Masco Corporation — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing; the supplied text does not provide a separate fourth-quarter results summary. Masco designs, manufactures and distributes branded home-improvement and building products, reported in Plumbing Products and Decorative Architectural Products.
Key financial results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $8.680 billion | $8.375 billion | +4% reported; +6% excluding acquisitions, divestitures and currency |
| Gross profit / margin | $2.713 billion / 31.3% | $2.863 billion / 34.2% | Margin down 290 bps |
| Operating profit, reported | $1.297 billion | $1.405 billion | Down 8%; margin 14.9% vs. 16.8% |
| Operating profit, excluding rationalization and impairment charges | $1.355 billion | $1.454 billion | Down $99 million |
| Net income attributable to Masco | $844 million | $410 million | Up $434 million |
| Diluted EPS from continuing operations | $3.63 | $1.62 | Up $2.01 |
| Operating cash flow | $840 million | $930 million | Down $90 million |
- Sales drivers: Pricing contributed 9%; lower volume reduced sales 3%, and unfavorable currency translation reduced sales 2%. North American sales rose 5%; international sales fell 3% reported, but increased 8% in local currencies.
- Segments: Plumbing Products sales were $5.252 billion (+2%) and operating profit was $819 million (down 12%). Decorative Architectural Products sales were $3.428 billion (+6%) and operating profit was $565 million (down 3%).
- Margins and costs: Higher commodity and freight costs, production inefficiencies and related under-absorption, excess and obsolete inventory charges, lower volume and unfavorable mix pressured results. Pricing partly offset these factors. SG&A was $1.390 billion, or 16.0% of sales, versus 16.9%.
- Cash, liquidity and debt: Year-end cash and cash investments were $452 million, down from $926 million. Current ratio was 1.6 versus 1.8. Debt carrying value was approximately $3.151 billion, including $205 million classified as current; debt-to-capitalization was 109% versus 98%. Shareholders’ equity was negative $480 million. Management said cash, operating cash flow and available credit were sufficient for near-term needs.
- Capital allocation: Capital expenditures were $224 million; dividends paid were $258 million. Masco repurchased 16.6 million shares for $914 million and ended the year with $2.0 billion remaining under its repurchase authorization.
Material changes and unusual items
- Attributable continuing-operations income rose substantially from 2021, when results included a $399 million pension settlement loss within pension expense and a $168 million debt-extinguishment loss recorded as interest expense. The 2022 effective tax rate was 24%, compared with 31% in 2021.
- FY2022 included $32 million of rationalization charges and $26 million of goodwill and intangible-asset impairment charges, including a $19 million goodwill impairment and a $7 million trademark impairment in the lighting business.
- Operating cash flow declined, primarily reflecting working-capital movements, including lower accounts payable and accrued liabilities. Capital expenditures increased from $128 million in 2021 to $224 million in 2022.
- Masco recorded $24 million of income from revaluing contingent consideration; the related Kraus acquisition performance targets were not met and the liability was nil at year-end.
Outlook, risks and contingencies
- Management reported lower market demand and continuing elevated input, transportation and labor costs and supply-chain disruption, while noting some recent cost moderation. It expects to use pricing, productivity and other initiatives to mitigate pressure; no specific sales or earnings guidance is provided in the supplied filing text.
- For 2023, management expected approximately $250 million of capital expenditures, excluding potential acquisitions, and approximately $150 million of depreciation and amortization. It anticipated approximately $500 million of share repurchases and declared a first-quarter dividend of $0.285 per share, with the intention of a $1.14 annual dividend.
- Key exposures include sensitivity to repair-and-remodel and housing activity, commodity and freight costs, sourcing and labor availability, currency movements, competition and customer concentration. The Home Depot accounted for about $3.3 billion, or 38%, of 2022 continuing-operations sales; Behr has North American retail-channel exclusivity with the retailer.
- A $500 million 364-day term loan was entered into in April 2022; $300 million was repaid during the year, leaving $200 million due April 26, 2023. The company reported compliance with credit agreement covenants at year-end and no year-end borrowings under its $1.0 billion revolving facility. It disclosed $69 million drawn on that facility as of the report date.
- Masco is involved in ordinary-course litigation and product-related claims; management said a material adverse outcome was remote, while noting outcomes remain uncertain. The filing also identifies cybersecurity, climate-related, regulatory and COVID-19-related risks.
Important facts for investors to verify
- Whether pricing and productivity can offset weaker volumes and continued cost pressure, particularly given the year-over-year gross-margin decline.
- How the near-term $205 million current debt balance is funded or repaid, and the effect of interest rates on borrowing costs and liquidity.
- Whether working capital and operating cash flow improve as demand and supplier-payment patterns change.
- The sustainability of capital returns alongside negative shareholders’ equity, elevated debt-to-capitalization and planned capital investment.
- The ongoing performance and impairment assumptions for the lighting business, and the company’s dependence on The Home Depot for a substantial share of sales.