- Net sales decreased 21.1% year-over-year to $677.3 million
- Net income increased 14.4% year-over-year to $59.7 million
- Adjusted EBITDA1 margin increased 153 basis points
year-over-year to 16.2%
- Operating cash flow for the thirty-nine weeks ended September
24, 2023 was $336.5 million with free cash flow1 of $315.1
million
- Increases 2023 financial outlook
MasterBrand, Inc. (NYSE: MBC, the “Company,” or “MasterBrand”),
the largest residential cabinet manufacturer in North America,
today announced third quarter 2023 financial results.
“We are pleased to report another solid quarter of financial
performance. Demand was once again in line with our expectations,
and our strategic initiatives continued to deliver adjusted EBITDA
performance in advance of our estimates,” said Dave Banyard,
President and Chief Executive Officer. “Our associates’ disciplined
use of The MasterBrand Way, the cornerstone of our culture, has
produced outsized margin performance this year, and is positioning
us for growth in the future. We believe our culture and investments
in strategic initiatives will allow us to outperform the market in
the long term.”
Third Quarter 2023
Net sales were $677.3 million, compared to $858.4 million in the
third quarter of 2022, primarily due to lower volumes, driven by
softer end market demand. Gross profit was $237.5 million, compared
to $264.9 million in the comparable period of the prior year. Gross
profit margin increased 421 basis points to 35.1%, as the impact of
volume declines were more than offset by lower material and freight
costs, productivity, restructuring and restructuring-related
savings, and discrete items in the quarter.
Net income was $59.7 million, compared to $52.2 million in the
third quarter of 2022, primarily due to higher operating income,
and lower income taxes, which were partially offset by higher
interest expense of $15.3 million in the third quarter of 2023,
related to bank debt issued in December 2022 at the time of our
separation from Fortune Brands Home and Security. Diluted earnings
per common share was $0.46, compared to pro forma diluted earnings
per common share1 of $0.41 in the comparable period of the
prior year.
Adjusted EBITDA1 was $109.8 million, compared to $126.0
million in the third quarter of 2022. Adjusted EBITDA1
margin increased 153 basis points to 16.2%, compared to 14.7% in
the comparable period of the prior year.
Balance Sheet, Cash Flow and Share
Repurchases
As of September 24, 2023, the Company had $122.5 million in cash
and $480.2 million of availability under its revolving credit
facility. Net debt1 was $585.0 million and net debt to
adjusted EBITDA1 was 1.5 x.
Operating cash flow was $336.5 million for the thirty-nine weeks
ended September 24, 2023, compared to $117.9 million in the prior
year period. Free cash flow1 was $315.1 million for the
thirty-nine weeks ended September 24, 2023, compared to $85.7
million in the same period of the prior year.
During the third quarter of 2023, the Company repurchased
approximately 943 thousand shares of common stock for $11.5 million
under the Company’s stock repurchase program.
2023 Financial Outlook
The Company expects:
- Net sales year-over-year decline of mid teens percentage in the
fourth quarter of 2023
- Adjusted EBITDA1,2 in the range of $370 million to $380
million, with related adjusted EBITDA margins1,2 of roughly
13.5 to 14.0 percent for the full year 2023
The Company is increasing the midpoint of its full-year adjusted
EBITDA1 outlook by $20 million based on stronger than
expected performance in the third quarter of 2023. This outlook
includes the remaining insurance proceeds received related to the
Company’s claim in the second quarter for damages resulting from
the impact of a tornado at its Jackson, Georgia production
facility. Net sales outlook remains unchanged for the remainder of
the year as the Company continues to expect softer end market
demand in 2023.
“Given our financial performance in the third quarter and
continued operational excellence, we are raising our adjusted
EBITDA1 and related margin outlook for the full year 2023,” said
Andi Simon, Executive Vice President and Chief Financial Officer.
“We are extremely pleased with the savings generated by our
strategic initiatives to date, and we believe further investments
can yield incremental savings in future periods.”
Conference Call Details
The Company will hold a live conference call and webcast at 4:30
p.m. ET today, November 7, 2023, to discuss the financial results
and business outlook. Telephone access to the live call will be
available at (877) 407-4019 (U.S.) or by dialing (201) 689-8337
(international). The live audio webcast can be accessed on the
“Investors” section of the MasterBrand website
www.masterbrand.com.
A telephone replay will be available approximately one hour
following completion of the call through November 21, 2023. To
access the replay, please dial 877-660-6853 (U.S.) or 201-612-7415
(international). The replay passcode is 13741349. An archived
webcast of the conference call will also be available on the
"Investors" page of the Company's website.
Non-GAAP Financial
Measures
To supplement the financial information presented in accordance
with generally accepted accounting principles in the United States
(“GAAP”) in this earnings release, certain non-GAAP financial
measures as defined under SEC rules have been included. It is our
intent to provide non-GAAP financial information to enhance
understanding of our financial information as prepared in
accordance with GAAP. Non-GAAP financial measures should be
considered in addition to, not as a substitute for, other financial
measures prepared in accordance with GAAP. Our methods of
determining these non-GAAP financial measures may differ from the
methods used by other companies for these or similar non-GAAP
financial measures. Accordingly, these non-GAAP financial measures
may not be comparable to measures used by other companies.
We use EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted
diluted earnings per share, free cash flow, and net debt, which are
all non-GAAP financial measures. EBITDA is defined as earnings
before interest, taxes, depreciation and amortization. We evaluate
the performance of our business based on income before income
taxes, but also look to EBITDA as a performance evaluation measure
because interest expense is related to corporate functions, as
opposed to operations. For that reason, we believe EBITDA is a
useful metric to investors in evaluating our operating results.
Adjusted EBITDA is calculated by removing the impact of
non-operational results and special items from EBITDA. Adjusted
EBITDA margin is calculated as adjusted EBITDA divided by net
sales. Adjusted diluted earnings per share is a measure of our
diluted earnings per share excluding non-operational results and
special items. These non-GAAP measures are useful to investors as
they are representative of our core operations and are used in the
management of our business, including decisions concerning the
allocation of resources and assessment of performance.
Free cash flow is defined as cash flow from operations less
capital expenditures. We believe that free cash flow is a useful
measure to investors because it is a meaningful indicator of cash
generated from operating activities available for the execution of
our business strategy, and is used in the management of our
business, including decisions concerning the allocation of
resources and assessment of performance. Net debt is defined as
total balance sheet debt less cash and cash equivalents. We believe
this measure is useful to investors as it provides a measure to
compare debt less cash and cash equivalents across periods on a
consistent basis. Net debt to adjusted EBITDA is calculated by
dividing net debt by the trailing twelve months adjusted EBITDA.
Net debt to adjusted EBITDA is used by management to assess our
financial leverage and ability to service our debt obligations.
As required by SEC rules, see the financial statement section of
this earnings release for detailed reconciliations of these
non-GAAP financial measures to the most directly comparable GAAP
measure. We have not provided a reconciliation of our fiscal 2023
adjusted EBITDA and adjusted EBITDA margin guidance because the
information needed to reconcile these measures is unavailable due
to the inherent difficulty of forecasting the timing or amount of
various items that have not yet occurred, with respect to gains and
losses associated with our defined benefit plans and restructuring
and other charges, which are excluded from adjusted EBITDA and
adjusted EBITDA margin. Additionally, estimating such GAAP measures
and providing a meaningful reconciliation consistent with the
Company’s accounting policies for future periods requires a level
of precision that is unavailable for these future periods and
cannot be accomplished without unreasonable effort. Forward-looking
non-GAAP measures are estimated consistent with the relevant
definitions and assumptions.
About MasterBrand:
MasterBrand, Inc. (NYSE: MBC) is the largest manufacturer of
residential cabinets in North America and offers a comprehensive
portfolio of leading residential cabinetry products for the
kitchen, bathroom and other parts of the home. MasterBrand products
are available in a wide variety of designs, finishes and styles and
span the most attractive categories of the cabinets market: stock,
semi-custom and premium cabinetry. These products are delivered
through an industry-leading distribution network of over 4,500
dealers, major retailers and builders. MasterBrand employs over
13,600 associates across more than 20 manufacturing facilities and
offices. Additional information can be found at
www.masterbrand.com.
Forward Looking Statements:
This Press Release contains “forward-looking statements”
regarding business strategies, market potential, future financial
performance, and other matters. Statements preceded by, followed by
or that otherwise include the word “believes,” “expects,”
“anticipates,” “intends,” “projects,” “estimates,” “plans,” “may
increase,” “may fluctuate,” and similar expressions or future or
conditional verbs such as “will,” “should,” “would,” “may,” and
“could,” are generally forward-looking in nature and not historical
facts. Where, in any forward-looking statement, we express an
expectation or belief as to future results or events, such
expectation or belief is based on the current plans and
expectations of our management. Although we believe that these
statements are based on reasonable assumptions, they are subject to
numerous factors, risks and uncertainties that could cause actual
outcomes and results to be materially different from those
indicated in such statements. These factors include those listed
under “Risk Factors” in our Form 10-K for the fiscal year ended
December 25, 2022, our Form 10-Q for the fiscal quarter ended March
26, 2023, and other filings with the SEC.
The forward-looking statements included in this document are
made as of the date of this Press Release and, except pursuant to
any obligations to disclose material information under the federal
securities laws, we undertake no obligation to update, amend or
clarify any forward-looking statements to reflect events, new
information or circumstances occurring after the date of this Press
Release.
Some of the important factors that could cause our actual
results to differ materially from those projected in any such
forward-looking statements include:
- Our ability to develop and expand our business;
- Our anticipated financial resources and capital spending;
- Our ability to manage costs;
- The impact of our dependence on third parties with respect to
sourcing our raw materials;
- Our ability to accurately price our products;
- Our anticipated future revenues and expectations of operational
performance;
- The effects of competition and consolidation of competitors in
our industry;
- Costs of complying with evolving tax and other regulatory
requirements and the effect of actual or alleged violations of tax,
environmental or other laws;
- The effect of climate change and unpredictable seasonal and
weather factors;
- Failure to realize the anticipated benefits of the separation
from Fortune Brands;
- Conditions in the housing market in the United States and
Canada;
- The expected strength of our existing customers and
consumers;
- Worldwide economic, geopolitical and business conditions and
risks associated with doing business on a global basis;
- Unfavorable or unexpected effects of the distribution and
separation from Fortune Brands;
- The effects of the COVID-19 pandemic or another public health
crisis or other unexpected event; and
- Other statements contained in this Press Release regarding
items that are not historical facts or that involve
predictions.
1 - See "Non-GAAP Financial Measures" and the
corresponding financial tables at the end of this press release for
definitions and reconciliations of non-GAAP measures.
2 - We have not provided a reconciliation of our fiscal
2023 adjusted EBITDA and adjusted EBITDA margin guidance because
the information needed to reconcile these measures is unavailable
due to the inherent difficulty of forecasting the timing or amount
of various items that have not yet occurred and which may be
excluded from adjusted EBITDA and adjusted EBITDA margin.
Additionally, estimating such GAAP measures and providing a
meaningful reconciliation for future periods requires a level of
precision that is unavailable for these future periods and cannot
be accomplished without unreasonable effort. Forward-looking
non-GAAP measures are estimated consistent with the relevant
definitions and assumptions.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
13 Weeks Ended
39 Weeks Ended
(In millions, except per share
amounts)
September 24,
2023
September 25,
2022
September 24,
2023
September 25,
2022
NET SALES
$
677.3
$
858.4
$
2,049.1
$
2,491.1
Cost of products sold
439.8
593.5
1,370.8
1,765.6
GROSS PROFIT
237.5
264.9
678.3
725.5
Gross Profit Margin
35.1
%
30.9
%
33.1
%
29.1
%
Selling, general and administrative
expenses
140.3
176.2
417.3
487.2
Amortization of intangible assets
3.6
4.4
11.6
13.2
Asset impairment charge
—
—
—
26.0
Restructuring charges
1.4
9.6
4.1
10.9
OPERATING INCOME
92.2
74.7
245.3
188.2
Related party interest income, net
—
(4.3
)
—
(7.3
)
Interest expense
15.3
—
49.9
—
Other (income) expense, net
(1.0
)
0.7
(0.1
)
1.5
INCOME BEFORE TAXES
77.9
78.3
195.5
194.0
Income tax expense
18.2
26.1
49.6
54.0
NET INCOME
$
59.7
$
52.2
$
145.9
$
140.0
Average Number of Shares of Common Stock
Outstanding
Basic
127.6
128.0
128.1
128.0
Diluted
130.3
128.0
129.9
128.0
Earnings Per Common Share
Basic
$
0.47
$
0.41
$
1.14
$
1.09
Diluted
$
0.46
$
0.41
$
1.12
$
1.09
SUPPLEMENTAL INFORMATION -
Quarter-to-date
(Unaudited)
13 Weeks Ended
September 24,
September 25,
(In millions, except per share amounts and
percentages)
2023
2022
1. Reconciliation
of Net Income to EBITDA to ADJUSTED EBITDA
Net income (GAAP)
$
59.7
$
52.2
Related party interest income, net
—
(4.3
)
Interest expense
15.3
—
Income tax expense
18.2
26.1
Depreciation expense
11.9
13.6
Amortization expense
3.6
4.4
EBITDA (Non-GAAP Measure)
$
108.7
$
92.0
[1] Net cost savings as standalone
company
—
16.7
[2] Separation costs
0.1
3.5
[3] Restructuring charges
1.4
9.6
[4] Restructuring-related (adjustments)
charges
(0.4
)
4.2
Adjusted EBITDA (Non-GAAP
Measure)
$
109.8
$
126.0
2. Reconciliation
of Net Income to Adjusted Net Income
Net Income (GAAP)
$
59.7
$
52.2
[1] Net cost savings as standalone
company
—
16.7
[2] Separation costs
0.1
3.5
[3] Restructuring charges
1.4
9.6
[4] Restructuring-related (adjustments)
charges
(0.4
)
4.2
[6] Income tax impact of adjustments
(0.3
)
(11.3
)
Adjusted Net Income (Non-GAAP
Measure)
$
60.5
$
74.9
3. Earnings per
Share Summary
Diluted EPS (GAAP)
$
0.46
$
0.41
Impact of adjustments
$
—
$
0.17
Adjusted Diluted EPS (Non-GAAP
Measure)
$
0.46
$
0.58
Weighted average diluted shares
outstanding
130.3
128.0
4. Profit
Margins
Net Sales
$
677.3
$
858.4
Gross Profit
$
237.5
$
264.9
Gross Profit Margin %
35.1
%
30.9
%
Adjusted EBITDA Margin %
16.2
%
14.7
%
SUPPLEMENTAL INFORMATION -
Year-to-date
(Unaudited)
39 Weeks Ended
September 24,
September 25,
(In millions, except per share amounts and
percentages)
2023
2022
1. Reconciliation
of Net Income to EBITDA to ADJUSTED EBITDA
Net income (GAAP)
$
145.9
$
140.0
Related party interest income, net
—
(7.3
)
Interest expense
49.9
—
Income tax expense
49.6
54.0
Depreciation expense
34.9
35.1
Amortization expense
11.6
13.2
EBITDA (Non-GAAP Measure)
$
291.9
$
235.0
[1] Net cost savings as standalone
company
—
31.6
[2] Separation costs
2.3
3.7
[3] Restructuring charges
4.1
10.9
[4] Restructuring-related (adjustments)
charges
(0.7
)
6.4
[5] Asset impairment charge
—
26.0
Adjusted EBITDA (Non-GAAP
Measure)
$
297.6
$
313.6
2. Reconciliation
of Net Income to Adjusted Net Income
Net Income (GAAP)
$
145.9
$
140.0
[1] Net cost savings as standalone
company
—
31.6
[2] Separation costs
2.3
3.7
[3] Restructuring charges
4.1
10.9
[4] Restructuring-related (adjustments)
charges
(0.7
)
6.4
[5] Asset impairment charge
—
26.0
[6] Income tax impact of adjustments
(1.4
)
(21.9
)
Adjusted Net Income (Non-GAAP
Measure)
$
150.2
$
196.7
3. Earnings per
Share Summary
Diluted EPS (GAAP)
$
1.12
$
1.09
Impact of adjustments
$
0.04
$
0.45
Adjusted Diluted EPS (Non-GAAP
Measure)
$
1.16
$
1.54
Weighted average diluted shares
outstanding
129.9
128.0
4. Profit
Margins
Net Sales
$
2,049.1
$
2,491.1
Gross Profit
$
678.3
$
725.5
Gross Profit Margin %
33.1
%
29.1
%
Adjusted EBITDA Margin %
14.5
%
12.6
%
TICK LEGEND:
[1] Prior to the separation
from Fortune Brands in Q4 2022, our historical consolidated
financial statements included expense allocations for certain
corporate functions performed on our behalf by Fortune Brands,
including information technology, finance, executive, human
resources, supply chain, internal audit and legal services. As a
standalone public company, we expect that the costs we incur on a
standalone basis for such expenses previously allocated to us by
Fortune Brands and new costs relating to our public company
reporting and compliance obligations will be less than the expense
allocations from Fortune Brands within our historical financial
statements.
The costs of MasterBrand we plan to incur are based on our
expected organizational structure and expected cost structure as a
standalone company. In order to determine the impact of the
synergies and dissynergies, MasterBrand prepared a detailed
assessment of personnel costs based on the estimated resources and
associated costs required as a baseline to stand up MasterBrand as
a standalone company.
In addition to personnel costs, estimated nonpersonnel third
party support costs in each function were considered, which
included business support functions and corporate overhead charges
previously shared with Fortune Brands. Estimated non personnel
third party support costs were determined by estimating third party
spend in each function, and include the costs associated with
outside services supporting information technology, finance,
executive, human resources, supply chain, internal audit and legal
services. This process was used by all functions resulting in
expected net cost savings when compared to the corporate
allocations from Fortune Brands included in the historical
financial statements.
[2] Separation costs
represent one-time costs incurred directly by MasterBrand related
to the separation from Fortune Brands.
[3] Restructuring charges
are nonrecurring costs incurred to implement significant cost
reduction initiatives and may consist of workforce reduction costs,
facility closure costs, and other costs to maintain certain
facilities where operations have ceased, but which we are still
responsible for. The restructuring charges for the periods
presented are comprised primarily of workforce reduction costs.
[4] Restructuring-related charges are expenses directly
related to restructuring initiatives that do not represent normal,
recurring expenses necessary to operate the business, but cannot be
reported as restructuring under GAAP. Such costs may include losses
on disposal of inventories from exiting product lines, accelerated
depreciation expense, and gains/losses on the sale of facilities
closed as a result of restructuring actions. Restructuring-related
adjustments are recoveries of previously recorded
restructuring-related charges resulting from changes in estimates
of accruals recorded in prior periods. Restructuring-related
charges/(adjustments) for the periods presented are related
primarily to the reserves for losses on disposal of
inventories.
[5] The thirty-nine weeks
ended September 25, 2022, includes a $26.0 million pre-tax
impairment charge related to the impairment of an indefinite lived
trade name.
[6] In order to calculate
Adjusted Net Income, each of the items described in Items [1] - [5]
above were tax effected based upon the effective tax rates for the
respective periods. The effective tax rate was calculated by
dividing income tax expense by income before taxes for the
respective periods.
13 Weeks Ended
39 Weeks Ended
September 24,
September 25,
September 24,
September 25,
(In millions, except percentages)
2023
2022
2023
2022
Income taxes (a)
$
18.2
$
26.1
$
49.6
$
54.0
Income before taxes (b)
77.9
78.3
195.5
194.0
Effective income tax rate (a)/(b)
23.4
%
33.3
%
25.4
%
27.8
%
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
September 24,
September 25,
(In millions)
2023
2022
ASSETS
Current assets
Cash and cash equivalents
$
122.5
$
134.0
Accounts receivable, net
233.6
326.0
Inventories
269.4
416.2
Other current assets
58.5
64.5
TOTAL CURRENT ASSETS
684.0
940.7
Property, plant and equipment, net
341.5
341.2
Operating lease right-of-use assets,
net
61.6
55.2
Goodwill
924.6
924.3
Other intangible assets, net
338.5
374.3
Related party receivable
—
624.2
Other assets
28.1
18.2
TOTAL ASSETS
$
2,378.3
$
3,278.1
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
$
179.7
$
209.9
Current portion of long-term debt
8.2
—
Current operating lease liabilities
15.4
14.1
Other current liabilities
164.6
171.4
TOTAL CURRENT LIABILITIES
367.9
395.4
Long-term debt
699.3
—
Deferred income taxes
84.2
98.2
Pension and other postretirement plan
liabilities
12.1
7.6
Operating lease liabilities
48.4
43.3
Related party payable
—
19.5
Other non-current liabilities
9.9
9.4
TOTAL LIABILITIES
1,221.8
573.4
Stockholders' equity
1,156.5
2,704.7
TOTAL EQUITY
1,156.5
2,704.7
TOTAL LIABILITIES AND EQUITY
$
2,378.3
$
3,278.1
Reconciliation of Net Debt
Current portion of long-term debt
$
8.2
Long-term debt
699.3
LESS: Cash and cash equivalents
(122.5
)
Net Debt
$
585.0
Adjusted EBITDA for FY2022
411.4
LESS: Adjusted EBITDA for 39 weeks ended
September 25, 2022
313.6
PLUS: Adjusted EBITDA for 39 weeks ended
September 24, 2023
297.6
Adjusted EBITDA (52 Weeks)
$
395.4
Net Debt to Adjusted EBITDA
1.5
x
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
39 Weeks Ended
September 24,
September 25,
(In millions)
2023
2022
OPERATING ACTIVITIES
Net income
$
145.9
$
140.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
34.9
35.1
Amortization of intangibles
11.6
13.2
Restructuring charges, net of cash
payments
(13.9
)
7.3
Amortization of finance fees
1.7
—
Stock-based compensation
13.2
8.1
Asset impairment charge
—
26.0
Changes in operating assets and
liabilities:
Accounts receivable
60.1
(22.9
)
Inventories
103.9
(113.1
)
Other current assets
6.9
11.9
Accounts payable
(42.8
)
6.8
Accrued expenses and other current
liabilities
9.2
24.5
Other items
5.8
(19.0
)
NET CASH PROVIDED BY OPERATING
ACTIVITIES
336.5
117.9
INVESTING ACTIVITIES
Capital expenditures
(21.4
)
(32.2
)
Proceeds from the disposition of
assets
0.3
—
NET CASH USED IN INVESTING
ACTIVITIES
(21.1
)
(32.2
)
FINANCING ACTIVITIES
Issuance of long-term and short-term
debt
55.0
—
Repayments of long-term and short-term
debt
(327.5
)
—
Repurchase of common stock
(15.6
)
—
Payments of employee taxes withheld from
share-based awards
(3.0
)
—
Repayment of finance leases
(1.0
)
(0.6
)
Related party borrowings
—
2,224.2
Related party repayments
—
(2,424.1
)
Net contributions from Fortune Brands
—
113.2
NET CASH USED IN FINANCING
ACTIVITIES
(292.1
)
(87.3
)
Effect of foreign exchange rate changes on
cash and cash equivalents
(1.9
)
(5.8
)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
$
21.4
$
(7.4
)
Cash and cash equivalents at beginning of
period
$
101.1
$
141.4
Cash and cash equivalents at end of
period
$
122.5
$
134.0
Reconciliation of Free Cash
Flow
Net cash provided by operating
activities
$
336.5
$
117.9
Less: Capital expenditures
(21.4
)
(32.2
)
Free cash flow
$
315.1
$
85.7
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231107809298/en/
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