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Why Is Masco (MAS) Down 3.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Masco (MAS - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Masco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter 2018 Results

Masco Corporation reported mixed second-quarter 2018 financial numbers, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Notably, the company’s bottom line missed the consensus mark for the second straight quarter.

Growth in the quarter was driven by strong performance in the Plumbing, Decorative Architectural and Cabinetry Products business.

Earnings & Revenues

In the reported quarter, adjusted earnings per share came in at 75 cents, missing the Zacks Consensus Estimate by a penny. However, the bottom line increased 21% on a year-over-year basis.

Net revenues of $2,297 million surpassed analysts’ expectation of $2,290 million by 0.3%. The top line also grew 11% year over year on the back of strong sales from Plumbing, Decorative Architectural and Cabinetry Products. Moreover, increased volume as well as pricing actions boosted the company’s quarterly results.

Margins

Adjusted gross profit grew 3.5% to $772 million, while adjusted gross margin contracted 250 bps to 33.6%.

Adjusted operating profit rose 2.2% to $380 million. Adjusted operating margin contracted 150 bps to 16.5%.

As a percentage of net revenues, selling, general and administrative expenses were 17.1%, lower than 18.1% reported in the prior-year quarter.

Segmental Analysis

Plumbing Products: The segment recorded revenues of $1,032 million, reflecting an increase of 9%. Excluding the impact of foreign currency translation, revenues increased 6% backed by growth in North America and international markets.

Adjusted operating margin of 19% declined 210 bps year over year.

Decorative Architectural Products: Segmental revenues amounted to $806 million, up 22% year over year. The upside is attributable to the Kichler acquisition as well as increase in the revenues of paints and other coatings products, along with builders’ hardware.

Adjusted operating margin fell 200 bps to 20.5%.

Cabinets and Related Products: Segmental revenues totaled $268 million, which increased 7% year over year. The improvement was due to solid growth in the repair and remodel business, partially overshadowed by the divestiture of Moores.

Adjusted operating margin was 12.3% in the quarter compared with 12.4% reported in the year-ago quarter.

Windows and Other Specialty Products: Segmental revenues amounted to $191 million, down 7% year over year.

Operating margin was 4.2% in the quarter compared with 8.8% a year ago.

Financials

Masco ended the quarter with cash and cash investments of $384 million as of Jun 30, 2018 compared with $1.2 billion on Dec 31, 2017.

Guidance

For 2018, the company now expects adjusted earnings per share in the $2.48-$2.55 band compared with earlier guided range of $2.48-$2.63 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Masco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Masco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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