Masco Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Masco reports Plumbing Products and Decorative Architectural Products.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $2.201 billion | $1.970 billion | +12%; +14% excluding acquisitions, divestitures and currency |
| Gross profit / margin | $704 million / 32.0% | $700 million / 35.5% | Margin down 350 basis points |
| Operating profit / margin | $353 million / 16.0% | $365 million / 18.5% | Profit down 3%; margin down 250 basis points |
| Net income attributable to Masco | $233 million | $94 million | +$139 million |
| Diluted EPS | $0.97 | $0.34 | +$0.63 |
| Net cash used for operating activities | $227 million | $89 million | Cash use increased $138 million |
Sales growth reflected higher selling prices, which added 9% to consolidated sales, and higher volume, which added 5%; currency and the Hüppe divestiture were offsets. Higher commodity and transportation costs reduced gross and operating margins, partly offset by pricing and volume. SG&A rose to $351 million from $335 million, but declined as a share of sales to 15.9% from 17.0%.
Segments
- Plumbing Products: Sales increased 9% to $1.359 billion; operating profit decreased 10% to $228 million. Pricing and volume supported sales, while commodity, transport, employee-related and marketing costs pressured profit.
- Decorative Architectural Products: Sales increased 17% to $842 million; operating profit increased 9% to $155 million. Pricing, volume and favorable lighting mix helped, partly offset by costs and lower lighting volume.
Cash, debt and liquidity
- Cash and cash investments were $479 million at March 31, down from $926 million at year-end 2021. Cash included $411 million held by foreign subsidiaries.
- Operating cash use of $227 million included increases in receivables ($349 million) and inventory ($127 million), partly offset by cash provided by operations before these changes. Management attributed working-capital movements to first-quarter seasonality, higher selling prices and commodity costs.
- Financing activities used $187 million, including $364 million of share repurchases and $67 million of dividends; $263 million of revolving borrowings partly offset these uses. Investing activities used $26 million, including $27 million of capital expenditures.
- Notes payable were $273 million and long-term debt was $2.946 billion. Current ratio was 1.6 at March 31 versus 1.8 at December 31. Masco reported compliance with its credit covenants; $263 million was drawn on its $1.0 billion revolving facility at a weighted-average rate of 1.5798%.
- Total equity was negative $121 million, compared with positive $56 million at year-end, principally reflecting repurchases, dividends and the retained deficit.
Material changes, outlook and risks
- Net income and EPS rose sharply year over year, largely because Q1 2021 included a $168 million debt-extinguishment loss in interest expense. Interest expense was $25 million in Q1 2022 versus $202 million in Q1 2021; the prior-year refinancing also produced interest savings.
- On April 26, 2022, Masco replaced its revolving credit agreement with a new $1.0 billion facility maturing in 2027 and entered into a $500 million, 364-day delayed-draw term loan. The term loan bears interest at SOFR plus a spread adjustment and 0.70%.
- Management anticipated using approximately $900 million of cash for 2022 share repurchases. It stated that cash, operating cash flow and borrowing availability were sufficient for near-term needs; no specific sales or earnings guidance was provided.
- Management cited ongoing commodity and transportation inflation, supply-chain disruption, employee-cost inflation and hiring constraints, and uncertainty related to COVID-19. Forward-looking results are also exposed to housing and repair-and-remodel activity, customer and supplier dependencies, materials availability, competition, acquisitions, international operations and cybersecurity risks.
- Masco reported ordinary-course claims and litigation, including product-liability and regulatory matters, and considered a material adverse outcome remote; outcomes remain uncertain. It also disclosed up to $50 million of contingent Kraus acquisition consideration, with a $28 million estimated fair-value liability at quarter-end.
Investor verification points
- Whether pricing and productivity can keep pace with commodity, freight and labor costs, and whether margins stabilize.
- Whether receivables and inventory unwind after seasonal first-quarter increases and operating cash flow improves.
- Planned repurchases, dividend outlays and borrowing levels relative to cash generation and liquidity.
- Demand and profit trends by segment, particularly the divergence between Plumbing Products sales growth and lower operating profit.
- Terms, utilization and covenant headroom under the post-quarter credit facilities; the filing does not provide a clear quarter-end covenant headroom value.