01—Abstract
Summary
Summary of the 10-K filed February 9, 2017. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation, a global leader in branded home improvement and building products, reported 2016 net sales of $7.36 billiona, up from $7.14 billion in 2015, and operating profit of $1.05 billion versus $914 million a year earlier.
Net income attributable to Masco Corporation was $491 millionb, or $1.47 diluted earnings per share from continuing operations, compared with $1.03 in 2015. Growth was driven by higher sales volume in plumbing products, paints and coatings, and builders' hardware, along with favorable commodity-cost relationships and cost savings, partly offset by higher warranty costs (including a $31 million increase in the Windows and Other Specialty Products segment), ERP implementation costs and currency translation. Operating profit margin, as reported, rose to 14.3 percent from 12.8 percent.
The Plumbing Products segment was the largest contributor, with net sales of $3.53 billionc and operating profit of $642 million, while the Windows and Other Specialty Products segment posted an operating loss of $3 million. The Home Depot accounted for approximately 34 percent of consolidated net sales in 2016, and the filing describes it as the largest customer and the principal outlet for BEHR paint. Total shareholders' deficit was $103 million at year-end, with total debt at 104 percent of total capitalization, versus 98 percent in 2015.
Financial flexibility improved during 2016: Masco issued $900 milliond of new notes, used the proceeds with cash on hand to retire $1.3 billion of notes, and ended the year with cash, cash investments and short-term deposits of about $1.2 billion and no borrowings under its $750 million revolving credit agreement. The company repurchased nearly 15 million shares for $459 million and raised its quarterly dividend to $0.10 per share from $0.095. The filing notes that Milgard, its U.S. window business, is experiencing operational issues and that it is implementing a new ERP system, and it expects 2017 capital expenditures of approximately $200 million.
02—Key points
Key Highlights
- Net sales of $7.36 billion in 2016, up from $7.14 billion in 2015; operating profit rose to $1.05 billion from $914 million.
- Income from continuing operations attributable to Masco was $491 million, or $1.47 diluted per share, compared with $1.03 per share in 2015.
- Plumbing Products was the largest segment with $3.53 billion in net sales and $642 million in operating profit; Windows and Other Specialty Products recorded a $3 million operating loss.
- The Home Depot represented approximately 34 percent of 2016 consolidated net sales, and the filing describes this concentration as a material risk.
- Refinanced $1.3 billion of notes in 2016, leaving $1.2 billion of cash, cash investments and short-term deposits and no borrowings under the revolving credit agreement at year-end.
- Repurchased nearly 15 million shares for $459 million in 2016 and increased the quarterly dividend to $0.10 per share; 12.9 million shares remain under authorization.
- Shareholders' deficit of $103 million at December 31, 2016, with total debt at 104 percent of total capitalization.
- Milgard, the U.S. window business, faces operational issues and an ERP implementation that the filing says may require additional expense and management attention.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Masco kept $0.07.
- Revenue$7.36B100.0%
- Cost of revenue−$4.89B66.5%
- Gross profit$2.46B33.5%
- Operating costs−$1.38B18.7%
- Operating income$1.09B14.8%
- Interest, other & tax−$594.0M8.1%
- Net income$493.0M6.7%
Where FY2016 revenue went
$7.36B- Cost of revenue: $4.90B, 67% of revenue
- SG&A: $1.38B, 19% of revenue
- Net income: $493.0M, 6.7% of revenue
- Interest, other & tax: $594.0M, 8.1% of revenue
Kept 6.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 9, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.36B$7.14B | +3.0% |
| Cost of Revenue | $4.90B$4.89B | +0.2% |
| Gross Profit | $2.46B$2.25B | +9.3% |
| SG&A Expenses | $1.38B$1.34B | +2.7% |
| Operating Income | $1.09B$914.00M | +18.9% |
| Interest Expense | $229.00M$225.00M | +1.8% |
| Net Income | $493.00M$355.00M | +38.9% |
| EPS (Basic) | $1.49$1.03 | +44.7% |
| EPS (Diluted) | $1.48$1.02 | +45.1% |
| Shares Outstanding (Basic) | 326.00M338.00M | −3.6% |
| Shares Outstanding (Diluted) | 330.00M341.00M | −3.2% |
05—Questions
Frequently Asked Questions
How did Masco perform financially in 2016?
Net sales rose to $7.36 billion from $7.14 billion, and operating profit increased to $1.05 billion from $914 million. Income from continuing operations attributable to Masco was $491 million, or $1.47 per diluted share, versus $1.03 in 2015. The filing attributes the improvement mainly to higher sales volume, a more favorable relationship between selling prices and commodity costs, and cost savings, partly offset by higher warranty costs.
What are the main risks tied to customer concentration?
The Home Depot accounted for approximately 34 percent of 2016 consolidated net sales, and Lowe's represented less than ten percent. The filing states that losing a substantial portion of Home Depot sales would have a material adverse effect on the business, and that home center retailers can significantly influence pricing and terms.
Which segment drove results and which struggled?
Plumbing Products generated $3.53 billion in net sales and $642 million in operating profit, and Decorative Architectural Products produced $430 million in operating profit. Cabinetry Products improved to $93 million in operating profit from $51 million. Windows and Other Specialty Products swung to a $3 million operating loss from $57 million of profit in 2015, reflecting higher warranty costs and ERP-related expenses.
How is Masco managing its balance sheet and capital returns?
In 2016 Masco issued $400 million of 3.5% notes due 2021 and $500 million of 4.375% notes due 2026, then used the proceeds and cash to retire its $1 billion 6.125% notes and $300 million 5.85% notes. It repurchased nearly 15 million shares for $459 million and paid $128 million in cash dividends. Its revolving credit agreement was $750 million with no borrowings at year-end, and the company was in compliance with its covenants.
06—Continue