MASCO CORPORATION SECOND QUARTER 2021 AND THE FIRST SIX MONTHS 2021 VERSUS
SECOND QUARTER 2020 AND THE FIRST SIX MONTHS 2020
SALES AND OPERATIONS
The following table sets forth our net sales and operating profit (loss) by business segment and geographic area, dollars in millions:
Three Months Ended June 30, Percent Change
2021 2020 2021 vs. 2020
Net Sales :
Plumbing Products $ 1,329 $ 868 53 %
Decorative Architectural Products 850 896 (5) %
Total $ 2,179 $ 1,764 24 %
North America $ 1,717 $ 1,480 16 %
International, principally Europe 462 284 63 %
Total $ 2,179 $ 1,764 24 %
Six Months Ended June 30, Percent Change
2021 2020 2021 vs. 2020
Net Sales:
Plumbing Products $ 2,578 $ 1,823 41 %
Decorative Architectural Products 1,571 1,522 3 %
Total $ 4,149 $ 3,345 24 %
North America $ 3,246 $ 2,738 19 %
International, principally Europe 903 607 49 %
Total $ 4,149 $ 3,345 24 %
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Operating Profit (Loss): (A)
Plumbing Products $ 273 $ 155 $ 525 $ 312
Decorative Architectural Products 188 201 330 296
Total $ 461 $ 356 $ 855 $ 608
North America $ 370 $ 321 $ 678 $ 531
International, principally Europe 91 35 177 77
Total 461 356 855 608
General corporate expense, net (24) (17) (53) (44)
Operating profit $ 437 $ 339 $ 802 $ 564 (A) Before general corporate expense, net; see Note M to the condensed consolidated financial statements.
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We report our financial results in accordance with generally accepted accounting
principles ("GAAP") in the United States of America . However, we believe that
certain non-GAAP performance measures and ratios used in managing the business
may provide users of this financial information with additional meaningful
comparisons between current results and results in prior periods. Non-GAAP
performance measures and ratios should be viewed in addition to, and not as an
alternative for, our reported results under GAAP.
The following discussion of consolidated results of operations and segment and
geographic results refers to the three and six months ended
NET SALES
Net sales increased 24 percent for both the three and six months ended June 30,
2021 . Excluding acquisitions, divestitures and the effect of currency
translation, net sales increased 18 percent for both the three and six months
ended June 30, 2021 . The following table reconciles reported net sales to net
sales, excluding acquisitions, divestitures and the effect of currency
translation, in millions:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net sales, as reported $ 2,179 $ 1,764 $ 4,149 $ 3,345
Acquisitions (54) - (111) -
Divestitures - (6) - (6)
Net sales, excluding acquisitions and
divestitures 2,125 1,758 4,038 3,339
Currency translation (52) - (90) -
Net sales, excluding acquisitions, divestitures
and the effect of currency translation
North American net sales increased 16 percent for the three months endedJune 30, 2021 . Higher sales volume of plumbing products, and to a lesser extent, higher net selling prices of paints and other coating products, higher sales volume of builders' hardware products and favorable sales mix of plumbing products, in aggregate, increased sales by 19 percent. The acquisitions of Kraus and Work Tools increased sales by three percent and favorable currency translation increased sales by one percent. Such increases were offset by lower sales volume of paints and other coating products, which decreased sales by seven percent. North American net sales increased 19 percent for the six months endedJune 30, 2021 . Higher sales volume of plumbing products, and to a lesser extent, higher sales volume of builders' hardware products and favorable sales mix of plumbing products, in aggregate, increased sales by 16 percent. The acquisitions of Kraus and Work Tools increased sales by three percent and favorable currency translation increased sales by one percent. Such increases were slightly offset by lower sales volume of paints and other coating products, which decreased sales by one percent. International net sales increased 63 percent and 49 percent for the three and six months endedJune 30, 2021 , respectively. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased 50 percent and 38 percent for the three and six months endedJune 30, 2021 , respectively. Higher sales volume and, to a lesser extent, favorable sales mix and net selling prices of plumbing products increased sales by 48 percent and 35 percent for the three and six months endedJune 30, 2021 , respectively. The acquisition of ESS increased sales by four percent for both the three and six months endedJune 30, 2021 . These increases were slightly offset by the divestiture of Hüppe which decreased sales by two percent and one percent for the three and six months endedJune 30, 2021 , respectively. Net sales in the Plumbing Products segment increased 53 percent and 41 percent for the three and six months endedJune 30, 2021 , respectively. Higher sales volume increased sales by 40 percent and 30 percent, and favorable sales mix increased sales by three percent for both the three and six months endedJune 30, 2021 . The acquisitions of Kraus and ESS increased sales by five percent for both the three and six months endedJune 30, 2021 . Favorable foreign currency translation increased sales by five percent and four percent for the three and six months endedJune 30, 2021 , respectively. These increases for the three months endedJune 30, 2021 were slightly offset by the divestiture of Hüppe which decreased sales by one percent. 23
-------------------------------------------------------------------------------- Net sales in the Decorative Architectural Products segment decreased five percent for the three months endedJune 30, 2021 primarily due to lower sales volume of paints and other coating products. Such decrease was partially offset by higher sales volume of builders' hardware products and favorable net selling prices of paints and other coating products. Net sales in the Decorative Architectural Products segment increased three percent for the six months endedJune 30, 2021 due to higher sales volume of builders' hardware and lighting products and favorable net selling prices of paints and other coating products. Such increase was partially offset by lower sales volume of paints and other coating products. The Work Tools acquisition increased sales by one percent for both the three and six months endedJune 30, 2021 . OPERATING PROFIT Our gross profit margin was 36.3 percent and 35.9 percent for the three and six months endedJune 30, 2021 , respectively, compared to 35.6 percent and 35.1 percent for the comparable period of 2020. Gross profit margins for the three and six months endedJune 30, 2021 were positively impacted by increased sales volume and cost savings initiatives. Such increases were partially offset by increased commodity and transportation costs. Selling, general and administrative expenses, as a percentage of sales, was 16.2 percent and 16.6 percent for the three and six months endedJune 30, 2021 , respectively, compared to 16.4 percent and 18.3 percent for the comparable period of 2020. Selling, general and administrative expenses for the three months endedJune 30, 2021 were positively impacted by leverage of fixed expenses due primarily to increased sales volume, partially offset by increased other expenses (such as salaries, marketing and travel and entertainment costs). Selling, general and administrative expenses for the six months endedJune 30, 2021 were positively impacted by leverage of fixed expenses due primarily to increased sales volume and cost containment activities. Operating profit in the Plumbing Products segment for the three and six months endedJune 30, 2021 was positively impacted by increased sales volume, favorable sales mix, as well as cost savings initiatives and favorable foreign currency translation. These positive impacts were partially offset by increased commodity costs, transportation costs and salaries. Operating profit in the Decorative Architectural Products segment for the three months endedJune 30, 2021 was negatively impacted by lower sales volume and increased commodity and transportation costs. These negative impacts were partially offset by higher net selling prices and cost savings initiatives. Operating profit in the Decorative Architectural Products segment for the six months endedJune 30, 2021 benefited primarily from cost savings initiatives and favorable sales mix. These positive impacts were partially offset by increased commodity and transportation costs. Additionally, operating profit was positively impacted by lower fixed expenses in our lighting business for the three and six-month periods. OTHER INCOME (EXPENSE), NET Interest expense for the three and six months endedJune 30, 2021 was$25 million and$227 million , respectively, compared to$35 million and$70 million for the three and six months endedJune 30, 2020 , respectively. The decrease in interest expense for the three months endedJune 30, 2021 as compared to the same period in the prior year is due to interest savings related to debt refinancing in the first quarter of 2021. The increase in interest expense for the six months endedJune 30, 2021 as compared to the same period in the prior year is due to the$168 million loss on debt extinguishment which was recorded as additional interest expense in connection with the early retirement of debt in the first quarter of 2021. 24
-------------------------------------------------------------------------------- Other, net, for the three and six months endedJune 30, 2021 was$415 million and$421 million , respectively, compared to$2 million and$18 million for the three and six months endedJune 30, 2020 , respectively. Other, net, for the three and six months endedJune 30, 2021 included$415 million and$426 million of net periodic pension and post-retirement benefit cost, respectively, which includes$406 million of settlement loss related to the termination of our qualified domestic defined-benefit pension plans, and a loss of$18 million related to the divestiture of Hüppe for both periods. These amounts were partially offset by a$14 million gain recognized on the redemption of the preferred stock ofACProducts Holding, Inc. for the three and six months endedJune 30, 2021 , and$3 million and$6 million of related dividend income for the three and six months endedJune 30, 2021 , respectively. Other, net, for the three and six months endedJune 30, 2020 included$8 million and$16 million , respectively, of net periodic pension and post-retirement benefit cost,$2 million of foreign currency transaction gains for the three-month period and$7 million of foreign currency transaction losses for the six-month period and$4 million of dividend income related to preferred stock ofACProducts Holding, Inc. for both periods. INCOME TAXES We recorded a$12 million income tax expense on a$3 million loss from continuing operations for the three months endedJune 30, 2021 . The difference between our recorded income tax expense and the expected income tax benefit, based on our normalized rate of 25 percent, was due primarily to an$11 million income tax expense from the elimination of a disproportionate tax effect from accumulated other comprehensive income (loss), relating to the termination of our qualified domestic defined-benefit pension plans. Our effective tax rate of 36 percent for the six months endedJune 30, 2021 was higher than our normalized tax rate of 25 percent. The increase was due primarily to a$5 million and$11 million income tax expense from the elimination of disproportionate tax effects from accumulated other comprehensive income (loss) relating to our interest rate swap following the retirement of the related debt, and the termination of our qualified domestic defined-benefit pension plans, respectively. Our effective tax rate was 27 percent and 24 percent for the three and six months endedJune 30, 2020 , respectively. Our three month rate was higher than our normalized tax rate of 25 percent due primarily to losses in certain foreign jurisdictions providing no income tax benefit and the recording of a$2 million valuation allowance against deferred tax assets in certain jurisdictions. Our six month rate was lower than our normalized tax rate due primarily to an additional$5 million income tax benefit on stock-based compensation and an additional$3 million state income tax benefit from a reduction in the liability for uncertain tax positions resulting from the expiration of statutes of limitation in the first quarter of 2020.
(LOSS) INCOME AND (LOSS) INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS -
ATTRIBUTABLE TO MASCO CORPORATION
(Loss) income from continuing operations for the three and six months ended June
30, 2021 was $(36) million and $58 million , respectively, compared to $210
million and $343 million for the comparable periods of 2020. Diluted (loss)
income per common share from continuing operations for the three and six months
ended June 30, 2021 was $(0.14) and $0.20 , respectively, per common share,
compared with $0.80 and $1.27 , respectively, per common share for the comparable
periods of 2020.
OTHER FINANCIAL INFORMATION
Our current ratio was 1.8 to 1 at both
For the six months ended
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-------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , net cash used for financing activities was$909 million , primarily due to$1,326 million for the early retirement of our 5.950% Notes dueMarch 15, 2022 , 4.450% Notes dueApril 1, 2025 , and 4.375% Notes dueApril 1, 2026 and$160 million of related debt extinguishment costs. Net cash used for financing activities was also impacted by$750 million for the repurchase and retirement of our common stock (including 0.7 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2021),$96 million for the payment of cash dividends,$43 million for dividends paid to noncontrolling interest and$14 million for employee withholding taxes paid on stock-based compensation. These uses of cash were partially offset by proceeds, net of issuance costs, of$1,481 million due to the issuances of$600 million of 1.500% Notes dueFebruary 15, 2028 ,$600 million of 2.000% Notes dueFebruary 15, 2031 and$300 million of 3.125% Notes dueFebruary 15, 2051 .
For the six months ended
Our cash and cash investments were$769 million and$1.3 billion atJune 30, 2021 andDecember 31, 2020 , respectively. Our cash and cash investments consist of overnight interest-bearing money market demand accounts, time deposit accounts and money market mutual funds containing government securities and treasury obligations. Of the$769 million and$1.3 billion of cash and cash investments held atJune 30, 2021 andDecember 31, 2020 ,$319 million and$385 million , respectively, was held in our foreign subsidiaries. If these funds were needed for our operations in theU.S. , their repatriation into theU.S. would not result in significant additionalU.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted. OnMarch 4, 2021 , we issued$600 million of 1.500% Notes dueFebruary 15, 2028 ,$600 million of 2.000% Notes dueFebruary 15, 2031 and$300 million of 3.125% Notes dueFebruary 15, 2051 . We received proceeds of$1,495 million , net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. OnMarch 22, 2021 , proceeds from the debt issuances, together with cash on hand, were used to repay and early retire our$326 million 5.950% Notes dueMarch 15, 2022 ,$500 million 4.450% Notes dueApril 1, 2025 , and$500 million 4.375% Notes dueApril 1, 2026 . In connection with these early retirements, we incurred a loss on debt extinguishment of$168 million , which was recorded as interest expense. OnMarch 13, 2019 , we entered into a credit agreement (the "Credit Agreement") with an aggregate commitment of$1.0 billion and a maturity date ofMarch 13, 2024 . Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional$500 million with the current lenders or new lenders. See Note I to the condensed consolidated financial statements. The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our Credit Agreement atJune 30, 2021 . As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. 26
-------------------------------------------------------------------------------- All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were$43 million and$45 million atJune 30, 2021 andDecember 31, 2020 , respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase in accounts payable and accrued liabilities, net, line within our condensed consolidated statements of cash flows. The amounts settled through the program and paid to participating financial institutions were$93 million and$60 million for our continuing operations during the six months endedJune 30, 2021 and 2020, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions' willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program. We believe that our present cash balance, cash flows from operations, and borrowing availability under our Credit Agreement are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities. COVID-19 IMPACT AND GENERAL BUSINESS CONDITIONS During 2020, certain aspects of our businesses were adversely affected by the COVID-19 pandemic. Many, but not all, of our businesses remained operating because the products we provide are critical to infrastructure sectors and day-to-day operations of homes and businesses in our communities as defined by applicable local orders. Operational activity that was previously slowed at certain of our facilities as a result of the pandemic and governmental orders, largely resumed normal capacity by the third quarter of 2020. This has enabled us to progress on fulfilling production backorders that developed, as well as to meet current consumer demand, which has continued to be strong in the first half of 2021. We continue to be committed to the safety and well-being of our employees during this time, and, led by our cross-functionalInfectious Illness Response Team , we are employing best practices and following guidance from theWorld Health Organization , theCenters for Disease Control and Prevention and local authorities, including offering paid leave for many COVID-related absences and requiring unvaccinated employees to wear face coverings and practice social distancing. Finally, we are experiencing and may continue to experience higher commodity and transportation costs, and supply chain disruptions, particularly disruptions related to our ability to source products, components and raw materials. We are also experiencing and may continue to experience labor cost inflation and constraints in hiring qualified employees. We plan to offset the potential unfavorable impact of these items with productivity improvement and other initiatives. OUTLOOK FOR THE COMPANY We continue to execute our strategies of leveraging our strong brand portfolio, industry-leading positions and the Masco Operating System, our methodology to drive growth and productivity, to create long-term shareholder value. We remain confident in the fundamentals of our business and long-term strategy. We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders. 27
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FORWARD-LOOKING STATEMENTS
This report contains statements that reflect our views about our future
performance and constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Forward-looking statements can be
identified by words such as "outlook," "believe," "anticipate," "appear," "may,"
"will," "should," "intend," "plan," "estimate," "expect," "assume," "seek,"
"forecast," and similar references to future periods. Our views about future
performance involve risks and uncertainties that are difficult to predict and,
accordingly, our actual results may differ materially from the results discussed
in our forward-looking statements. We caution you against relying on any of
these forward-looking statements. Our future performance may be affected by the
levels of residential repair and remodel activity, and to a lesser extent, new
home construction, our ability to maintain our strong brands and reputation and
to develop innovative products, our ability to maintain our competitive position
in our industries, our reliance on key customers, the length and severity of the
ongoing COVID-19 pandemic, including its impact on domestic and international
economic activity, consumer confidence, our production capabilities, our
employees and our supply chain, the cost and availability of materials and the
imposition of tariffs, our dependence on third-party suppliers, risks associated
with our international operations and global strategies, our ability to achieve
the anticipated benefits of our strategic initiatives, our ability to
successfully execute our acquisition strategy and integrate businesses that we
have and may acquire, our ability to attract, develop and retain talented and
diverse personnel, risks associated with our reliance on information systems and
technology, and our ability to achieve the anticipated benefits from our
investments in new technology. These and other factors are discussed in detail
in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K, as
well as in other filings we make with the Securities and Exchange Commission .
The forward-looking statements in this report speak only as of the date of this
report. Factors or events that could cause our actual results to differ may
emerge from time to time, and it is not possible for us to predict all of them.
Unless required by law, we undertake no obligation to update publicly any
forward-looking statements as a result of new information, future events or
otherwise.
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--------------------------------------------------------------------------------MASCO CORPORATION Item 4. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures.
The Company's principal executive officer and principal financial officer have concluded, based on an evaluation of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as ofJune 30, 2021 , the Company's disclosure controls and procedures were effective.
b. Changes in Internal Control over Financial Reporting.
In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter endedJune 30, 2021 , which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting. 29
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