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Repair/Remodel Activity to Drive Masco's (MAS) Q3 Earnings

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Masco Corporation (MAS - Free Report) is scheduled to report third-quarter 2017 results on Oct 24, 2017, before market opens.

Masco’s growth in the last few quarters has primarily been driven by steadily rising repair and remodel activity. The trend is expected to contribute in the to-be-reported quarter. Notably, more than 80% of Masco’s revenues are generated from repair/remodel activity.

Also, product innovation plays an important role in driving results. In 2016, Masco invested in several new products and programs across its different brands, positioning itself for growth in 2017 and beyond.

Coming to the different reportable segments, Plumbing Products, comprising about 46% of the total revenues, is expected to contribute substantially to overall revenue growth in the third quarter. The Zacks Consensus Estimate for Plumbing Products revenues of $953 million reflects growth of 6% from the year-ago quarter.

The Cabinets segment is expected to return to positive growth this quarter, after seeing year-over-year sales decline for quite some time. The consensus estimate for the segment’s revenues of $250 million reflects year-over-year growth of 4.6%.

Decorative Architectural Products is expected to grow 5.8% year over year in the third quarter owing to strong pro paint growth, while the Windows and Other Specialty Products is expected to decline 2.5% in the to-be-reported quarter.

We are also encouraged by the company’s cost-saving initiatives that have been driving margins over the past few quarters. Such initiatives include business consolidations, system implementations, plant closures, branch shut downs, improvement in the global supply chain and headcount reduction. Notably, operating margins improved 40 basis points in the first half of 2017. The trend is expected to continue in the third quarter and beyond.

In fact as per our quantitative model, Masco has the right combination of two main ingredients — a positive Earnings ESP (+0.19%) and a Zacks Rank #3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Masco Corporation Price and EPS Surprise

However, negative impact of currency translation on sales is still significant. About 21% of Masco’s sales is generated outside the United States. As such, the company is subject to currency translation volatility across the globe.

Also, increasing material costs act as a dampener for Masco. Currently, the company is facing some pressure from resin-related costs. Further, the prices of copper and zinc have gone up. Apart from raw material costs, the company bears expenses related to product launches as well. The company will see incremental costs of approximately $7 million in the third quarter related to launches and tariffs on imported Chinese plywood.

Overall, for the third quarter, the Zacks Consensus Estimate for total revenues is pegged at $1.96 billion, implying 4.3% growth. The solid improvement in the top line, driven by increased revenues from Plumbing and Decorative Architectural segments, is expected to boost earnings. The Zacks Consensus Estimate for earnings stands at 53 cents, reflecting a 29% year-over-year increase.

Stocks Worth a Look

Here are a few construction stocks worth considering as they have the right combination of elements to beat earnings this quarter.

Beazer Homes USA, Inc. (BZH - Free Report) has an Earnings ESP of +1.89% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is expected to report quarterly results on Nov 21.

U S Concrete, Inc. (USCR - Free Report) has an Earnings ESP of +6.29% and a Zacks Rank #3. The company is slated to report quarterly results on Nov 3.

Louisiana-Pacific Corporation (LPX - Free Report) has an Earnings ESP of +16.59% and a Zacks Rank #1. The company is set to report third-quarter results on Nov 6.

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