Why Is Masco (MAS) Up 6.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Masco (MAS). Shares have added about 6.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Masco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Masco Q3 Earnings & Revenues Miss, Trims Guidance

Masco Corporation (NYSE:MAS) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Bottom line missed the consensus mark for the third straight quarter, whereas top line lagged the same after beating in the trailing three quarters. The company also trimmed the earnings guidance primarily due to softness in DIY paint and international markets along with commodity and logistics cost pressures.

Let’s Unveil the Picture

Adjusted earnings of 65 cents per share missed the consensus mark of 70 cents by 7.1%. However, adjusted earnings increased 25% on a year- over-year basis.

Also, total revenues of $2,101million missed the consensus mark of $2,169 million by 3.1%. Total sales increased 8% year over year from $1,945 million. Also, total revenues, excluding acquisitions, divestitures and currency impact, grew 4% year over year. Meanwhile, sales in North American (in local currency) increased 12% year over year, however, international sales declined 6%.

The company’s performance was backed by strong sales from North American Plumbing and Cabinetry Products. However, DIY paint and international markets marginally overshadowed the gain. Also, commodity and logistics cost added to the woes.

Margins

Adjusted gross profit grew 4.4% to $687 million, while adjusted gross margin contracted 110 basis points (bps) to 32.7%.

Adjusted operating profit rose 3.1% to $320 million. Adjusted operating margin contracted 70 bps to 15.2%.

As a percentage of net revenues, selling, general and administrative expenses were 17.5%, lower than 17.9% reported in the prior-year quarter.

Segmental Analysis

Plumbing Products: The segment recorded revenues of $992 million, reflecting an increase of 4%. Excluding the impact of foreign currency translation, revenues increased 5% backed by 9% growth in North America.

Adjusted operating margin of 18% declined 50 bps year over year.

Decorative Architectural Products: Segmental revenues summed $673 million, up 20% year-over-year, the upside is attributable to the Kichler acquisition as well as growth in Behr’s pro initiative and builders’ hardware. The positive impact was partially offset by lower DIY paint sales. Excluding the impact of acquisition, revenues increased 1%.

Adjusted operating margin fell 220 bps to 17.7%.

Cabinets and Related Products: Segmental revenues totaled $239 million, which increased 4% year over year. The improvement was owing to solid growth in the repair and remodel business, partially overshadowed by the divestiture of Moores. Excluding the impact of divestiture, revenues increased 11%.

Adjusted operating margin was 9.6% in the quarter, grew 90 bps.

Windows and Other Specialty Products: Segmental revenues amounted to $197 million, down 3% year over year primarily due to lower international sales.

Operating margin was 9.6% in the quarter, contracted 220 bps.

Financials

As of Sep 30, 2018, Masco ended the quarter with cash and cash investments of $569 million, compared with $1.2 billion as of Dec 31, 2017.

Moreover, the company repurchased $2.3 million shares in the quarter.

2018 Guidance Trimmed

Following the quarterly results, management has lowered its guidance for 2018. The company now expects adjusted earnings per share in the range of $2.39-$2.44 compared with earlier guided range of $2.48-$2.55 per share.

Notably, the company intends to repurchase approximately $300 million share in the fourth quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.84% due to these changes.

VGM Scores

At this time, Masco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Masco has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.