Masco Corporation — FY2021 Form 10-K
Business context and reporting period
Masco designs, manufactures and distributes branded home-improvement and building products, principally for repair and remodeling. This filing reports the fiscal year ended December 31, 2021, compared with FY2020. Reportable segments are Plumbing Products and Decorative Architectural Products.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $8.375 billion | $7.188 billion |
| Gross profit / margin | $2.863 billion / 34.2% | $2.587 billion / 36.0% |
| Operating profit / reported margin | $1.405 billion / 16.8% | $1.295 billion / 18.0% |
| Operating profit margin excluding rationalization and goodwill impairment charges | 17.4% | 18.2% |
| Income from continuing operations attributable to Masco | $410 million | $810 million |
| Diluted continuing-operations EPS attributable to Masco | $1.62 | $3.04 |
| Cash from operating activities | $930 million | $953 million |
| Cash and cash investments at year-end | $926 million | $1.326 billion |
| Debt carrying value | $2.959 billion | $2.795 billion |
Reported net income attributable to Masco was $410 million, down from $1.224 billion in 2020; the prior year included $414 million of discontinued-operations income. The current ratio was 1.8 at both year-ends. Debt was 98% of total capitalization versus 87% in 2020. Masco reported $56 million of total equity, including a $179 million deficit in Masco shareholders’ equity, and $235 million of noncontrolling interest. It had no borrowings under its $1.0 billion revolving credit facility at year-end and was compliant with its covenants.
Material changes versus FY2020
- Sales rose 17% as reported and 13% excluding acquisitions, divestitures and currency effects. Plumbing Products sales increased 24% to $5.135 billion; Decorative Architectural Products sales increased 6% to $3.240 billion.
- Operating profit increased 8% as reported, but reported operating margin declined 120 basis points. Higher commodity, transportation and labor costs weighed on gross margin; pricing, volume, mix and cost savings partly offset those pressures.
- Interest expense rose to $278 million from $144 million, including a $168 million loss on early debt retirement. Other, net was an expense of $439 million, principally reflecting pension and post-retirement costs, including a $399 million net settlement loss tied to termination of qualified domestic pension plans.
- FY2021 included a $45 million non-cash goodwill impairment in the lighting business and an $18 million loss on the Hüppe divestiture. FY2020 included a $585 million gain on the Cabinetry divestiture within discontinued operations.
- Operating cash flow was slightly lower, while inventory increased to $1.216 billion from $876 million. Masco issued $1.5 billion of notes and used proceeds plus cash to retire approximately $1.326 billion of notes early.
Capital allocation, outlook and risks
Masco repurchased 17.6 million shares for approximately $1.026 billion in 2021 and paid $211 million in cash dividends. Management anticipated approximately $600 million of share repurchases in 2022 and forecast capital expenditures of approximately $250 million, excluding potential acquisitions; 2022 depreciation and amortization was expected to be approximately $150 million. The Board declared a first-quarter 2022 dividend of $0.28 per share, with an intended annual rate of $1.12. The filing provides no specific 2022 sales or earnings guidance.
Management cited continued uncertainty from COVID-19, supply-chain and transportation disruption, commodity and labor inflation, and hiring constraints; productivity and other initiatives were intended to offset some cost pressures. Key exposures include dependence on repair-and-remodel demand, significant customer concentration (The Home Depot represented approximately 36% of 2021 sales), supplier availability, tariffs, foreign exchange, competition, cybersecurity, litigation and climate-related or extreme-weather disruption. Masco stated that available cash, operating cash flow and credit availability were sufficient for near-term needs, while noting pandemic-related uncertainty.
Important facts for investors to verify
- Review the pension settlement and debt-extinguishment charges, and distinguish recurring operating performance from these unusual items.
- Assess whether pricing and productivity can offset persistent input, freight and labor inflation without weakening volume or market share.
- Monitor inventory growth, cash conversion, leverage and the planned 2022 capital returns and capital expenditures.
- Evaluate customer concentration, particularly The Home Depot relationship and Behr’s North American retail exclusivity.
- Check the assumptions supporting the lighting goodwill valuation and the financial performance conditions attached to Kraus acquisition consideration.