Masco Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Masco designs, manufactures and distributes branded home improvement and building products, principally for repair and remodeling. Its reportable segments are Plumbing Products and Decorative Architectural Products.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $7.967 billion | $8.680 billion | Down 8% |
| Gross profit / margin | $2.836 billion / 35.6% | $2.713 billion / 31.3% | Margin up 430 bps |
| Operating profit, reported | $1.348 billion | $1.297 billion | Up 4% |
| Operating margin, reported | 16.9% | 14.9% | Up 200 bps |
| Operating profit, excluding rationalization, impairment and insurance settlement | $1.336 billion | $1.355 billion | Down $19 million |
| Net income attributable to Masco | $908 million | $844 million | Up 8% |
| Diluted earnings per share | $4.02 | $3.63 | Up $0.39 |
| Cash from operating activities | $1.413 billion | $840 million | Up $573 million |
| Capital expenditures | $243 million | $224 million | Up $19 million |
Sales fell mainly because volume declined 11%; higher pricing added 3% and partly offset the decline. Plumbing Products sales decreased 8% to $4.842 billion; Decorative Architectural Products sales decreased 9% to $3.125 billion. Segment operating profit rose 5% in Plumbing and 2% in Decorative Architectural Products, before corporate expense.
Gross margin improved with higher prices, cost savings, lower transportation costs, reduced excess and obsolete inventory charges, and a $40 million insurance settlement. These benefits were partly offset by lower volume and unfavorable mix. SG&A rose to $1.473 billion, or 18.5% of sales, from 16.0%, reflecting employee-related and marketing costs and lower sales.
Cash, debt and liquidity
- Cash and cash investments were $634 million at year-end, versus $452 million in 2022; current ratio was 1.7, versus 1.6.
- Total debt was approximately $2.95 billion at carrying value; long-term debt was $2.945 billion. The $1.0 billion revolving credit facility was undrawn, and Masco reported compliance with its covenants. The $200 million remaining balance on the 364-day term loan was repaid at maturity in April 2023.
- Operating cash flow benefited substantially from working-capital movements, particularly a $233 million inventory reduction. Inventory days improved to 77 from 80; working capital as a percentage of sales fell to 16.0% from 17.4%.
- Cash used for share repurchases was $353 million and cash dividends were $257 million. Masco repurchased 6.2 million shares for approximately $356 million including excise tax. It ended the year with $1.6 billion remaining under its repurchase authorization.
Material changes and unusual items
- In the third quarter, Masco acquired Sauna360 for approximately $136 million net of cash acquired, adding sauna and steam-shower products to Plumbing Products.
- The $40 million insurance settlement related to 2021 lost sales caused by a weather event affecting a resin supplier increased 2023 gross and operating profit. Excluding this and specified rationalization and impairment items, operating profit declined year over year.
- A $29 million state income tax benefit was recognized in the fourth quarter following a planned early-2024 legal restructuring expected to enable use of state tax loss carryforwards.
- Masco recorded a $15 million non-cash impairment of a registered trademark in its lighting business. It reported no goodwill impairment in 2023; goodwill was $604 million at year-end.
Outlook, commentary and risks
Management said demand was lower and could remain so, while commodity, input and employee costs remained elevated, although some costs had recently eased. The company intends to offset pressure through productivity, pricing and other initiatives and expressed confidence in its long-term strategy. It forecast approximately $200 million of 2024 capital expenditures, excluding potential acquisitions, and approximately $160 million of depreciation and amortization. It anticipated using approximately $600 million of cash for 2024 share repurchases, outside potential acquisitions, and intended to raise the annual dividend 2% to $1.16 per share. The filing provides no specific 2024 sales or earnings guidance.
- Customer concentration is significant: The Home Depot accounted for $3.1 billion, about 39% of 2023 sales, and is the exclusive North American retail channel for Behr-branded products. Loss or reduced purchases could materially affect results.
- Results depend on repair-and-remodel activity and, to a lesser extent, new construction; weaker housing activity, consumer spending or home sales could reduce demand.
- Commodity costs, tariffs, supplier disruptions, labor and transportation costs, and foreign-currency movements can pressure operations and margins. Approximately 20% of sales were outside North America.
- Competition, private labels, changing purchasing channels, cybersecurity and technology risks, extreme weather, and litigation or product-liability claims are additional disclosed risks. Masco said 2023 cybersecurity threats had not materially affected, and were not reasonably likely to materially affect, the company.
- Management and the auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. Goodwill impairment testing was identified as a critical audit matter.
Important facts for investors to verify
- Whether sales volume and market demand stabilize, and whether pricing and productivity can offset cost pressure without further weakening demand.
- How much of the improvement in 2023 cash flow is repeatable, given the substantial inventory-related working-capital contribution.
- The quality and sustainability of reported earnings, including the insurance settlement and tax benefit, and the divergence between reported operating-profit growth and adjusted operating-profit decline.
- The impact of Home Depot concentration and Behr retail-channel exclusivity on pricing, sales and negotiating risk.
- Capacity to fund planned repurchases, dividends, investment and debt obligations through changing market conditions; reconcile the filing’s reported debt-to-capitalization ratio and debt disclosures when assessing leverage.