Masco Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial amounts are in millions of dollars, except per-share data.
Business context
Masco sells plumbing products and decorative architectural products, primarily in North America and Europe. Q2 net sales were $2,352 million; first-half sales were $4,553 million.
Key financial results
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $2,352 | $2,179 | $4,553 | $4,149 |
| Gross profit | $769 | $791 | $1,473 | $1,491 |
| Gross margin | 32.7% | 36.3% | 32.4% | 35.9% |
| Operating profit | $408 | $437 | $761 | $802 |
| Operating margin | 17.3% | 20.1% | 16.7% | 19.3% |
| Net income attributable to Masco | $278 | $(36) | $511 | $58 |
| Diluted EPS | $1.18 | $(0.14) | $2.15 | $0.20 |
| Net cash from operating activities | Not stated quarterly | $174 | $239 |
Sales increased 8% in Q2 and 10% in the first half as reported. Excluding acquisitions, divestitures, and currency translation, sales grew 11% and 12%, respectively. Higher pricing was a major contributor; companywide pricing increased sales by 10% in Q2 and 9% in the first half.
Higher commodity, input, and transportation costs compressed gross margins and reduced operating profit despite higher prices and sales. SG&A was $361 million in Q2 and $712 million in the first half; as a share of sales it improved to 15.3% and 15.6%, respectively.
- Segments, Q2: Plumbing Products sales rose 3% to $1,373 million, while operating profit fell 13% to $238 million. Decorative Architectural Products sales rose 15% to $979 million and operating profit increased 2% to $192 million.
- Cash flow, first half: Operating cash flow was $174 million, including working-capital outflows from higher receivables and inventories. Capital expenditures were $70 million.
- Capital allocation: Financing cash outflow was $568 million, including $914 million of share repurchases and $131 million of dividends, partly offset by $500 million proceeds from a term loan.
Balance sheet, debt, and liquidity
At June 30, 2022, cash and cash investments were $440 million, down from $926 million at year-end 2021. Current assets were $3,359 million and current liabilities were $2,467 million; the current ratio was 1.4, versus 1.8 at December 31, 2021. Notes payable were $508 million and long-term debt was $2,946 million, for total carrying debt of approximately $3,454 million. Total equity was negative $563 million.
Masco entered a $1.0 billion revolving credit facility maturing in 2027, with no borrowings outstanding under it at quarter-end, and drew a $500 million unsecured 364-day term loan due April 26, 2023. The company reported compliance with its debt covenants. Management stated that cash, operating cash flow, and available credit were sufficient for near-term needs.
Material changes, outlook, and risks
Comparisons with 2021 are affected by unusual items. Q2 and first-half 2021 included a $406 million pension settlement loss; first-half 2021 also included a $168 million debt-extinguishment loss in interest expense. In 2022, other income included a $28 million Q2 and $24 million first-half gain from revaluing acquisition-related contingent consideration. Masco reported that the Kraus acquisition performance targets were not expected to be met and the related liability had a fair value of zero at June 30; the potential 2023 payment is up to $50 million.
The filing provides no numerical earnings or sales guidance. Management cited higher commodity, transportation, employee, and other input costs, supply-chain and sourcing disruption, hiring constraints, and continuing COVID-19 uncertainty. It said productivity initiatives and pricing were intended to help offset cost pressures and expressed confidence in its long-term strategy. Other stated risks include housing repair-and-remodel activity, new construction, customer and supplier dependence, competition, international operations, and cybersecurity. Management said ordinary-course litigation and product-safety matters were not expected to have a material adverse effect, while noting outcomes remain uncertain. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether pricing and productivity can offset persistent input, freight, labor, and supply-chain costs and stabilize margins.
- Whether the $500 million term loan due in April 2023 will be repaid or refinanced, and how interest costs evolve.
- Whether working-capital investment—particularly receivables and inventories—converts into stronger operating cash flow.
- The assumptions behind the zero fair value of the Kraus contingent consideration and the potential payment of up to $50 million.
- The impact of substantial repurchases and dividends on cash, leverage, and negative shareholders’ equity.