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Masco Corporation’s (MAS - Analyst Report) adjusted earnings of 23 cents per share in the second quarter of 2013 surpassed the Zacks Consensus Estimate of 19 cents by 21.1%. Earnings results improved 109.1% year over year driven by strong performance in North America, solid margin expansion, the company’s turnaround efforts and profit improvement initiatives.

Masco’s net sales of $2.15 billion surpassed the Zacks Consensus Estimate of $2.10 billion by 2.4%.

Revenues rose 10.3% year over year driven by volume growth. Volumes benefited from new product and program launches and increase in new home construction activity in the U.S. Revenue growth was supported by robust top line increase in all the segments. Net sales increased 5% in Cabinets and Related Products, 9% in Plumbing businesses, 21% in Installation, 9% in Decorative Architectural Products and 13% in Other Speciality products.

International sales rose 7% to $384 million despite weakness in the Eurozone. North American sales increased 11% year over year to $1.77 billion on the back of increasing new home construction activity and new product launches. Despite recent increase in interest rates and rising home prices, new home construction activity in North America continues to benefit from improved demand and affordability of homes, owing to increased rentals. In addition, repair and remodeling activity is improving.

Margins

Adjusted gross profit grew 18.3% to $620 million in the quarter. Gross margins expanded 200 basis points year over year to 28.9%. Adjusted operating profit was $206 million in the second quarter of 2013, up 57.3% from the prior-year quarter. Adjusted operating margin increased 290 (bps) year over year to 9.6% in the quarter on the back of favorable price/ commodity mix and total cost optimization initiatives.   

Masco has undertaken several strategic initiatives to strengthen its business. These include improvements in underperforming businesses like Installation and Cabinet; leveraging its brands, new product introduction and product innovation, and efforts to reduce costs and strengthen its balance sheet. For the past two quarters, the company has benefited from new products and program introduction.

Financial Details

The company ended second quarter 2013 with cash and cash investments of $1.22 billion compared to $1.03 billion in first quarter 2013.

Outlook

The company expects improved results in 2013 as both new home construction and repair and remodel activities continue to recover. However, the company is also cautious about Europe and expects the general economic uncertainty in the region to continue. The company will continue to invest in its brands, reduce cost and debt.

Masco carries a Zacks Rank #3 (Hold). We are encouraged by Masco’s continued focus on product innovation and cost improvements. The company is benefiting from the recovery in new home construction and repair and remodel activities. However, a sluggish European economy remains a headwind.

Other stocks in the sector that are performing well and deserve a mention include James Hardie Industries plc , USG Corporation (USG - Snapshot Report) and Aegion Corporation (AEGN - Snapshot Report). James Hardie Industries carries a Zacks Rank #1 (Strong Buy) whereas both USG Corporation and Aegion Corporation carry a Zacks Rank #2. (Buy).
 

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