Summary

• Masco Corporation is an American multinational company that designs, manufactures, and distributes industry-leading brands in plumbing and decorative architectural products. The company was founded in 1929 and headquartered in Livonia, Michigan.
• The company has over 19,000 employees across the globe and 38 manufacturing facilities (30 in North America, and 8 international).
• The company has two business segments - plumbing products segment and decorative architectural products segment.
• Masco Corporation's net sales for the three months ended March 31, 2023 were $2.0 billion, which decreased 10 percent compared to the three months ended March 31, 2022. Gross profits reported by the company for the first quarter of 2023 is $669 million as compared to $704 million during the corresponding period a year earlier. Gross margins for the periods are 33.8% and 32.0%, respectively. Net income of the for the first quarter of 2023 is $205 million, as compared to $233 million a year earlier.
• During the year 2022, Masco Corporation has reported total sales of $8,680 million, which was $8,375 million a year earlier - an increase of 4% year on year. Gross profit of Masco during 2022 is $2,713 million as compared to $2,863 million in 2021; gross margin for the years are 31.3% and 34.3%, respectively.
• Net income from continuing operation is $844 million in 2022 and $410 million a year earlier. Diluted earnings per share is $3.63 and $1.62 for the years, respectively.

Brief Company Overview

Masco Corporation (NYSE:MAS) is an American company the designs, manufactures, and distributes branded home improvement and building products. The company was established in 1929 as Masco Screw Products Company registered as a Michigan corporation. The company currently has over 19,000 employees across the globe, 30 manufacturing sites in North America and 8 international manufacturing facilities.¹ Masco is currently headquartered in Livonia, Michigan.

The company reports its results in two segments - plumbing products segment and decorative architectural products segment. Some of the industry-leading brands of the company include BEHR® paint; DELTA® and HANSGROHE® faucets, bath and shower fixtures; KICHLER® decorative and outdoor lighting; LIBERTY® branded decorative and functional hardware; and HOT SPRING® spas.

Keith J. Allman is the current president, CEO & director of the company. As of June, 2023, 52-weeks price range of the company is $57.25 to $42.33; trailing P/E ratio is 14.90 times, price to sales ratio (ttm) is 1.43 times, profit margin of the company is 9.65%, operating margin (ttm) is 15.44%, return on assets (ttm) is 14.84%, total share outstanding as on June 7, 2023 is 225.09 million, diluted EPS (ttm) is $3.56.

Recent Developments

• On May 11, 2023, Board of Directors of the company declared $0.285 quarterly dividend per common share, payable on June 12, 2023, to shareholders of record on May 26, 2023.² This would increase the year dividend from $1.12 to $1.14 per share.
• Masco Corporation on May 10, 2022, announced that it has entered into an accelerated share repurchase (“ASR”) agreement with Wells Fargo Bank, National Association to repurchase $500 million of Masco’s common stock.³ Under the ASR agreement, Masco will receive initial delivery of approximately 7.9 million shares on May 10, 2022, representing approximately 85 percent of the number of shares of common stock initially underlying the ASR agreement, based on the closing price of Masco’s common stock of $53.76 on May 9, 2022.
• During 2021, the company completed the divestiture of Hüppe, a manufacturer of shower enclosures and shower trays. In connection with the divestiture, it recognized a loss of $18 million. During 2022, the company recorded a $2 million pre-tax post-closing gain related to the finalization of working capital items in connection with the divestiture.

Recent Financing Activities

• On April 26, 2022, Masco Corporation entered into a revolving credit agreement with an aggregate commitment of $1.0 billion and a maturity date of April 26, 2027. Upon entry to this agreement the March 13, 2019 agreement of an aggregate commitment of $1.0 billion was terminated. The 2022 credit agreement can be extended up to an additional $500 million.
• On April 26, 2022, the company entered into a 364-day $500 million senior unsecured delayed draw term loan due April 26, 2023 with a syndicate of lenders. The loans will bear interest at SOFR plus a spread adjustment and 0.70%. It can be prepaid or terminated if the company opts to do so. The company paid $300 million during 2022.
• Masco repurchased and retired 16.6 million shares of their common stock in 2022 for approximately $914 million.
• Effective on October 20, 2022, the board of directors of the company authorized a repurchase of up to $2.0 billion of shares of their common stock. This replaced the 2021 authorization and at December 31, 2022, the company had $2.0 billion remaining under the 2022 authorization.
• The annual dividend of the company amounted to $1.12 per share in 2022.

Financial Performance Highlights

Q1 2023 Highlights

Masco Corporation's net sales for the three months ended March 31, 2023 were $2.0 billion, which decreased 10 percent compared to the three months ended March 31, 2022. The decrease is primarily due to lower sales volume across the entire company which decreased sales by 14 percent, unfavorable foreign currency translation which decreased sales by one percent, partially offset by higher net selling price which increased sales by six percent. Gross profits reported by the company for the first quarter of 2023 is $669 million as compared to $704 million during the corresponding period a year earlier. Gross margins for the periods are 33.8% and 32.0%, respectively. The gross profit margin is positively impacted by higher net selling prices, cost savings initiatives and partially offset by lower sales volume and increased commodity and other input costs. Operating profits reported by the company for the concerned periods are $315 million and $353 million, respectively. Apart from the reasons for a decrease in gross profit, the operating profit was negatively impacted by increased marketing costs. Net income of the for the first quarter of 2023 is $205 million, as compared to $233 million a year earlier. Diluted earnings per share (EPS) for the company are $0.90 and $0.97 during the quarters, respectively.

For the three months ended March 31, 2023, net cash provided by operations was $33 million; net cash provided by financing activities was $78 million, primarily due to $210 million in net proceeds from revolving credit loan borrowings; net cash used for investing activities was $59 million, primarily driven by $61 million of capital expenditures.

Annual Performance Overview

During the year 2022, Masco Corporation has reported total sales of $8,680 million, which was $8,375 million a year earlier - an increase of 4% year on year. The increase is primarily due to higher net selling prices across the entire company which increased sales by nine percent. However, the increase was offset by lower sales volume and unfavorable foreign currency translation. Gross profit of Masco during 2022 is $2,713 million as compared to $2,863 million in 2021; gross margin for the years are 31.3% and 34.3%, respectively. The negative impact was primarily due to increased commodity and transportation costs, higher costs due to production inefficiencies and related under absorption, as well as higher excess and obsolete inventory charges resulting from business rationalization activities, lower sales volume, and unfavorable sales mix. Operating profit is reported $1,297 million and $1,405 million for the years, respectively. Net income from continuing operation is $844 million in 2022 and $410 million a year earlier. Diluted earnings per share is $3.63 and $1.62 for the years, respectively.

The company had cash and cash investments of approximately $452 million and $926 million at December 31, 2022 and 2021, respectively. Net cash provided by operations of $840 million primarily benefited from operating profit, partially offset by changes in working capital, primarily lower accounts payable and accrued liabilities balances. Net cash used for financing activities was $1,066 million, primarily due to $914 million for the repurchase and retirement of the common stock, $300 million for the partial payment of the 364-day term loan, $258 million for the payment of cash dividends, $68 million for dividends paid to non-controlling interest and $17 million for
employee withholding taxes paid on stock-based compensation. These uses of cash were partially offset by $500 million in proceeds from the 364-day term loan. Net cash used for investing activities was $230 million, primarily driven by $224 million of capital expenditures.

Business Overview

Masco Corporation has two business segments - Plumbing Products segment and our Decorative Architectural Products segment.

Plumbing Products Segment

The plumbing products include faucets, showerheads, handheld showers, valves, bath hardware and accessories, bathing units, shower bases and enclosures, shower drains, steam shower systems, sinks, kitchen accessories and toilets. The company primarily sells these products to home center retailers, online retailers, mass merchandisers, wholesalers and distributors that, in turn, sell them to plumbers, building contractors, remodelers, smaller retailers and consumers, and homebuilders. The majority of the faucet, bathing and showering products are sold primarily in North America, Europe and China under the brand names DELTA^®, BRIZO^®, PEERLESS^®, HANSGROHE^®, AXOR^®, KRAUS^®, EASY DRAIN^®, STEAMIST^®, ELITESTEAM^®, GINGER^®, NEWPORT BRASS^®, BRASSTECH^® and WALTEC^®. Company's BRISTAN™ and HERITAGE™ products are sold primarily in the United Kingdom.

Masco also manufactures acrylic tubs, bath and shower enclosure units, and shower bases and trays. DELTA, PEERLESS and MIROLIN^® products of the company are sold primarily to home center retailers in North America. The MIROLIN^® products are also sold to wholesalers and distributors in Canada.

The spas, exercise pools and aquatic fitness systems of the company are manufactured and sold under HOT SPRING^®, CALDERA^®, FREEFLOW SPAS^®, FANTASY SPAS^® and ENDLESS POOLS^® brands, as well as under other trademarks. The spa and exercise pools of Masco are sold worldwide to independent specialty retailers and distributors and to online mass merchant retailers. Certain exercise pools are also available on a consumer-direct basis in North America and Europe, while aquatic fitness systems are sold through independent specialty retailers as well as on a consumer-direct basis in some areas.

Under this segment, other products include brass, copper, and composite plumbing system components and other non-decorative plumbing products that are sold to plumbing, heating and hardware wholesalers, home center and online retailers, hardware stores, building supply outlets and other mass merchandisers. The company also develops connected water products that enhance the experience with water in homes and businesses. These systems include touchless activation, voice activation, controlled volume dispensing and provide for monitoring and controlling the temperature and flow of water and are compatible with a range of faucets, showerheads and other showering components. The company also supplies high-quality, custom thermoplastic solutions, extruded plastic profiles and specialized fabrications, as well as PEX tubing, to manufacturers, distributors and wholesalers for use in diverse applications that include faucets and plumbing supplies, appliances, oil and gas equipment and building products.

Decorative Architectural Products Segment

Decorative Architectural Products segment primarily includes architectural coatings, including paints, primers, specialty coatings, stains and waterproofing products, as well as paint applicators and accessories. These products are sold in North America, South America and China under the brand names BEHR^®, KILZ^®, WHIZZ^®, Elder & Jenks and other trademarks to “do‑it‑yourself” and professional customers through home center retailers and other retailers. Net sales of architectural coatings comprised approximately 32 percent, 30 percent and 33 percent of consolidated net sales from continuing operations of the company in 2022, 2021, and 2020, respectively. BEHR products are sold through The Home Depot, the largest customer overall, as well as this segment’s largest customer. The Behr business grants Behr brand exclusivity in the retail sales channel in North America to The Home Depot. The granting of exclusivity affects the ability to sell those products and brands to other customers, and the loss of this segment’s sales to The Home Depot would have a material adverse effect on this segment’s business and on consolidated business of the company as a whole.

This segment also includes branded cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, closet organization systems and picture hanging accessories, which are manufactured for Masco and sold to home center retailers, mass retailers, online retailers, other specialty retailers, original equipment manufacturers and wholesalers. These products are sold under the LIBERTY^®, BRAINERD^®, FRANKLIN BRASS^® and other trademarks. This segment also includes decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems.

Company History

The foundation of Masco Corporation dates back to 1929 when Alex Manoogian, along with two partners, established Masco Screw Products Company. As a Michigan Corporation, Masco was incorporated on December 16, 1929, just six weeks after Black Tuesday, the day Wall Street caved in and the Great Depression began. The Company received its first contract from the Hudson Motor Car Company for $7,000 and reports gross sales of $66,000 for 1930, the first full year of operation.

In 1935, annual sales of Masco exceed $100,000 for the first time as the company earns a reputation as a fast and reliable auto supplier. By 1936, Masco is operating at full capacity and needs additional funding for machinery and human resources to continue to increase sales and earnings. It opens on the Detroit Stock Exchange with 120,000 shares sold at $1.00 per share.

In 1937, a devastating fire nearly destroys the company. But it came back to operation within three months. The year 1937 is the only year in the history of the company that Masco loses money through operations.

Upon America’s entry into World War II, Masco quickly converts its focus to the manufacturing of material and products needed to support the war effort. Sales skyrocket to $1.9 million by 1944 due to defense-related production work. Masco re-enters war production during the Korean conflict, using the Company’s metalworking expertise to manufacture fuses and develop a new artillery shell timing mechanism.

In 1952, Alex secures a contract to produce brass parts for a small California company owned by two of his Armenian friends. The company is manufacturing a new type of faucet—a single-handle variety. The faucet quickly falls into disfavor due to several design and quality deficiencies, earning the name “one-armed bandit” by plumbers. Alex acquires the rights to the faucet and uses his years of metalworking experience to correct the flaws. He redesigns the product from the inside out, with a ball valve principle that allows users to adjust both the hot and cold water with just one lever. He places the rights to the new faucet under the Delta Detroit Corporation, a very small family-owned business manufacturing products to support the war effort. The faucet is named “Delta” in recognition of the family business and the delta-shaped cam assembly used in the faucet. Once it becomes apparent the new faucet is going to make it on its own, Alex transfers the licensing rights to Masco at no cost.

By 1958, the sales of Delta faucet exceed $1 million and Masco decided to build a new faucet plant in Greensburg, Indiana, in the same year. Richard Manoogian, son of Alex Manoogian, joins the company.

In March of 1961, Richard engineers Masco’s completion of its first acquisition, Peerless Industries Inc., a manufacturer of plumbing valves and fittings, enabling the company to offer customers a broader line of plumbing products.

In 1961, Masco Screw Products Company changed its name to Masco Corporation. In 1967, the company moved its corporate headquarters to Taylor, Michigan. For the first time, in 1969, Masco was listed on the New York Stock Exchange.

Masco purchased The Steel Stamping Company in 1962 and later on named it Mascon Toy Company - the company is one of the leading manufacturers of toy telephones.

During 1970s, more than 25 companies join Masco, several of which include international companies. Building on its reputation for plumbing excellence, Masco introduces Delex®, a rotary cylinder two-handle faucet, in 1971 and brings Peerless^® faucets to the retail and do-it-yourself markets.

In 1983, Masco's annual sales exceed $1 billion. The company performed some restructuring in 1984 by spinning off Masco's industrial component business. After the restructuring, Masco industries is a separate company and Masco Corporation now with sales of approximately $600 million, is composed of companies focused on consumer brand-name products for the home and family. Shares of Masco Industries are distributed to Masco Corporation shareholders as a special dividend because of the restructuring.

During the 1980s, the Company expands its presence into the cabinet, appliance spa and furniture manufacturing business. A third member of the Masco family, TriMas, is established as a separate public entity in 1988. During 1990s, Masco enters the bath and shower enclosures industry. Masco also exits the furniture business in the same decade. By 1997, Masco has sold a total of approximately 120 million single-handle faucets in the U.S. alone, far more than any competitor.

In its 75th year of business, Masco hits a sales high of $12 billion. In 2004, Masco has 62,000 employees and 120 manufacturing facilities, and serves international markets from 18 countries. By 2006, Masco has been reporting a 15 percent compound growth rate in sales, through acquisitions and internal growth, for 50 consecutive years.

To mitigate the impact of deteriorating economic conditions and increased regulations, over the next few years Masco reduces its number of operating units from 67 businesses to 29 through consolidations and divestitures. From late 2006 to 2008, one of the most challenging times in its 75-year history, Masco closes 17 manufacturing facilities, reduces company-wide headcount by over 23,000 employees and reduces its installation branches by over 80 locations.

Masco relocates its corporate headquarters to Livonia, Michigan in 2017. To potentially drive greater shareholder value, in 2019 Masco makes a strategic decision to exit the cabinet and windows businesses.

1. ^ https://masco.com/about-us/
2. ^ https://investor.masco.com/news-stream/news-details/2023/Masco-Corporation-Declares-Quarterly-Dividend/default.aspx
3. ^ https://investor.masco.com/news-stream/news-details/2022/Masco-Corporation-Announces-500-Million-Accelerated-Share-Repurchase/default.aspx