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Soft End-Market Demand to Hurt Masco's (MAS) Q4 Earnings

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Masco Corporation (MAS - Free Report) is scheduled to report fourth-quarter 2019 results on Feb 11, before the opening bell.

In the last reported quarter, the company came up with disappointing results. The top and bottom lines missed the Zacks Consensus Estimate by 9.3% and 2.9%, respectively. Nonetheless, the metrics increased 2% and 11%, respectively, on a year-over-year basis. Strong contribution from the Decorative Architectural Products segment, acquisitions and cost-saving initiatives were partially offset by tariffs and soft end-market demand.

Earnings & Revenue Expectations

The Zacks Consensus Estimate for Masco’s fourth-quarter earnings is pegged at 53 cents per share, implying a decline of 17.2% on a year-over-year basis. The consensus estimate for revenues is $1.65 billion, indicating 18.9% year-over-year fall.

Masco Corporation Price and EPS Surprise

Factors at Play

Masco’s business is highly focused on repair and modelling activities. It has been enhancing the existing portfolio via regular inorganic moves, which allow it carry out operational improvements, improve go-to-market capabilities, and remove cyclical and lower-performing businesses. Cost-saving initiatives, which target company-wide annual savings through the reduction of corporate expense and simplification of its organizational structure, have been helping it to generate improved margins.

However, Masco’s business has been experiencing soft end-market demand. Lower volumes in the International Plumbing business and Decorative Architectural Products, and tariff-related woes are expected to negatively impact its fourth-quarter 2019 results. Softer international outlook, particularly in Europe and Latin America, adds to the woes. Additionally, the overall business is likely to have been impacted in the fourth quarter, which is a seasonally slow period.

Masco’s Plumbing business (contributing nearly 52% to revenues) is expected to have witnessed excessive cost pressure on raw materials due to tariffs and difficult year-over-year comparison, thanks to pulled forward sales in the 2018 period.

The Zacks Consensus Estimate for Plumbing Products adjusted EBITDA is currently pegged at $203 million, which implies a slight decline from $204 million in the year-ago period and 2.4% sequential fall.

The consensus mark for the Decorative Architectural Products segment’s adjusted EBITDA is $116 million, which indicates a decrease of 9.4% from the prior-year period and 20% from third-quarter 2019.

Quantitative Model Prediction

Our proven model does not conclusively predict an earnings beat for Masco this time around. 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. This is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. 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 #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some stocks in the construction sector that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases.

Patrick Industries, Inc. (PATK - Free Report) has an Earnings ESP of +12.83% and a Zacks Rank #2.

Installed Building Products, Inc. (IBP - Free Report) has an Earnings ESP of +3.09% and a Zacks Rank #2.

Thor Industries, Inc. (THO - Free Report) has an Earnings ESP of +4.62% and a Zacks Rank #3.

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