A month has gone by since the last earnings report for Masco (MAS). Shares have added about 0.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Masco Q3 Earnings Match Estimates, Sales Beat, EPS View Lowered
Masco reported third-quarter 2024 results, wherein earnings met the Zacks Consensus Estimate and net sales marginally beat the same. Strong operational efficiency helped it deliver strong earnings amid challenging market conditions.
Masco’s focus on a balanced capital deployment strategy helped it return $255 million to shareholders via dividends and share repurchases. Masco lowered the upper limit of its 2024 adjusted earnings per share (EPS) guidance due to challenged market demand.
Inside the Headlines
Masco reported adjusted EPS of $1.08, which met the consensus mark and increased 8% from the year-ago figure of $1.00.
Net sales of $1.98 billion beat the consensus estimate by 0.1% and increased 0.2% from the prior-year period. Net sales inched up 1% year over year in local currency. Sales in the North American region slipped 0.4% from the prior year. Internationally, sales increased 2.9% in local currency.
MAS' Segmental Analysis
Plumbing Products: Sales in the segment grew 2% year over year to $1.22 billion. Currency had a minimal impact, and acquisitions increased sales by 1%. North American sales rose 2% year over year (up 1% excluding acquisitions) in local currency. The adjusted operating margin increased 100 basis points (bps) year over year to 19.9% on cost savings initiatives and higher volumes, partially offset by unfavorable mix and higher commodity and freight costs. Adjusted EBITDA increased to $269 million from $251 million a year ago.
Decorative Architectural Products: The segment reported sales of $764 million, down 3% from the prior-year period. Sales of paints and other coating products decreased by low single digits. PRO paint sales increased by the high single digits, but DIY paint sales decreased by mid-single digits. Sales fell 1% excluding the impacts of currency and divestitures. Adjusted operating margin declined 20 bps to 18.1% due to timing of marketing spend, an unfavorable price/cost relationship and lower volume, partially offset by cost savings initiatives. Adjusted EBITDA declined to $147 million from the prior-year figure of $153 million.
Marginal Performance
Adjusted gross margin improved 90 bps from the prior-year level to 36.7%. Adjusted selling, general and administrative expenses — as a percentage of net sales — were up 40 bps to 18.6% from the year-ago figure of 18.2%.
Adjusted operating margin improved 60 bps on a year-over-year basis to 18.2%, backed by cost savings initiatives, partially offset by unfavorable mix and price/cost relationship and timing of marketing spend. Adjusted EBITDA grew 3.1% year over year to $397 million.
Financials
As of Sept. 30, 2024, Masco had a total liquidity of $1.65 billion compared with $1.63 billion at 2023-end. This includes cash and cash investments of $646 million compared with $634 million recorded at 2023-end. Long-term debt was $2.945 billion, flat from 2023-end.
Net cash from operating activities was $668 million in the first nine months of 2024 compared with $928 million in the prior-year period. During the reported period, the company repurchased 2.5 million shares for $192 million.
2024 Guidance
The company now expects its adjusted EPS in the range of $4.05-$4.15 compared with $4.05-$4.20 expected earlier. In 2023, adjusted EPS stood at $3.86.
Net sales are now likely to be down in the low single digits from the 2023 level of $7.97 billion. Net sales in the Plumbing segment are still anticipated to increase/decrease in the low single digits, while those in Decorative Architectural are now expected to be down in the mid-single digits.
Adjusted operating margin for the year is now expected to be nearly 17.5% (compared with the prior projection of 17-17.5%). It expects an adjusted operating margin of 19% in Plumbing (up from 18.5% expected earlier) and 18% in Decorative Architectural. In 2023, MAS generated an adjusted operating margin of 16.8%, wherein Plumbing reported 18% and Decorative Architectural posted 17.8%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Masco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 these revisions indicates a downward shift. Notably, Masco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Masco is part of the Zacks Building Products - Miscellaneous industry. Over the past month, United Rentals (URI), a stock from the same industry, has gained 5.5%. The company reported its results for the quarter ended September 2024 more than a month ago.
United Rentals reported revenues of $3.99 billion in the last reported quarter, representing a year-over-year change of +6%. EPS of $11.80 for the same period compares with $11.73 a year ago.
For the current quarter, United Rentals is expected to post earnings of $11.81 per share, indicating a change of +4.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.5% over the last 30 days.
United Rentals has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
