Masco Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Masco sells plumbing products and decorative architectural products, primarily in North America and Europe. Results are reported for Plumbing Products and Decorative Architectural Products.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1.970 billion | $1.581 billion |
| Gross profit / gross margin | $700 million / 35.5% | $547 million / 34.6% |
| Operating profit / operating margin | $365 million / 18.5% | $225 million / 14.2% |
| Income from continuing operations attributable to Masco | $94 million | $133 million |
| Diluted continuing-operations EPS | $0.34 | $0.48 |
| Net cash used for operating activities | $89 million | $92 million |
Sales rose 25% as reported and 19% excluding acquisitions and currency effects. Plumbing Products sales increased 31% to $1.249 billion; Decorative Architectural Products rose 15% to $721 million. Reported operating profit benefited from higher volumes and cost savings. Gross margin improved, while SG&A declined to 17.0% of sales from 20.4%.
Continuing-operations income fell despite stronger operating results, principally because interest expense included a $168 million loss on early debt extinguishment. The Q1 2020 comparison also included $397 million of income from discontinued operations, including a $585 million gain on the Cabinetry divestiture; that item is not part of continuing operations.
Cash, debt, and capital allocation
- Cash and cash investments were $838 million at March 31, versus $1.326 billion at December 31, 2020. The cash flow statement reports $840 million at quarter-end; the filing does not explain the difference clearly.
- Long-term debt was $2.955 billion, with $6 million of notes payable. The company issued $1.5 billion of new notes at 1.500%, 2.000%, and 3.125% due 2028, 2031, and 2051, and used proceeds and cash to retire $1.326 billion of higher-coupon notes. Debt extinguishment costs were $160 million in cash; the recognized loss was $168 million.
- The $1.0 billion revolving credit facility had no borrowings outstanding; Masco reported compliance with its covenants. The current ratio was 1.8 at both March 31 and year-end.
- Investing cash use was $25 million, including $30 million of capital expenditures. Financing cash use was $359 million, including $303 million of share repurchases and $36 million of dividends.
- The board authorized a new share repurchase program of up to $2.0 billion in February; $1.9 billion remained available at March 31. The quarterly dividend was $0.14 per share.
- Consolidated equity was $217 million; Masco shareholders’ equity was negative $17 million, while noncontrolling interest was $234 million.
Changes, outlook, and risks
- Management said strong consumer demand continued into Q1 and production largely returned to normal capacity, supporting fulfillment of backlogs. It also reported ongoing or potential supply-chain disruptions, particularly for plumbing, lighting, and builders’ hardware products.
- Masco acquired a 75.1% interest in Easy Sanitary Solutions for approximately $58 million, including assumed debt, and included it in Plumbing Products. Hüppe was classified as held for sale following a sale agreement; closing was expected in Q2 2021, subject to customary conditions and regulatory approval.
- Management expressed confidence in the business fundamentals and long-term strategy but gave no specific numerical forecast or earnings guidance.
- Key cited risks include residential repair and remodeling and new-home construction activity, COVID-19 effects, supply availability and material costs, competition, customer concentration, international operations, and execution and integration of acquisitions. The company said litigation and product-safety matters were not expected to have a material adverse effect, while noting outcomes are uncertain. No material changes to the 2020 Form 10-K risk factors were reported.
- The 2021 effective tax rate was 27%, versus 19% in Q1 2020, affected by specified tax items, including tax effects related to debt retirement and the planned pension-plan termination.
Investor facts to verify
- How much of the sales and margin growth reflects sustained demand and operating improvement versus acquisitions, currency, and pandemic-related cost reductions.
- Whether supply disruptions, commodity and wage inflation, and unfavorable pricing affect future margins.
- The cash-flow and balance-sheet effects of debt refinancing, share repurchases, and the planned pension settlement.
- Completion and financial impact of the Hüppe sale, and performance and integration of recent acquisitions.
- The drivers of the decline in continuing-operations EPS despite higher sales and operating profit, especially debt-extinguishment and tax items.