Building Product Earnings To Watch On Jul 26: MAS, PCH, USG

The second quarter earnings season is in full swing. Of the construction companies in the S&P 500, 46.2% have already reported their results. According to our earnings preview report, 50% of these companies surpassed earnings and revenue expectations. Total earnings of these construction companies increased 14.0% on 12.5% increase in revenues.

The remaining S&P 500 construction companies are expected to post a 10.8% year-over-year increase in earnings in Q2. The revenue projections are fairly optimistic with sales likely to increase 5.1% year over year.

Despite volatility in the U.S. stock market, uncertainty surrounding the Fed rate hike, panic in the global financial markets triggered by the unexpected Brexit vote and volatile gasoline prices, the homebuilding market is gaining strength.

The housing data released recently has been fairly upbeat. Housing starts clocked in 4.8% growth in Jun 2016. However, building permits, which indicates future construction trends, increased 1.5%, as builders added inventory cautiously due to lot shortages and regulatory problems.

Moreover, strong job data for June is also encouraging. The month reported an addition of 287,000 jobs in the market, the highest in eight months. With improved job prospects and historically low mortgage rates, more young adults are purchasing their own homes, thus pushing up the top line in the homebuilding space. In addition, the home remodeling market is also picking up pace.

Besides benefiting homebuilders, this increase in home construction and remodeling spurs demand for building materials and other related businesses. This, in turn, bolsters the growth prospects of companies manufacturing these products.

On Jul 26, three leading building product companies are scheduled to report their second quarter results. Let us look at how these companies are placed ahead of their release.

Masco Corporation (NYSE:MAS)

Masco is set to report second-quarter 2016 results before the market opens.

Last quarter, Masco posted a positive surprise of 28.0%. In fact, the earnings history of this home improvement and building products company is rather impressive. Masco surpassed estimates in the past four quarters, resulting in an average positive surprise of 16.09%.

Masco has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the quarter is pegged at 42 cents.

Masco has been witnessing strong demand for its leading products since the past few quarters, as both the repair and remodeling industry as well as the new home construction industry are improving. This trend is expected to continue in the soon-to-be reported quarter. We expect the strong trends in earnings, revenues and margins to continue in the to-be-reported quarter as well. (Read: Will Masco Pull Off a Surprise This Earnings Season)

Potlatch Corporation (NASDAQ:PCH)

Potlatch will report its second-quarter 2016 earnings before market opens.

Last quarter, Potlatch posted a positive surprise of 100.0%. The company has surpassed estimates in two out of the past four quarters and has an average positive surprise of 50.0%. Estimates for 2016 and 2017 have gone up slightly prior to the company's second-quarter 2016 earnings release.

The company has an Earnings ESP of +42.86% and a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the quarter is pegged at 7 cents.

USG Corporation (NYSE:USG)

USG Corp. will report its second-quarter 2016 earnings results tomorrow before market opens.

Last quarter, USG Corporation posted a positive surprise of 59.26%. The company has surpassed estimates in three out of the past four quarters and has an average positive surprise of 25.82%. Estimates for 2016 and 2017 have gone up slightly prior to the company's second-quarter 2016 earnings release.

The company has an Earnings ESP of +2.08% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 48 cents.

Conclusion

With the rise in demand for homes, remodeling activities and an improving job market in 2016, construction companies such as the ones discussed above are expected to witness strong demand for their products. Despite the obvious headwinds, there is a strong possibility that these companies will continue to perform well in the near term.

Stay Tuned! Check later on our full write-up on earnings releases of these stocks.