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Why Is Masco (MAS) Up 10.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Masco (MAS - Free Report) . Shares have added about 10.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Masco due for a pullback? 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 catalysts.

Masco Q4 Earnings & Revenues Beat Estimates

Masco Corporation reported fourth-quarter 2018 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Also, its adjusted earnings and sales grew impressively on a year-over-year basis.

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

Let’s Unveil the Picture

Adjusted earnings of 64 cents per share surpassed the consensus mark of 56 cents by 14.3%. Moreover, adjusted earnings increased 56.1% on a year-over-year basis.

Additionally, total sales of $2,041 million surpassed the consensus mark of $2,007 million by 1.7%. Total net sales also increased 10.1% year over year from $1,853 million. Also, net sales (in local currency) climbed 11% from the prior-year quarter.

Meanwhile, North American sales (in local currency) grew 14%, while international sales remained flat year over year.

Margins Performance

Adjusted gross profit grew 8.9% to $659 million, while adjusted gross margin declined 30 basis points (bps) to 32.3% from the prior-year figure of 32.6%.

Adjusted operating profit rose 22.6% from the prior-year quarter to $315 million. Adjusted operating margin of 15.4% surged 150 bps compared with 13.9% in the year-ago quarter.

Moreover, selling, general and administrative expenses, as a percentage of net revenues, were 16.9%, lower than 18.8% reported in the prior-year quarter.

Segmental Analysis

Plumbing Products: The segment’s revenues of $1,003 million reflected an increase of 4% from the year-ago quarter. Excluding the impact of foreign currency translation, revenues grew 6% from a year ago. The positive performance was backed by 8% growth in North America.

Adjusted operating margin also grew 110 bps to 18.4% year over year.

Decorative Architectural Products: Segmental revenues reported $632 million, up 30% on a year-over-year basis. Excluding the impact of acquisitions, revenues increased 8% from the prior-year quarter. The upside is attributable to growth in paints and other coating products, partly due to sales pulled-forward from the first quarter of 2019.

Adjusted operating margin surged 30 bps to 18.7%.

Cabinets and Related Products: Segmental revenues totaled $226 million, which increased 1% year over year. Excluding the impact of divestitures, revenues increased 4% from the year-ago quarter. The improvement was due to solid growth in the repair and remodel business (which represents approximately 85% of its business), as well as new construction businesses.

However, adjusted operating margin was 10.6% in the quarter, contracting 60 bps.

Windows and Other Specialty Products: Segmental revenues amounted to $180 million, down 1.1% year over year primarily due softness in the U.K. market, partially offset by growth in North America.

Adjusted operating margin was 44% in the quarter, increasing 220 bps.

Financials

As of Dec 31, 2018, Masco’s cash and cash investments were recorded at $559 million compared with $1,194 million on Dec 31, 2017. Net cash provided by operating activities came in at $1,032 million in the fourth quarter compared with $751 million a year ago.

The company repurchased $18.6 million shares for $654 million in the quarter.

Full-Year 2018 Highlights

Masco’s full-year 2018 adjusted earnings of $2.50 per share and net sales of $8.36 billion surpassed the Zacks Consensus Estimate of $2.41 and $8.33 billion, respectively. Additionally, both the top and bottom lines increased 9.4% and 28.9%, respectively, on a year-over-year basis.

Moreover, net sales in local currency increased 9% from a year ago. However, adjusted gross margin contracted 140 bps to 32.8%. Also, adjusted operating margin of 15.1% declined 60 bps year over year due to increased commodity and logistics costs.

The company’s long-term growth and capital allocation strategies bode well for overall performance.

2019 View

Masco remains confident to drive profitable growth and create shareholder value in 2019 on the back of its strategies. The company anticipates adjusted earnings in the range of $2.60-$2.80 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -12.15% due to these changes.

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 an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

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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