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Masco (MAS) Misses on Q3 Earnings & Revenues, Trims Guidance

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Masco Corporation (MAS - Free Report) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The bottom line missed the consensus mark for the third straight quarter and the top line lagged the same in the quarter under review after beating estimates in the trailing three quarters. Notably, Masco trimmed its earnings guidance primarily due to softness in DIY paint and international markets, along with commodity and logistics cost pressures.

Masco Corporation Price, Consensus and EPS Surprise

Let’s Unveil the Picture

Adjusted earnings of 65 cents per share missed the consensus mark of 70 cents by 7.1%. However, adjusted earnings increased 25% on a year-over-year basis.

Also, total revenues of $2,101 million missed the consensus mark of $2,169 million by 3.1%. Total revenues increased 8% from $1,945 million on a year-over-year basis. Also, total revenues, excluding acquisitions, divestitures and currency impact, grew 4% year over year. Meanwhile, sales in North America (in local currency) increased 12% year over year, however, international sales declined 6%.

The company’s performance was backed by strong sales from North American Plumbing and Cabinetry Products. However, DIY paint and international markets marginally overshadowed the gain. Also, commodity and logistics costs added to the woes.

Margins

Adjusted gross profit grew 4.4% to $687 million, while adjusted gross margin contracted 110 basis points (bps) to 32.7%.

Adjusted operating profit rose 3.1% to $320 million. Adjusted operating margin contracted 70 bps to 15.2%.

As a percentage of net revenues, selling, general and administrative expenses were 17.5%, lower than 17.9% reported in the prior-year quarter.

Segmental Analysis

Plumbing Products: The segment recorded revenues of $992 million, reflecting an increase of 4% from a year ago. Excluding the impact of foreign currency translation, revenues increased 5% backed by 9% growth in North America.

Adjusted operating margin of 18% declined 50 bps year over year.

Decorative Architectural Products: The segment revenues summed $673 million, up 20% year over year, attributable to the Kichler acquisition as well as growth in Behr’s pro initiative and builders’ hardware. The positive impact was partially offset by lower DIY paint sales. Excluding the impact of acquisition, revenues increased 1%.

Adjusted operating margin fell 220 bps to 17.7%.

Cabinets and Related Products: Revenues from the segment totaled $239 million, which increased 4% year over year. The improvement was owing to solid growth in the repair and remodel business, partially overshadowed by the divestiture of Moores. Excluding the impact of divestiture, revenues increased 11%.

Adjusted operating margin was 9.6% in the quarter, up 90 bps.

Windows and Other Specialty Products: The segment’s revenues amounted to $197 million, down 3% year over year primarily due to lower international sales.

Operating margin was 9.6% in the quarter, down 220 bps.

Financials

As of Sep 30, 2018, Masco ended the quarter with cash and cash investments of $569 million compared with $1.2 billion on Dec 31, 2017.

Moreover, the company repurchased $2.3 million shares in the quarter.

2018 Guidance Trimmed

Following the quarterly results, management has lowered its guidance for 2018. The company now expects adjusted earnings per share in the range of $2.39-$2.44 compared with earlier guidance of $2.48-$2.55 per share.

Notably, the company intends to repurchase approximately $300 million shares in the fourth quarter.

Zacks Rank & Stocks to Consider

Currently, Masco carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry include Armstrong World Industries, Inc. (AWI - Free Report) , PGT Innovations, Inc. (PGTI - Free Report) and United Rentals, Inc. (URI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Armstrong World, PGT Innovations and United Rentals’ 2018 earnings are expected to grow 23.5%, 77.1% and 52.7%, respectively.

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