01—Abstract
Summary
Summary of the 10-K filed February 13, 2015. 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 2014 sales generated by North American operations.
Net sales for 2014 were $8.5 billiona, up from $8.2 billion in 2013 (4 percent growth as reported), and operating profit was $788 million versus $673 million in 2013. Net income attributable to Masco Corporation was $856 million, or $2.38 per diluted share, compared with $288 million in 2013. The result was materially boosted by a $529 million income tax benefit from releasing the valuation allowance on deferred tax assets, which drove the effective tax rate to a 58 percent benefit.
Operating profit as adjusted for rationalization charges, spin-off costs and litigation items was $851 millionb, with an adjusted operating margin of 10.0 percent. The company is pursuing a plan, announced September 30, 2014, to spin off 100 percent of its Installation and Other Services businesses through a tax-free stock distribution to shareholders, with completion expected in mid-2015. Cabinets and Related Products remained the weak spot, posting an operating loss of $62 million in 2014.
The Home Depot, the largest customer, accounted for approximately 27 percent of consolidated net sales, with sales of $2.3 billionc. Total debt as a percent of total capitalization fell to 75 percent from 81 percent, and the company held approximately $1.7 billion of cash, cash investments and short-term bank deposits at year-end.
Capital returns increased: the Board authorized repurchases of up to 50 million shares in September 2014, the quarterly dividend was raised to $.09 from $.075 in the second quarter, and the company repurchased 7 million shares for $158 milliond during 2014. Management expects to repurchase between $400 million and $500 million of stock in 2015 and anticipates continued improvement in new home construction and repair and remodel activity in North America and internationally.
02—Key points
Key Highlights
- Net sales of $8.52 billion in 2014, up from $8.17 billion in 2013; North America accounted for $6.89 billion
- Net income attributable to Masco of $856 million ($2.38 diluted EPS), including a $529 million tax benefit from releasing the valuation allowance on deferred tax assets
- Operating profit of $788 million (9.2 percent margin), or $851 million (10.0 percent margin) as adjusted for rationalization and other items
- Planned spin-off of the Installation and Other Services businesses, expected to be completed in mid-2015, with $6 million of transaction costs incurred through December 31, 2014
- Cabinets and Related Products reported an operating loss of $62 million in 2014, while Plumbing Products operating profit rose to $512 million
- The Home Depot was the largest customer at about 27 percent of consolidated net sales ($2.3 billion)
- Debt to total capitalization improved to 75 percent from 81 percent; $158 million of stock repurchased in 2014 and $400-500 million planned for 2015
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Masco kept $0.12.
- Revenue$7.01B100.0%
- Cost of revenue−$4.95B70.6%
- Gross profit$2.06B29.4%
- Operating costs−$1.34B19.1%
- Operating income$721.0M10.3%
- Interest, other & tax$135.0M1.9%
- Net income$856.0M12.2%
Where FY2014 revenue went
$7.01B- Cost of revenue: $4.95B, 71% of revenue
- SG&A: $1.35B, 19% of revenue
- Operating income: $721.0M, 10% of revenue
Kept 10% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 13, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $7.01B$6.76B | +3.6% |
| Cost of Revenue | $4.95B$4.80B | +3.0% |
| Gross Profit | $2.06B$1.96B | +5.2% |
| SG&A Expenses | $1.35B$1.35B | 0.0% |
| Operating Income | $721.00M$612.00M | +17.8% |
| Interest Expense | $225.00M$235.00M | −4.3% |
| Net Income | $856.00M$288.00M | +197.2% |
| EPS (Basic) | $2.40$0.80 | +200.0% |
| EPS (Diluted) | $2.38$0.80 | +197.5% |
| Shares Outstanding (Basic) | 349.00M350.00M | −0.3% |
| Shares Outstanding (Diluted) | 352.00M352.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did Masco's reported net income jump so sharply in 2014?
The main driver was a $529 million income tax benefit from releasing the valuation allowance on U.S. Federal and certain state and foreign deferred tax assets, following a return to sustainable profitability. Income from continuing operations was $908 million with income tax benefit of $333 million, compared with $339 million and $111 million tax expense in 2013. Operating profit itself rose to $788 million from $673 million.
What is the status of the spin-off of the Installation and Other Services businesses?
Masco announced the plan on September 30, 2014 to distribute 100 percent of the Installation and Other Services businesses to shareholders in a tax-free stock distribution. The transaction is expected to be completed in mid-2015 and is contingent on Board approval, a tax counsel opinion, effectiveness of a Form 10 registration statement and other conditions. Until completion, these businesses remain in continuing operations. The segment reported 2014 net sales of $1.52 billion and operating profit of $58 million.
Which business segments are performing well and which are struggling?
Plumbing Products was the strongest segment, with net sales of $3.31 billion and operating profit of $512 million, and Decorative Architectural Products earned $360 million of operating profit on $1.998 billion of sales. Cabinets and Related Products was the weakest, with net sales of $999 million and an operating loss of $62 million, which management attributed to lower North American sales volume, under-absorption of fixed costs and increased business rationalization expenses.
How concentrated is Masco's customer base and what are the risks?
Sales are concentrated. The Home Depot, the largest customer, accounted for approximately 27 percent of consolidated net sales in 2014 ($2.3 billion), and Lowe's was the second largest at less than ten percent. The filing states that loss of a substantial portion of sales to The Home Depot or loss of sales to Lowe's would have a material adverse effect on the business. Home centers may also reduce vendor counts, change purchase volumes or pressure pricing.
What is Masco's balance sheet and capital return posture?
At December 31, 2014, total debt was 75 percent of total capitalization, down from 81 percent, and the company had about $1.7 billion of cash, cash investments and short-term bank deposits, of which $672 million was held in foreign subsidiaries. There were no borrowings under the $1.25 billion Credit Agreement, which had about $1.2 billion of additional borrowing capacity. Masco repurchased 7 million shares for $158 million in 2014, raised its quarterly dividend to $.09, and expects to repurchase $400 million to $500 million of stock in 2015.
06—Continue