Why Is Masco (MAS) Down 2.1% Since the Last Earnings Report?
A month has gone by since the last earnings report for Masco Corporation MAS. Shares have lost about 2.1% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Third Quarter 2017 Results
Masco’s adjusted earnings of 50 cents per share in third-quarter 2017 missed the Zacks Consensus Estimate of 53 cents by 5.7%. Adjusted earnings increased 22% year over year.
Masco’s net sales of $1.94 billion missed analysts’ expectation of $1.96 billion by about 1%. Revenues, however, grew 3% year over year on the back of strong sales of Plumbing and Decorative Architectural Products.
North American sales increased 2% year over year to $1.53 billion and international sales were up 4% to $407 million.
Adjusted gross profit grew 5.3% to $651 million, while adjusted gross margin improved 70 basis points (bps) to 33.6%.
Adjusted operating profit increased 7.6% to $296 million. Adjusted operating margin increased 60 bps to 15.3%.
As a percentage of net sales, selling, general and administrative expenses (adjusted) were 18.3%, same as prior-year quarter.
Adjusted operating margin increased 150 bps to 17.5% in North America and decreased 230 bps to 14.4% in international markets.
Plumbing Products: The segment registered revenues of $951 million, reflecting an increase of 6%. Excluding the impact of foreign currency translation, revenues increased 4% on growth in North America and internationally.
Adjusted operating margin of 18.5% decreased 140 bps year over year.
Decorative Architectural Products: Segmental revenues of $553 million increased 3% on growth from Liberty’s builders’ hardware and Behr’s pro initiative.
However, operating margin decreased 190 bps to 18.8%.
Cabinets and Related Products: Segmental revenues of $229 million decreased 4% year over year due to lower sales to U.S. and U.K. builders.
Adjusted operating margin was 8.3% in the quarter, down 40 bps from the year-ago quarter.
Windows and Other Specialty Products: Segmental revenues totaled $203 million, flat year over year due to the divestiture of Arrow Fastener. Excluding the impact of foreign currency translation, net sales increased 9% led by North American windows business.
Operating margin was 11.3% in the quarter against a negative 4.9% a year ago.
Masco ended the quarter with cash and cash investments of $1.14 billion, as of Sep 30, 2017, compared with $990 million as of Dec 31, 2016.
For 2017 earnings, the company slashed the upper end of its earlier guided range owing to the impact of hurricanes. It now expects earnings per share in the range of $1.93 to $1.97. Earlier, the company had expected 2017 EPS in the range of $1.93 to $2.00.
The company remains focused on achieving its 2019 EPS target of $2.50.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more downside. There have been four moves lower in last two months.
At this time, Masco’s stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. 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 B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Zacks’ style scores indicate that the company’s stock is suitable for value and growth investors.
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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