01—Abstract
Summary
Summary of the 10-K filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation reported net sales of $7.64 billiona for 2017, up 4 percent from 2016, with operating profit of $1.17 billion and net income attributable to Masco Corporation of $533 million, or $1.66 per diluted share.
The company attributed the growth to higher sales volume tied to repair and remodel activity and new home construction, net selling price increases in Europe and the U.S., and cost savings initiatives. Plumbing Products was the largest segment, with net sales of $3.74 billionb and operating profit of $698 million. Decorative Architectural Products, led by BEHR paint, had net sales of $2.21 billion and operating profit of $434 million.
Cabinetry Products net sales fell 4 percent to $934 millionc, and Windows and Other Specialty Products were flat at $770 million after a $31 million warranty charge in 2016. The company's balance sheet and cash flow position improved during the year. Total debt as a percent of total capitalization was 95 percent at December 31, 2017, down from 104 percent a year earlier.
Net cash from operating activities was $751 milliond, and the company repurchased 9.2 million shares for $331 million, leaving about $1.3 billion under its 2017 authorization. The quarterly dividend was increased to $0.105 per share from $0.10 in the third quarter. Masco also signed a definitive agreement to acquire The L.D.
Kichler Co. for approximately $550 million in cash, expected to close in the first quarter of 2018. The filing highlights concentration and operating risks. The Home Depot accounted for $2.5 billion of net sales, approximately 33 percent of the consolidated total.
The company also disclosed operational issues at its U.S. window business, Milgard, and an ERP system rollout at Delta Faucet Company planned for the second quarter of 2018. Management expects the 2018 effective tax rate to be approximately 26 percent, reflecting U.S. tax reform.
02—Key points
Key Highlights
- Net sales rose to $7.64 billion in 2017 from $7.36 billion in 2016, an increase of 4 percent, and operating profit reached $1.17 billion.
- Diluted income from continuing operations per share was $1.66 in 2017, compared with $1.47 in 2016.
- Plumbing Products was the largest segment at $3.74 billion in net sales and $698 million in operating profit, while Decorative Architectural Products generated $2.21 billion in net sales and $434 million in operating profit.
- Total debt as a percent of total capitalization improved to 95 percent from 104 percent, and cash and short-term deposits totaled about $1.3 billion at year-end.
- Masco repurchased 9.2 million shares for $331 million and increased its quarterly dividend to $0.105 per share, with about $1.3 billion remaining under its 2017 repurchase authorization.
- The pending acquisition of The L.D. Kichler Co., expected to cost about $550 million and close in the first quarter of 2018, will be reported in the Decorative Architectural Products segment.
- The Home Depot represented about 33 percent of consolidated net sales, with $2.5 billion in sales, and the company disclosed continuing operational issues at its Milgard window business.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Masco kept $0.09.
- Revenue$6.01B100.0%
- Cost of revenue−$3.79B63.1%
- Gross profit$2.22B36.9%
- Operating costs−$1.19B19.8%
- Operating income$1.03B17.1%
- Interest, other & tax−$496.0M8.2%
- Net income$533.0M8.9%
Where FY2017 revenue went
$6.01B- Cost of revenue: $3.79B, 63% of revenue
- SG&A: $1.19B, 20% of revenue
- Net income: $533.0M, 8.9% of revenue
- Interest, other & tax: $496.0M, 8.2% of revenue
Kept 8.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 8, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $6.01B$7.36B | −18.3% |
| Cost of Revenue | $3.79B$4.90B | −22.6% |
| Gross Profit | $2.22B$2.46B | −9.8% |
| SG&A Expenses | $1.19B$1.38B | −13.4% |
| Operating Income | $1.03B$1.09B | −5.3% |
| Interest Expense | $279.00M$229.00M | +21.8% |
| Net Income | $533.00M$493.00M | +8.1% |
| EPS (Basic) | $1.68$1.49 | +12.8% |
| EPS (Diluted) | $1.66$1.48 | +12.2% |
| Shares Outstanding (Basic) | 314.00M326.00M | −3.7% |
| Shares Outstanding (Diluted) | 318.00M330.00M | −3.6% |
05—Questions
Frequently Asked Questions
How did Masco perform financially in 2017?
Net sales increased 4 percent to $7.64 billion, operating profit rose to $1.17 billion from $1.05 billion, and net income attributable to Masco Corporation was $533 million, or $1.66 per diluted share. The company attributed the results to higher sales volume, cost savings initiatives, and a more favorable relationship between net selling prices and commodity costs in Europe.
What acquisitions and divestitures did Masco complete in 2017?
Masco acquired Mercury Plastics, Inc., a U.S. plastics processor and manufacturer of water handling systems, for approximately $89 million in cash. It divested Arrow Fastener Co., LLC for proceeds of $128 million, recognizing a gain of $51 million, and Moores Furniture Group Limited, recognizing a loss of $64 million. It also signed a definitive agreement to acquire The L.D. Kichler Co.
How is Masco managing its debt and capital returns?
In June 2017, Masco issued $300 million of 3.5% Notes due 2027 and $300 million of 4.5% Notes due 2047 and used the proceeds, with cash on hand, to retire $535 million of other notes. The company incurred a $107 million loss on debt extinguishment, which was recorded as interest expense. Masco had no borrowings under its Amended Credit Agreement at December 31, 2017, and expects to use $200 to $300 million for share repurchases or acquisitions in 2018, in addition to the Kichler acquisition.
What are the main risks highlighted in the filing?
The filing highlights dependence on cyclical residential repair, remodeling, and new home construction; concentrated sales with The Home Depot; exposure to commodity costs such as brass, resins, titanium dioxide, and zinc; reliance on third-party suppliers, many located abroad; and international operations, principally in Europe. It also cites operational issues at the Milgard window business and the complexity of ERP system implementations.
06—Continue