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Masco Corporation Q1 2010 Earnings Call Transcript

Masco Corporation Q1 2010 Earnings Call Transcript

Masco Corporation (MAS)

Q1 2010 Earnings Call Transcript

April 27, 2010 8:00 am ET


Timothy Wadhams – President and CEO

Donny DeMarie – EVP and COO


Ivy Zelman – Zelman & Associates

Michael Rehaut – JP Morgan

Budd Bugatch – Raymond James

Joshua Pollard – Goldman Sachs

Peter Lisnic – Robert W. Baird

David Goldberg – UBS

David MacGregor – Longbow Research

Stephen East – Ticonderoga Securities

Matt Lamden [ph] – Barclays Capital

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Keith Hughes – Sun Trust



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» Masco Corporation Q3 2009 Earnings Call Transcript
» Masco Corporation Q2 2009 Earnings Call Transcript
» Masco Corporation Q1 2009 Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2010 first quarter conference call. As a reminder, today's conference is being recorded and simultaneously webcast. If you not 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

Before we begin management's presentation, the company wants to direct your attention to the current slide and the note at the end of the earnings release, which are cautionary reminders about statements that reflect the company's views about its future performance and about non-GAAP financial measures.

After a brief discussion by management, the call will be open for analysts' questions. If we are unable to get to your question during this call, please call the Masco Corporation Investor Relations’ office at 313-792-5500. I would now like to turn the call over to Mr. Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead, sir.

Timothy Wadhams

Thank you, Lauren and I thank all of you for joining us today for Masco's first quarter 2010 earnings call. I'm joined by Donny DeMarie, our Executive Vice President and Chief Operating Officer and John Sznewajs, our CFO. And if you would please move to slide number three.

We're very pleased that we had a positive sales comp in the first quarter of 2010. It's been a long run. It's been probably about three years since we've had a positive comp. And we're very, very happy with that and obviously our sales were up 3%.

We started the quarter a little slow but as weather improved, March and then into April, business has picked up. Certainly, a tough environment for new home construction but again, certainly pleased to have a positive comp. We did lose $0.02 a share in the first quarter, that compares with $0.24 a share loss in the first quarter of 2009.

We also issued $500 million of 10-year notes and retired $300 million of notes that were due in March. We also ended the quarter in a strong cash position with $1.4 billion of cash at March 31.

If you would move to slide number four, we show our segment results here and again, we had some very good performance from a segment standpoint. Four of our five segments were up in sales and improved in terms of operating profit.

The one exception to that was our installation business which as I think all of you know is pretty much 100% new home construction and that continued to be challenging. If you exclude the installation segment, our sales would have been up a pretty strong 7%.

So we're very pleased with that. If you could move to slide number five, first quarter 2010 continued some of the positive trends that we experienced in 2009. Our gross profit was up 360 basis points to 26.6% and our sales to key retailers increased for the second quarter. They were up 2%.

And as I mentioned earlier, January and February, you started a little slow for us from a companywide perspective. As the weather improved, March and April both showed high single digit sales increases. Obviously April's not closed yet but our best read right now is that we ought to be up high single digits.

So we're pleased with that from an overall company standpoint and certainly pleased that we had a second straight quarter of positive comps in terms of sales to key retail customers. Our incremental margin was strong in the quarter. We were up in sales $55 million and up in operating profit $80 million and if you would please flip to slide number six. I mentioned EPS. A loss of $0.02 compared to a loss of $0.24 cents last year.

We had $14 million of rationalization charges in the first quarter of 2010. That compares to $24 million last year. And we also in both quarters had an unusual relationship between pre-tax income and tax expense. The first quarter of 2010 included $9 million of tax expense that's related to adjustments of previously established accruals for uncertain tax positions.

And in the first quarter of 2009, although we had a pretax loss of $61 million, we had $17 million of tax expense. Now that $17 million relates – correlates to about $0.05 of earnings per share, and the $9 million that we talked about for the first quarter of 2010 or that we incurred in the first quarter of 2010 represents about $0.03 a share.

Excluding the $9 million, our full-year tax rate was to be approximately 40%. We did have a subsequent event that we announced in terms of the cabinet restructuring that may have some implications to the tax rate on a full-year basis but we'll communicate that as that develops. And I would remind folks that as we get back to more normal operating environment and performance that our ongoing tax rate for modeling purpose would be around 36%.

If you move to slide number seven, I mentioned that our sales were up 3%. We did benefit from currency, foreign currency translation contributed about $36 million. We saw some nice improvement in terms of margin and I would point out that this slide and the slides that follow from an operating profit standpoint exclude rationalization charges.

We have included the GAAP financial numbers for operating profit for the company and the various segments in the box at the lower right-hand corner of the slides going forward, but we thought for comparative purposes, it would be better to show operating profit without the restructuring charges and you can see here that we had a very nice increase in terms of margin from just over 1% to 5% on that basis.

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