Construction Stocks' Earnings On Oct 25: MAS, USG, SHW, WSO

The construction sector seems to have recovered on the back of strong housing fundamentals. Of the construction companies in the S&P 500 cohort, 30.8% have already reported their Q3 results. According to the Zacks Earnings Trends report, 50% of these companies have surpassed earnings estimates while 25% beat revenue expectations. Total earnings at these construction companies increased 6.7% on 14.3% higher revenues.

The recently released housing data for Sep 2016 has been mixed. Single-family housing starts, which account for the largest share of the residential housing market, jumped 8.1%, marking the highest since February. Again, housing starts in the U.S. tumbled 9% to a seasonally adjusted annualized rate of 1047 thousand in September from Aug 2016. This marks the lowest figure since Mar 2015, due to a fall in construction of multifamily homes. However, building permits, which indicate future construction trends, increased 6.3%.

Positives like a healthier economy, improving employment levels, low interest rates, positive consumer confidence and a tight supply situation raise optimism about the sector’s performance in the second half. Further, a strong home remodeling market, along with strong job data and rising consumer confidence, is doing the trick for these stocks.

So far, some of the leading homebuilding companies have reported their third-quarter results. On Oct 20, PulteGroup Inc.’s (NYSE:PHM) third-quarter 2016 earnings were in line with the Zacks Consensus Estimate while revenues missed the same. Earlier, Lennar Corporation (NYSE:LEN) performed impressively and beat expectations on both counts for the third time in a row in fiscal 2016. On Sep 20, KB Home (NYSE:KBH) reported its third-quarter numbers wherein earnings surpassed analysts’ expectations by 7.7% and also increased 83% year over year.

Let us take a look at how these four construction companies are placed ahead of their earnings release on Oct 25.

Masco Corporation (NYSE:MAS) is set to report third-quarter 2016 results, before the market opens.

Last quarter, the company posted a positive earnings surprise of 28%. Currently, the company has a Zacks Rank #3 (Hold) with an Earnings ESP of 0.00%. Our proven model does not conclusively show that Masco is likely to beat on earnings this quarter.

For the third quarter, the Zacks Consensus Estimate for earnings is pegged at 44 cents, up 28.2% year over year. Meanwhile, the consensus estimate for revenues is $1.91 billion, implying a 3.9% increase.

The company expects sales to be impacted to the tune of approximately $15 million in the third as well as fourth quarter of 2016 owing to its decision to exit select builder direct businesses and the retail kitchen countertop industry. Meanwhile, Masco plans to invest approximately $30 million in the second half of 2016, the majority of which will be spent in the third quarter.

Again, adverse currency translations, despite being moderate than 2015 levels, remain a headwind (read more: Masco Q3 Earnings: Surprise in Store for the Stock?).

MASCO Price and EPS Surprise

USG Corporation (NYSE:USG) will report third-quarter 2016 earnings results before the market opens.

Last quarter, USG Corporation posted a negative surprise of 4.17%. The company has surpassed estimates in two out of the past four quarters and has an average positive surprise of 21.58%. Estimates for 2016 and 2017 have gone down prior to the company's third-quarter 2016 earnings release.

It has a Zacks Rank #5 (Strong Sell) and an earnings ESP of -2.22%. The combination of a negative ESP and a Zacks Rank #5 makes a beat most unlikely this season. The Zacks Consensus Estimate for the quarter is pegged at 45 cents, down 14.4% year over year.

USG CORP Price and EPS Surprise

Sherwin-Williams Co. (NYSE:SHW) , a manufacturer, distributor and retailer of paint, coatings and related products, is slated to report its third-quarter numbers before the opening bell.

Last quarter, the coatings and paints company posted a negative earnings surprise of 2.64%. Sherwin-Williams currently sports a Zacks Rank #1 (Strong Buy) and an earnings ESP of +0.69%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sherwin-Williams, in July, said that it expects consolidated net sales to increase at low to mid-single digit year over year in the third quarter. The company anticipates earnings per share for the quarter in the range of $4.10–$4.30.

Third-quarter earnings per share include costs related to the company's planned acquisition of rival paints maker Valspar (VAL) of around 20 cents per share and an increase in earnings per share of about 10 cents related to the decrease in the income tax provision (read more: Sherwin-Williams Q3 Earnings: Is a Beat in the Cards?).

Watsco Inc. (WSO), a leading distributor of heating, ventilation and air conditioning equipment as well as related parts and supplies, will report third-quarter numbers before the opening bell.

It has posted a negative earnings surprise of 10.34% last quarter. The company reported negative earnings surprises in three out of the past four quarters, with an average miss of 4.55%.

The company has an earnings ESP of +1.58% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at $1.90, up 16.1% year over year.

The company continues to reward its shareholders through increased dividends, while retaining the ability to invest in network and evaluate additional opportunities. Moreover, expansion of product offerings, logistical and productivity improvements, and growth potential in the replacement market remain tailwinds for Watsco.

WATSCO INC Price and EPS Surprise

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