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Masco (MAS) Divests Milgard, Strengthens Product Portfolio

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Masco Corporation MAS has been reshaping its business portfolio via acquisitions and divestitures. Recently, the company announced the completion of the proposed sale of Milgard Windows and Doors to MI Windows and Doors LLC for approximately $725 million. This move underscores its efforts to accelerate growth and improve shareholder value.

In March 2019, the company undertook certain "strategic alternatives" for cabinetry and window businesses. In July 2019, the company revealed its plan of pursuing the sale of these businesses, which include well-known brands such as Merillat, KraftMaid and Milgard.

Markedly, the divestitures of cabinetry and window businesses, which are expected to be completed by the end of first-quarter 2020, will remove cyclicality and lower-margin businesses. Also, it will drive liquidity, strengthen the product portfolio and boost performance of the overall business.

Strategic Initiatives Bode Well

With the completion of these divestitures, Masco will focus on the repair and remodel segment. The company has been focused on strategic endeavors over the past five years. It has been growing exposure in the housing market’s repair and remodel business in order to reduce cyclicality. The company’s Plumbing Products and Decorative Architectural Products businesses, which contributed more than 88% to third-quarter 2019 revenues, will be a key catalyst after the completion of strategic review.  

In the third quarter, Masco’s top and bottom lines grew 2% and 11%, respectively, on a year-over-year basis, driven by growth in both Plumbing Products and Decorative Architectural Products segments. Its adjusted gross and operating margins also improved 80 basis points each from the year-ago period.

Our Take

Shares of Masco have outperformed its industry in the year-to-date period. The outperformance is mainly driven by the company’s solid brand portfolio, strategic initiatives and cost-saving measures. Also, its plans to drive shareholder value through reinvesting in the business, selectively pursuing acquisitions with the right fit and return, as well as returning cash to its shareholders through share repurchases and dividends adds to the positives.

However, Masco and industry peers like Armstrong World Industries, Inc. AWI, Owens Corning (OC - Free Report) and Louisiana-Pacific Corporation LPX are witnessing material cost inflation, lower margins and volumes, as well as negative tariff impacts. With respect to this, Masco has trimmed its guidance for 2019.

Nonetheless, Masco’s efforts are likely to help the company to generate higher profitability going forward.

Zacks Rank

Masco currently carries a Zacks Rank #4 (Sell).

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

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