) reported earnings of 5 cents per share in the first quarter of
2012 versus a loss of 4 cents per share in the first quarter of
2011 (excluding special items). Earnings also beat the Zacks
Consensus expectation of breakeven earnings. Improved top-line
growth as well as impressive margins drove the earnings beat this
Consolidated Revenue and Margins
Sales in the quarter were up 7.0% over the prior-year period to
$1.88 billion driven by improved volumes in the repair/remodel as
well as new home construction businesses which were until now
struggling to perform. An improving housing market combined with
new product launches and overall share gains led to the volume
growth in the quarter. Total sales also swept past the Zacks
Consensus Estimate of $1.83 billion.
Sales in North America rose 9% to $1.3 billion due to improving
housing activities in the region. However, international sales were
up just 1% due to continued weakness in Europe. In local
currencies, international sales were up 5% over the prior-year
Gross margins expanded 90 basis points (bps) to 26.5% due to
higher revenues. Operating margins shot up 270 bps to 6.0% due to
successful price management and the company's profit improvement
Sales in the
Cabinets and Related Products
segment dipped 3% to $297 million due to continued promotional
activity in the retail businesses. However, operating loss narrowed
to $20 million versus $29 million in the prior-year quarter. An
improved new home construction market and cost-saving initiatives
led to the narrower loss in the quarter. This segment, which was
most hurt by the company's restructuring activities in 2011, has
begun to show some signs of growth on the back of cost cuts and
other investments made last year.
Installation and Other Services
segment recorded an impressive revenue growth of 18% in the quarter
to $278 million due to improvement in residential new home
construction, continued expansion of the retrofit and commercial
business and better insulation sales. Operating loss was also much
narrower at $14 million versus $35 million in the prior-year
The above-mentioned businesses are expected to continue to
improve through 2012.
revenues increased 5% to $742 million due to increased sales in the
retail, trade and international businesses. Plumbing's adjusted
operating margins expanded 160 bps over the prior-year quarter.
Decorative Architectural Products
revenues rose 16% to $434 million driven by new product launches.
Sales at the
Other Specialty Products
segment however decreased 2% to $124 million due to the exit of
certain window businesses in the US in late 2011.
Masco had cash and cash equivalents of $1.8 billion as of March
31, 2012 versus $1.7 billion as of December 31, 2011. The company's
long-term debt amounted to $3.6 billion as of March 31, 2012
compared with $3.2 billion as of December 31, 2011.
In 2011, the company's top and bottom lines were hampered by the
slowdown in new home construction, headwinds from foreclosure
activities and restrained financial accessibility. The company
undertook several strategic initiatives to cope with the
challenging US homebuilding industry and other headwinds like raw
material cost inflation. The initiatives included the improvement
of underperforming businesses like Installation and Cabinet;
leveraging its brands and continued innovation; and reducing costs.
The company's cost-saving initiatives included business
consolidations, system implementations, plant closures, improvement
in the global supply chain and headcount reductions. The main
rationale behind this move was an efficient cost management.
Management believes that its cost cutting initiatives and
top-line growth efforts, though failing to fetch the desired
results in 2011, will drive significant improvement in 2012. The
strong first quarter results are a testament to the fact.
We currently have a Neutral recommendation on Masco Corporation.
The stock carries a Zacks #3 Rank in the near term ('Hold'
Overall, we are encouraged by Masco's continued focus on product
innovation and cost improvements. We also like the company's
initiative to restructure its business by exiting less profitable
and underperforming assets. Though we are encouraged by the
company's strong first quarter results as well as signs of
improvement in the housing industry in 2012, we prefer to wait and
see how the year actually shapes up for the company. Rising prices
of raw materials are affecting margins to a large extent. We
therefore prefer to remain on the sidelines.
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