Masco Reports Broader Loss

Masco Corporation (MAS - Analyst Report) reported a broader loss of 9 cents per share in the fourth quarter of 2011 compared with 8 cents per share in the fourth quarter of 2010 (all excluding special items) and the Zacks Consensus Estimate of a loss of 3 cents per share. Including the special items, the company’s loss was $1.42 per share in the quarter under study compared with $2.92 per share in the fourth quarter of 2010.

The company’s results were adversely affected by volatility in costs, a competitive retail environment, flat housing environment in North America and difficult economic conditions in Europe.

Sales in the quarter were flat at $1.7 billion compared with the fourth quarter of 2010.  Sales in North America rose 2% to $1.3 billion while international sales fell 1% to $418 million. In local currencies, international sales were flat compared with the fourth quarter of 2010.   

Gross margins were 21.9% compared with 23.5% in the year-ago quarter. Operating margins were 1.6% compared with 1.9% in the fourth quarter of 2010.

Sales in the Cabinets and Related Products segment dipped 6% to $287 million; Plumbing Products increased marginally by 2% to $674 million; Installation and Other Services escalated 12% to $285 million; Decorative Architectural Products rose 4% to $348 million, and Other Specialty Products decreased 11% to $144 million.

For full year 2011, Masco reported a narrower profit of 2 cents per share compared with 23 cents per share in 2010, excluding the special items. The profit was lower than the Zacks Consensus Estimate of 6 cents per share. Including the special items, the company incurred a loss of $1.34 per share in the year versus a loss of $2.94 per share in 2010.

Sales in the year were flat at $7.5 billion compared with 2010. Sales in North America fell 3% to $5.7 billion. However, international sales increased 8% to $1.8 billion and rose 3% in local currencies.

Masco had cash and cash equivalents of $1.7 billion as of December 31, 2011, which was flat compared with the year-ago level. The company’s long-term debt amounted to $3.2 billion as of December 31, 2011 compared with $4.0 billion as of December 31, 2010. The debt-to-capitalization ratio was as high as 81% as of December 31, 2011 versus 72% as of December 31, 2010.

The company repurchased 2 million shares during the year for $30 million in 2011 compared with 3 million shares for $45 million in 2010. Capital expenditures increased to $151 million in the year from $137 million in 2010.

Masco, headquartered in Taylor, Michigan, is the leading manufacturers of home improvement and building products, as well as a leading provider of services that include the installation of insulation and other building products in the world. 

The company’s earnings and sales continued to be hampered by the slowdown in new home construction, headwinds from foreclosure activities and restrained financial accessibility. Further, the company has a significant exposure to its two principal customers, The Home Depot (HD - Analyst Report) and Lowe’s Companies (LOW - Analyst Report).

However, we believe the company’s cost reduction measures to drive significant improvements in 2012. As a result, the company retains a Zacks#3 Rank on its stock, which translates to a short-term (1 to 3 months) rating of “Hold” and we have recommended the shares of the company as “Neutral” for the long term (more than 6 months).

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