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What's in the Cards for Masco (MAS) This Earnings Season?

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Masco Corporation (MAS - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 8, before market opens.

Repair and remodel activity has been a key growth driver, contributing 80% to Masco’s revenues. Strong demand from repair and remodeling products across all channels of distribution led to a 3% increase in North American sales in the first nine months of 2017. KraftMaid, the company’s leading repair and remodel brand, came up with a solid performance in retail and dealer channels, delivering double-digit growth on increased volumes in third-quarter 2017. The trend is expected to contribute in the to-be-reported quarter.

Let us take a look at the other factors that are likely to influence Q4 results:

Product Innovation & Divestitures

Product innovation also plays a pivotal role in driving results. Masco regularly invests in new products across its brands. Moreover, the company regularly divests less profitable and underperforming businesses to focus on core areas to accelerate growth. In the second quarter of 2017, Masco completed the divestiture of its Arrow Fastener business for $126 million. Sales and operating profit will be impacted by approximately $18 million and $5 million, respectively, in the fourth quarter due to the sale of Arrow Fastener.

Segment Performance

Coming to the different reportable segments, Plumbing Products, comprising about 46% of total revenues, is expected to contribute substantially to revenue growth in the fourth quarter, driven by growth in faucet, shower and spa businesses. The Zacks Consensus Estimate for Plumbing Products revenues of $958 million reflects growth of 7.5% from the year-ago quarter.

The Cabinets segment is expected to see dismal growth this quarter owing to the impact of hurricanes. The company expects a $5-million hit to revenues in the fourth quarter that will largely impact the Cabinetry segment. The consensus estimate for the segment’s revenues of $238 million reflects year-over-year growth of just 1.7%.

Decorative Architectural Products is expected to grow 4.3% year over year in the fourth quarter owing to strong pro paint growth and Liberty Hardware business, while revenues at Windows and Other Specialty Products are expected to decline 2.1%.

Cost-Saving Initiatives

Masco expects approximately $8 million in reset costs in the fourth quarter pertaining to a cabinet hardware program. Also, the company will incur approximately $5-$10 million in advertising costs as it is now resetting its display sets across the United States.

Nonetheless, we are 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 nine months of 2017. The trend is expected to continue in the fourth quarter as well.

Overall, for the fourth quarter, the Zacks Consensus Estimate for total revenues is pegged at $1.84 billion, implying 4.4% growth. The improvement in the top line is expected to be driven by increased revenues from the Plumbing and Decorative Architectural segments. This is likely to translate into higher earnings. The Zacks Consensus Estimate for earnings stands at 43 cents, reflecting a 30.3% year-over-year increase.

Quantitative Model Prediction

Per the quantitative model, Masco does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to beat earnings.

Masco has an Earnings ESP of -0.31% and a Zacks Rank #1 (Strong Buy). 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

 

 

A Key Pick

Louisiana-Pacific (LPX - Free Report) has the right combination of elements to post an earnings beat this quarter.

The company has an Earnings ESP of +6.90% and a Zacks Rank #2 (Buy). The company is expected to report quarterly results on Feb 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

PulteGroup’s (PHM - Free Report) fourth-quarter 2017 adjusted earnings of 85 cents per share beat the Zacks Consensus Estimate of 84 cents by 1.2%. Also, earnings reflect a 27% jump from the year-ago quarter’s 67 cents.

NVR, Inc. (NVR - Free Report) reported fourth-quarter 2017 adjusted earnings of $43.41 per share, missing the Zacks Consensus Estimate of $48.95 by 11.3%. Without the adjustment, NVR reported earnings of $28.88 per share, down 24% year over year.

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