TAYLOR, Mich.  — Despite a 4 percent revenue rise, Masco's cabinetry net sales fell 5 percent first quarter, but the drop was due to the exit from lower margin business in the builder channel, and elimination of countertop operations, says CEO Keith Allman.
 
Overall, the maker of Merillat and KraftMaid cabinetry reported net first quarter sales of $1.7 billion, up 4 percent. North American sales rose 6 percent to $1.35 billion; and international sales increased 2 percent, measured in local currency.

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“The year is off to a great start with strong performances from all of our businesses,” Allman said during a conference call."Turning to cabinets, the team delivered yet another strong quarter, maintaining their leadership position at retail and gaining share in the dealer channel with both Merillat and KraftMaid brands.

"To further position this business for profitable growth, the team has continued to optimize their sales mix by exiting low margin direct-to-builder business in the Carolinas and exiting the kitchen countertop product category. Given these actions and cabinetry's positive trajectory, we expect this segment to achieve operating profit margins between 8% and 9% in 2016."   

Decorative Architectural Products (Behr paints and coating, hardwares) net sales increased 9 percent, fueled by strong growth in Behr’s core DIY products and its Behr Pro products. Keith said Masco's Liberty Hardware had a solid quarter due to market share gains from successful new product introductions. Operating income increased 27 percent in the first quarter principally due to the strong volumes at BEHR.  

John G. Sznewajs, CFO, offered more details on the cabinetry business at the press conference, transcribed by Seeking Alpha.
"Our Cabinetry segment sales declined 5 percent in the quarter due to the deliberate exit of certain lower margin business with builder channel in the United States, and at select low margin accounts in our UK cabinet business," Sznewajs said. "This decline was partially offset by high single digit growth in the dealer channel, both our Merillat offerings and our dealer exclusive KraftMaid Vantage program continued to perform and drive increased volume and favorable mix."
 
Sznewajs projects cabinet sales will be reduced by $60 million for the full year with the move.  
 
In later questioning by analysts on how cabinetry profits can rise as sales fall, Allman said streamlining manufacturing is a key area.
 
"Certainly it's manufacturing, conversion costs," Allman said. "We're working a lot on our wood yields and our finishing yields. We've invested into a better quality system and our quality costs are coming down. And we're doing it – Joe and the team there are doing it with a process orientation.
 
"So, as I look at how we're doing it as far as what's been done, I'm confident that it's sustainable. And now as we start to work harder on our growth initiatives and we're seeing the results of that – KraftMaid is the number one brand in repair and remodeling, and Merillat is the number one brand in new construction."

 

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