01—Abstract
Summary
Summary of the 10-K filed February 9, 2021. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation, a global leader in branded home improvement and building products, reported net sales of $7.2 billiona for 2020, up seven percent from 2019 on higher sales volume in both segments, partly offset by unfavorable net selling prices in Decorative Architectural Products.
Operating profit rose to $1.295 billionb from $1.088 billion, and income from continuing operations attributable to Masco was $810 million, or $3.04 per diluted share, versus $2.20 in 2019. Net income attributable to Masco was $1.224 billion, helped by $414 million of income from discontinued operations, including the $585 million gain on the sale of the Cabinetry business. Net cash from operating activities was $953 million.
The company continued to return capital to shareholders, repurchasing and retiring 18.8 million shares for approximately $727 millionc in 2020 and increasing its quarterly dividend to $0.14 from $0.135. The Board authorized a new $2.0 billion repurchase program effective February 10, 2021, and management anticipates using approximately $800 million of cash for share repurchases in 2021. Total equity turned positive to $421 million from a deficit of $56 million a year earlier.
Long-term debt was $2.792 billiond at year end, and the company issued $300 million of 2.0% notes due 2030 and an incremental $100 million of 4.5% notes due 2047 while retiring $400 million of 3.5% notes. Investors should note the concentration of sales with The Home Depot, which accounted for approximately 39 percent of consolidated net sales in 2020, and the continued COVID-19 uncertainty described in the filing. The company also disclosed that its qualified domestic defined-benefit pension plans are expected to be terminated in 2021, with pension expense projected at $470 million for 2021 compared with $30 million in 2020, and a planned contribution of approximately $140 million.
02—Key points
Key Highlights
- Net sales of $7.188 billion in 2020, up seven percent from $6.707 billion in 2019, driven by higher sales volume of paints and other coating products, plumbing products and builders' hardware.
- Operating profit of $1.295 billion (18.0 percent operating margin as reported) versus $1.088 billion in 2019; diluted income from continuing operations per share of $3.04 versus $2.20.
- Net income attributable to Masco of $1.224 billion, including $414 million from discontinued operations, which reflects the Cabinetry divestiture with proceeds of $853 million net of cash disposed.
- Shareholder returns: $727 million spent repurchasing 18.8 million shares in 2020, $774 million remaining under the 2019 authorization, a new $2.0 billion authorization effective February 10, 2021, and approximately $800 million planned for 2021 repurchases.
- Balance sheet: cash and cash investments of $1.326 billion, long-term debt of $2.792 billion, and total equity of $421 million compared with a $56 million deficit in 2019.
- Customer concentration: net sales to The Home Depot were $2.8 billion, approximately 39 percent of consolidated net sales, and the filing states that losing this business would have a material adverse effect.
- Acquisitions and pension actions: Kraus, Work Tools and SmarTap were acquired in 2020, the ESS majority stake closed January 4, 2021, and the qualified domestic pension plans are expected to be terminated in 2021 with 2021 pension expense projected at $470 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Masco kept $0.17.
- Revenue$7.19B100.0%
- Cost of revenue−$4.60B64.0%
- Gross profit$2.59B36.0%
- Operating costs−$1.29B18.0%
- Operating income$1.29B18.0%
- Interest, other & tax−$71.0M1.0%
- Net income$1.22B17.0%
Where FY2020 revenue went
$7.19B- Cost of revenue: $4.60B, 64% of revenue
- SG&A: $1.29B, 18% of revenue
- Net income: $1.22B, 17% of revenue
- Interest, other & tax: $71.0M, 1.0% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 9, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $7.19B$6.71B | +7.2% |
| Cost of Revenue | $4.60B$4.34B | +6.1% |
| Gross Profit | $2.59B$2.37B | +9.1% |
| SG&A Expenses | $1.29B$1.27B | +1.4% |
| Operating Income | $1.29B$1.09B | +19.0% |
| Interest Expense | $144.00M$159.00M | −9.4% |
| Net Income | $1.22B$935.00M | +30.9% |
| EPS (Basic) | $4.60$3.24 | +42.0% |
| EPS (Diluted) | $4.59$3.22 | +42.5% |
| Shares Outstanding (Basic) | 264.00M287.00M | −8.0% |
| Shares Outstanding (Diluted) | 264.00M288.00M | −8.3% |
05—Questions
Frequently Asked Questions
How did Masco perform in 2020 compared with 2019?
Net sales rose seven percent to $7.188 billion, operating profit increased to $1.295 billion from $1.088 billion, and diluted income from continuing operations per share was $3.04 versus $2.20. The filing attributes the improvement to strong demand for lower-ticket repair and remodel products, cost savings initiatives and higher sales volume, partly offset by unfavorable net selling prices and increased commodity costs including tariffs.
What drove the large difference between income from continuing operations and net income?
Income from discontinued operations, net, was $414 million in 2020, primarily reflecting the sale of the Cabinetry business, which generated a gain on divestiture of $585 million. Net income attributable to Masco was $1.224 billion, compared with income from continuing operations attributable to Masco of $810 million.
How is Masco returning capital to shareholders?
Masco repurchased and retired 18.8 million shares for about $727 million in 2020 and paid cash dividends of $145 million. The quarterly dividend was raised to $0.14 per share in the third quarter of 2020, and the Board intends to increase the annual dividend to $0.94 per share beginning in the second quarter of 2021. A new $2.0 billion repurchase authorization is effective February 10, 2021, and about $800 million is anticipated for 2021 buybacks.
What are the key risks highlighted in the filing?
The filing highlights reliance on The Home Depot, which accounted for about 39 percent of net sales, continued uncertainty from the COVID-19 pandemic, commodity and tariff cost pressures for brass, resins, titanium dioxide and zinc, dependence on third-party suppliers primarily in China, and exposure to residential repair and remodeling activity.
What pension changes should investors be aware of?
The Board approved terminating the qualified domestic defined-benefit pension plans, with termination expected in 2021. The company expects to recognize approximately $450 million of pre-tax actuarial losses upon termination, expects pension expense of $470 million in 2021 compared with $30 million in 2020, and plans to contribute about $140 million in 2021.
06—Continue