than last year. And again, mix was the big issue in the fourth quarter. Mix was negative for us in the amount of about $19 million.

Working capital was a plus. We continue to do a good job of managing our working capital. We were down to 12.2% when you take receivables plus inventories less payables. And my sense is that that's probably an all-time Masco record. So our folks are doing a great job across the enterprise in terms of managing working capital. Cash flow was relatively weak for us at $71 million. This is free cash flow after CapEx and before dividend. And we had pretty significant swing in terms of deferred income taxes from year-to-year, which really had significant impact there. From a balance sheet standpoint, we ended the year with $1.7 billion of cash, so we're in a very good position from a liquidity standpoint.

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