Masco Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Comparisons are with the three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context and results
Masco sells plumbing products and decorative architectural products, primarily in North America and Europe. Net sales were $1.979 billion, down 10% year over year; excluding currency translation, sales decreased 9%. Management attributed the decline mainly to lower volumes, partly offset by higher selling prices.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1,979 | $2,201 |
| Gross profit / margin | $669 / 33.8% | $704 / 32.0% |
| Operating profit / margin | $315 / 15.9% | $353 / 16.0% |
| Income before income taxes | $285 | $327 |
| Net income attributable to Masco | $205 | $233 |
| Diluted earnings per share | $0.90 | $0.97 |
| Net cash from (used for) operating activities | $33 | $(227) |
Segments and material changes
- Plumbing Products: Sales of $1.222 billion, down 10%; segment operating profit of $206 million, down 10%. Lower volume, unfavorable mix and currency effects were partly offset by pricing.
- Decorative Architectural Products: Sales of $757 million, down 10%; segment operating profit of $132 million, down 15%. Lower volume and higher input and marketing costs weighed on profit; pricing provided a partial offset.
- Margins: Gross margin improved 180 basis points, helped by pricing and cost savings, despite lower volume and higher input costs. Operating margin declined 10 basis points as SG&A rose to 17.9% of sales from 15.9%, reflecting lower sales and higher marketing costs.
- Overall volume reduced sales by 14%; higher net selling prices increased sales by 6%. International sales fell 9% as reported and 3% in local currencies.
Cash flow, debt and liquidity
- Cash and cash investments were $510 million at quarter-end, up from $452 million at December 31, 2022. Current assets were $3.148 billion and current liabilities $2.018 billion; the reported current ratio was 1.6 to 1.
- Operating cash flow was $33 million, versus cash use of $227 million a year earlier. Working-capital movements included a $194 million increase in receivables and a $45 million decrease in inventories. Capital expenditures were $61 million, and investing activities used $59 million.
- Financing activities provided $78 million, including $210 million of net revolving-credit borrowings; uses included $65 million of dividends and $53 million of cash share repurchases.
- Notes payable were $413 million and long-term debt was $2.946 billion at March 31. The company reported compliance with its credit covenants. Revolver borrowings were $210 million at 5.974% at quarter-end.
- Subsequent event: After quarter-end, Masco increased revolver borrowings to $266 million at a weighted-average rate of 6.190% and repaid the remaining $200 million term loan due April 26, 2023.
- Shareholders’ equity was a deficit of $379 million; total equity was a deficit of $140 million. Management said cash, operating cash flows and borrowing availability were expected to be sufficient for near-term needs.
Outlook, risks and unusual items
- No quantified financial guidance was provided. Management said lower product demand and elevated commodity, other input and employee-related costs could persist, while noting some recent cost moderation. It aims to offset pressures through productivity, pricing and other initiatives and expressed confidence in its long-term strategy.
- Key disclosed risks include residential repair and remodeling demand, material costs and availability, supplier dependence, customer concentration, competition, international operations, cybersecurity and execution of strategic initiatives. The filing reported no material change to the risk factors in the 2022 Form 10-K.
- Management described ordinary-course litigation and product-safety matters, including product liability and recalls; it considered a material adverse outcome remote, while noting outcomes cannot be assured. Warranty liability was $81 million at quarter-end.
- The effective tax rate was 22%, versus 23%; both periods included $11 million of tax benefits related to uncertain tax positions and stock-based compensation. Q1 2022 also included a $4 million contingent-consideration expense and a $2 million gain on sale of a business.
- The company repurchased approximately 1.1 million shares for about $56 million during the quarter, with approximately $1.945 billion remaining under its $2.0 billion authorization at March 31.
Important facts for investors to verify
- Whether lower sales volumes continue and whether pricing and productivity gains can offset input-cost and marketing pressures.
- The post-quarter repayment of the $200 million term loan, updated revolver balance and borrowing costs, and ongoing covenant compliance.
- Working-capital trends—particularly receivables and payables—and the sustainability of operating cash generation relative to capital spending, dividends and repurchases.
- The scale and terms of supplier-finance activity: $52 million was confirmed under the program and included in accounts payable, of which $26 million was owed to participating financial institutions.
- Developments in litigation, product-safety matters and warranty claims; the filing does not quantify a likely material loss.