01—Abstract
Summary
Summary of the 10-K filed February 14, 2014. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation manufactures, distributes and installs home improvement and building products, with about 81 percent of 2013 sales generated by North American operations.
Net sales rose to $8.17 billiona in 2013 from $7.50 billion in 2012, and operating profit improved to $673 million from $302 million. Income from continuing operations attributable to Masco Corporation was $282 million, or $.78 per diluted share, compared with a loss of $53 million in 2012. The company reported net cash from operating activities of $645 million and ended the year with approximately $1.5 billion in cash, cash investments and short-term bank deposits.
Management said it is focused on four strategic initiatives: product leadership, cost reduction, improving underperforming businesses, and strengthening the balance sheet. The filing reports that Cabinets and Related Products and Installation and Other Services returned to profitability in 2013. Total debt as a percent of total capitalization fell to 82 percent from 87 percent, and the company repaid $200 millionb of 7.125% notes in August 2013.
The Credit Agreement entered in March 2013 provides a $1.25 billionc commitment, with no borrowings outstanding at year-end. The company still carries a full valuation allowance against U.S. Federal deferred tax assets, and it said that reversal of all or a portion of up to approximately $550 million could occur as early as the second half of 2014. Leadership also changed: Timothy Wadhams retired as President and CEO effective February 14, 2014, and Keith J.
Allman was elected to succeed him and join the Board. Concentration risk is significant, since The Home Depot accounted for $2.3 billiond, or approximately 28 percent, of 2013 consolidated net sales. Investors should weigh the recovery in new home construction and repair and remodel activity against this customer concentration and the remaining valuation allowance.
02—Key points
Key Highlights
- Net sales were $8.17 billion in 2013, up from $7.50 billion in 2012, and operating profit was $673 million versus $302 million.
- Income from continuing operations attributable to Masco was $282 million, or $.78 per diluted share, compared with a loss of $53 million in 2012.
- Operating profit margin, as reported, was 8.2 percent in 2013 compared with 4.0 percent in 2012.
- Net cash from operating activities was $645 million, and cash, cash investments and short-term bank deposits totaled approximately $1.5 billion at December 31, 2013.
- Total debt as a percent of total capitalization was 82 percent, down from 87 percent, after the $200 million 7.125% Notes were retired in August 2013.
- The Home Depot was the largest customer, with sales of $2.3 billion, or approximately 28 percent of consolidated net sales.
- Timothy Wadhams retired as President and CEO effective February 14, 2014, and Keith J. Allman succeeded him.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Masco kept $0.04.
- Revenue$6.76B100.0%
- Cost of revenue−$4.80B71.0%
- Gross profit$1.96B29.0%
- Operating costs−$1.35B19.9%
- Operating income$612.0M9.1%
- Interest, other & tax−$324.0M4.8%
- Net income$288.0M4.3%
Where FY2013 revenue went
$6.76B- Cost of revenue: $4.80B, 71% of revenue
- SG&A: $1.35B, 20% of revenue
- Net income: $288.0M, 4.3% of revenue
- Interest, other & tax: $324.0M, 4.8% of revenue
Kept 4.3% as net incomeNet income $288.0M · 4.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 14, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $6.76B$7.50B | −9.8% |
| Cost of Revenue | $4.80B$5.54B | −13.3% |
| Gross Profit | $1.96B$1.96B | +0.2% |
| SG&A Expenses | $1.35B$1.53B | −12.2% |
| Operating Income | $612.00M$302.00M | +102.6% |
| Interest Expense | $235.00M$254.00M | −7.5% |
| Net Income | $288.00M-$114.00M | +352.6% |
| EPS (Basic) | $0.80$-0.33 | +342.4% |
| EPS (Diluted) | $0.80$-0.33 | +342.4% |
| Shares Outstanding (Basic) | 350.00M349.00M | +0.3% |
| Shares Outstanding (Diluted) | 352.00M349.00M | +0.9% |
05—Questions
Frequently Asked Questions
How did Masco's profitability change in 2013?
Operating profit rose to $673 million from $302 million, and income from continuing operations attributable to Masco was $282 million, or $.78 per diluted share, compared with a loss of $53 million in 2012. The filing attributes the gains to increased sales volume, a more favorable relationship between selling prices and commodity costs, and benefits from business rationalizations and cost savings initiatives.
How strong is Masco's balance sheet and liquidity?
The company had approximately $1.5 billion of cash, cash investments and short-term bank deposits at December 31, 2013, and $622 million of that was held in foreign subsidiaries. It had no borrowings under its $1.25 billion Credit Agreement, with additional borrowing capacity of up to $1.2 billion subject to availability. Total debt as a percent of total capitalization was 82 percent, compared with 87 percent a year earlier.
What risks does the filing highlight for investors?
The filing highlights reliance on new home construction and home improvement activity, concentration of sales with The Home Depot and Lowe's, intense competition including from private label and foreign manufacturers, commodity cost volatility, and potential additional non-cash impairment charges. It also notes that a full valuation allowance remains against U.S. Federal deferred tax assets, so the U.S. effective tax rate is lower until that allowance is reversed.
Is a reversal of the deferred tax valuation allowance expected?
The filing says it is reasonably possible that continued improvement in U.S. operations could support reversing all or a portion of the valuation allowance, up to approximately $550 million, as early as the second half of 2014. It also states that this is not assured and that a return to sustainable profitability in the U.S. is required before management changes its judgment.
What leadership changes were announced?
On January 8, 2014, Masco announced that Timothy Wadhams would retire as President and Chief Executive Officer effective February 14, 2014. The Board elected Keith J. Allman, age 51, to succeed him as President and CEO and to join the Board effective the same date. Mr. Allman joined the company in 1998 and most recently served as a Group President responsible for the Plumbing and North American Cabinet businesses.
06—Continue