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Masco (MAS) to Report Q1 Earnings: What's in the Cards?

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Masco Corporation (MAS - Free Report) is slated to report first-quarter 2019 results on Apr 25, before the opening bell.

In the last reported quarter, the company’s top and bottom lines outpaced the Zacks Consensus Estimate by 1.7% and 14.3%, respectively. However, its earnings missed the consensus mark in three of the trailing four quarters, recording average negative surprise of 0.6%. Softness in DIY paint and international markets, along with commodity and logistics cost pressures are pressing concerns for the company.

Nevertheless, total fourth-quarter sales increased 10.1% and adjusted earnings grew 56.1% on a year-over-year basis. The positive performance was backed by strong sales from North American Plumbing and Decorative business.

Masco Corporation Price and EPS Surprise

Masco Corporation Price and EPS Surprise | Masco Corporation Quote

Which Way are Estimates Trending?

For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at 47 cents per share, remaining unchanged over the past 30 days. This indicates a gain of 4.4% from 45 cents per share reported in the year-ago quarter. Revenues are expected to be $2.01 billion, up 4.8% year over year.

Factors That Might Influence Upcoming Quarterly Results

Although Masco’s strength in repair and remodeling products (contributing 85% to sales), portfolio expansion and cost-saving initiatives are likely to aid its performance in the to-be-reported quarter, overall growth rates are likely to be moderate.

Masco expects the repair and remodel market to grow in the mid-single-digit range through this year, which is slower than the 2018 growth rate. Moreover, Masco expects a low single-digit growth rate for the new construction market, mainly due to labor constraints and affordability concerns, in the first quarter. That said, the recent declines in mortgage rates are expected to help ease some of the quarter’s headwinds. It expects a low single-digit growth environment in the international markets served, mainly Europe.

Segment Performance

As Masco is exploring strategic alternatives for Windows & Cabinets businesses, let’s focus on its core Plumbing Products and Decorative Architectural Products segments. The Plumbing business (contributing more than 49% to its revenues) is expected to benefit from Delta, given Brizo brand and showrooms, Peerless brand at retail, and strength across all channels of distribution, including wholesale, retail and e-commerce. However, the Plumbing segment’s revenues are expected to be impacted by unfavorable currency exchange. The Zacks Consensus Estimate for Plumbing Products revenues of $981 million implies growth from $971 million in the year-ago period but a decline from $1,003 million in the fourth quarter.

Meanwhile, the Decorative Architectural Products segment is expected to benefit from Kichler Lighting and its propane initiative. Propane accounts for about 25% of Masco’s coatings revenues and it expects to continue to drive growth in the propane market in the first quarter. Decorative Architectural Products are expected to grow 12.3% year over year but decrease 3.2% sequentially in the to-be-reported quarter.

Costs High

Increase in commodity costs, higher depreciation expense, and ERP and logistics costs are compressing Masco’s margins, which might affect the upcoming results. For the first quarter, the company expects Decorative Architectural Products segment's operating margins to be down approximately 200 basis points, owing to $20 million of sales pull forward into fourth-quarter 2018, commodity inflation, additional investment in its propane initiative, the full quarter impact of Kichler, and increase in depreciation and amortization to approximately $12 million per quarter.

Meanwhile, for the Plumbing segment, Masco expects an additional $5 million of expense in the first quarter as it will be exhibiting at ISH, a large biennial European plumbing trade show.

Quantitative Model Prediction

Our proven model does not show that Masco is likely to beat earnings estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Masco currently carries a Zacks Rank #4 (Sell). Notably, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are a few stocks in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Apergy Corporation has an Earnings ESP of +0.81% and carries a Zacks Rank #1.

Construction Partners, Inc. (ROAD - Free Report) has an Earnings ESP of +52.38% and a Zacks Rank #2.

PotlatchDeltic Corporation (PCH - Free Report) has an Earnings ESP of +9.09% and holds a Zacks Rank of 2.

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