MasterBrand(MBC) - 2023 Q2 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) Unaudited Q2 2023 financials reflect decreased net sales, increased operating income from non-recurring charges, and improved operating cash flow post-separation Condensed Consolidated Statements of Income Q2 2023 net sales decreased to $695.1 million, while net income rose to $51.2 million, driven by higher operating income offsetting new interest expenses | Metric (in millions) | 13 Weeks Ended June 25, 2023 | 13 Weeks Ended June 26, 2022 | 26 Weeks Ended June 25, 2023 | 26 Weeks Ended June 26, 2022 | | :--- | :--- | :--- | :--- | :--- | | NET SALES | $695.1 | $855.6 | $1,371.8 | $1,632.7 | | GROSS PROFIT | $236.2 | $249.6 | $440.8 | $460.6 | | OPERATING INCOME | $87.4 | $51.9 | $153.1 | $113.4 | | NET INCOME | $51.2 | $40.9 | $86.2 | $87.9 | | Diluted EPS | $0.39 | $0.32 | $0.66 | $0.69 | Condensed Consolidated Balance Sheets As of June 25, 2023, total assets decreased to $2,424.0 million, total liabilities decreased, and total equity increased | Balance Sheet Item (in millions) | June 25, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $110.2 | $101.1 | | Accounts receivable, net | $235.7 | $289.6 | | Inventories | $319.6 | $373.1 | | TOTAL ASSETS | $2,424.0 | $2,529.4 | | Accounts payable | $182.2 | $219.2 | | Long-term debt | $788.3 | $961.5 | | TOTAL LIABILITIES | $1,316.4 | $1,520.2 | | TOTAL EQUITY | $1,107.6 | $1,009.2 | Condensed Consolidated Statements of Cash Flows H1 2023 net cash from operating activities significantly increased to $194.0 million, primarily due to working capital improvements, funding debt repayments | Cash Flow Activity (in millions) | 26 Weeks Ended June 25, 2023 | 26 Weeks Ended June 26, 2022 | | :--- | :--- | :--- | | NET CASH PROVIDED BY OPERATING ACTIVITIES | $194.0 | $76.1 | | NET CASH USED IN INVESTING ACTIVITIES | ($11.2) | ($22.1) | | NET CASH USED IN FINANCING ACTIVITIES | ($172.0) | ($69.6) | | Net increase (decrease) in cash | $9.1 | ($15.6) | Notes To Unaudited Condensed Consolidated Financial Statements Notes detail the company's separation from Fortune Brands, revenue channels, debt structure, and a $50 million stock repurchase program - MasterBrand completed its separation from Fortune Brands on December 14, 2022, becoming an independent, publicly-traded company. Historical financial statements prior to this date were prepared on a carve-out basis and include expense allocations from Fortune Brands[22][24] - A tornado on January 12, 2023, damaged the Jackson, GA production facility. In Q1 2023, the company incurred $9.4 million in related expenses. In Q2 2023, it received $2.2 million in insurance proceeds. Both amounts are recorded in cost of products sold[33] Revenue by Channel (in millions) | Revenue by Channel (in millions) | 26 Weeks Ended June 25, 2023 | 26 Weeks Ended June 26, 2022 | | :--- | :--- | :--- | | Dealers | $686.3 | $833.6 | | Retailers | $463.6 | $540.0 | | Builders | $149.8 | $160.0 | | International | $72.1 | $99.1 | | Total Net Sales | $1,371.8 | $1,632.7 | - In November 2022, the company entered into a $1.25 billion credit agreement, consisting of a $750 million term loan and a $500 million revolving credit facility. As of June 25, 2023, total debt outstanding was $815.2 million, net of issuance costs[64][160] - A stock repurchase program was authorized on May 9, 2023, for up to $50.0 million. During the quarter, 404,858 shares were repurchased for approximately $4.4 million[99][100] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes Q2 2023 net sales decrease to lower volume, operating income increase to non-recurring charges, and strong liquidity Results of Operations Q2 2023 net sales fell 18.8% due to lower volume, while operating income increased 68.4% from non-recurring charges and cost savings - Q2 2023 vs Q2 2022: - Net sales decreased by $160.5 million (18.8%) due to lower sales unit volume, partially offset by favorable pricing[121] - Gross profit margin improved from 29.2% to 34.0% - Operating income increased by $35.5 million (68.4%), mainly due to the non-recurrence of a $26.0 million asset impairment charge from Q2 2022 and cost savings[122][129] - H1 2023 vs H1 2022: - Net sales decreased by $260.9 million (16.0%) due to lower sales volume[140] - Operating income increased by $39.7 million (35.0%), despite $7.2 million in net costs from the Jackson, GA tornado[141][146] - Net income decreased slightly by $1.7 million (1.9%), as the growth in operating income was offset by $34.6 million in new interest expense[154] Liquidity and Capital Resources The company's liquidity is strong, with H1 2023 net cash from operations increasing to $194.0 million, used for debt repayments and stock repurchases - Net cash from operating activities increased to $194.0 million in H1 2023 from $76.1 million in H1 2022, primarily due to a $54.0 million favorable change in inventory and a $58.6 million favorable change in accounts receivable[162][163] - Net cash used in financing activities was $172.0 million in H1 2023, which included $164.4 million in net debt repayments and $4.1 million in stock repurchases[165] - The company entered into a $1.25 billion credit agreement in November 2022, consisting of a $750.0 million term loan and a $500.0 million revolving credit facility. The company believes it was in compliance with all financial covenants as of June 25, 2023[157][159] Quantitative and Qualitative Disclosures About Market Risk No material changes were reported regarding the company's market risk exposures since December 25, 2022 - No material changes were reported regarding market risk from the information provided in the Annual Report on Form 10-K for the fiscal year ended December 25, 2022[169] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 25, 2023, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that as of June 25, 2023, the company's disclosure controls and procedures were effective[170] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[171] Other Information On August 7, 2023, the company filed a Corrected Amended and Restated Certificate of Incorporation to correct an officer exculpation error - The company filed a Corrected Amended and Restated Certificate of Incorporation on August 7, 2023, to correct an error regarding officer exculpation provisions[172] Part II - Other Information Legal Proceedings The company is involved in routine litigation incidental to its business, which management believes will not have a material adverse effect - The company is a defendant in routine litigation incidental to its business and does not believe these actions will have a material adverse effect on its financial condition or results[176] Risk Factors No material changes to risk factors were reported since the 2022 Form 10-K and Q1 2023 Form 10-Q disclosures - No material changes to risk factors were reported since the previous disclosures in the 2022 Form 10-K and Q1 2023 Form 10-Q[178] Issuer Purchases of Equity Securities During Q2 2023, the company repurchased 404,858 shares at an average price of $10.89, with $45.6 million remaining in the program - On May 9, 2023, a stock repurchase program was authorized for up to $50.0 million of common stock over a twenty-four month period[179] Issuer Purchases of Equity Securities (in millions) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | April 24 - May 21, 2023 | 60,000 | $10.75 | $49.4 | | May 22 - June 25, 2023 | 344,858 | $10.91 | $45.6 | | Total | 404,858 | $10.89 | $45.6 | Exhibits This section lists exhibits filed with the Form 10-Q, including the Corrected Amended and Restated Certificate of Incorporation and SOX certifications - Key exhibits filed include the Corrected Amended and Restated Certificate of Incorporation and Sarbanes-Oxley Act certifications from the CEO and CFO[180]