Masco Management Discusses Q2 2012 Results - Earnings Call Transcript

Masco (MAS)

Q2 2012 Earnings Call

July 31, 2012 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

Eric Bosshard - Cleveland Research Company

Dennis McGill - Zelman & Associates, Research Division

Nishu Sood - Deutsche Bank AG, Research Division

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

Mike Wood - Macquarie Research

Will Randow - Citigroup Inc, Research Division

Susan Maklari - UBS Investment Bank, Research Division

Stephen F. East - ISI Group Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Masco Corporation Second Quarter 2012 Conference Call. My name is Sarah, 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 the Vice President of Investor Relations, Maria Duey. Maria, you may begin.

Maria Duey

Thank you, Sarah, and good morning to everyone. Welcome to Masco Corporation's Second Quarter 2012 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 second 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.

If you would refer to Slide 2, I'd like to remind you that today's presentation includes 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've described these risks and uncertainties in our risk factors in our Form 10-K 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 measurements 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 if you would please move to Slide #4. After a relatively strong start to the year in the first quarter, with sales up about 7% overall, second quarter sales leveled out and were flat compared to last year at $2 billion. We were hit by the negative currency translation. That cost us about $46 million in terms of top line. And excluding that, we've been up about 3% in terms of sales.

From a positive perspective, our international operations were flat in local currencies in a relatively tough environment. We also benefited from price and improved new home construction-related activity.

On the other side, Retail repair/remodel activity was slower, and our sales to key retail customers were flat in the quarter. Margins on an adjusted basis were up 40 basis points, and John will get into the detail there, but we did have some nice leverage in terms of our SG&A expenses, which offset the gross profit decline. We continue to benefit from profit improvement activities as -- and also had a positive price/commodity relationship in the quarter.

Earnings per share on an adjusted basis, at $0.10, exceeded the $0.06 that we reported last year. And we did not pro forma those earnings for negative hedge and negative foreign currency translation, which each cost us about $0.01.

We also in the quarter had a fairly significant event in terms of the settlement of our Columbus Drywall litigation. I should say that's accounted for in the second quarter. It actually took place in the latter part of July. We've agreed to pay $75 million to settle that claim. We continue to deny any wrongdoing or unlawful conduct but certainly feel that this decision makes sense under the circumstances it eliminates a significant uncertainty and also limits the expense of that case, which was fairly significant. And it's very good to have that behind us.

If you flip to Slide #5. Earlier this year, we communicated the strategic initiatives that we're focused on to drive improved performance and value going forward. Those include extending our market leadership positions, continuing to aggressively manage our cost structure through supply chain and Lean initiatives, improving our Cabinet and Installation-related businesses and strengthening our balance sheet.

And if you flip to Slide #6, we'll talk a little bit about how we've done against those strategies. As it relates to extending our market leadership positions, we continue to introduce new products, as well as win new business for the future. I think a good example of one of the new product introductions that we have includes the extension of our Delta brand, with new products, new finishes and complementary accessories in the bath category. As it relates to our Installation segment, we continue to get very good traction in the first part of this year as it relates to the relatively new retrofit and light commercial channels. In our Window businesses, both in North America and in the United Kingdom, continued to gain share. Milgard continues to do a very good job in the Western part of the United States. Recent product introductions: Essence -- Essence is our wood fiberglass window -- the vinyl color window program and our vinyl swing doors are all getting very good traction.

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