Masco's adjusted earnings of $0.31 per share in the third quarter
of 2014 came in line with the Zacks Consensus Estimate. Earnings
increased 15% year over year driven by improved revenues. However,
elevated costs in Cabinet significantly hurt profits in the quarter
and are expected to continue to drag earnings in the fourth quarter
as well. Overall, we are encouraged by Masco's continued focus on
product innovation and cost improvements. Moreover, the decision to
spin off the homebuilding-dependent installation business will
reduce the cyclicality of Masco's portfolio. However, while most
divisions are doing well, the Cabinet business continues to under
perform, recording continuing losses. Masco expects the Cabinet
segment to remain soft in the upcoming period due to lower demand
and ERP-related disruptions. We, therefore, maintain our Neutral
recommendation on the stock.
Headquartered in Taylor, MI, Masco Corporation (MAS)
manufactures, sells and installs home improvement and building
products. These products are sold through mass merchandisers,
hardware stores, home centers, homebuilders, distributors and other
outlets for consumers and contractors, and direct to consumers.
Approximately 80% of the company's sales are generated from
operations in North America, primarily in the U.S. Around 20% of
the company's sales are generated outside the U.S., mainly in
Europe. The company's largest customer is The Home Depot Inc.
Masco operates through five business segments: Plumbing
Products, Cabinets and Related Products, Installation and Other
Services, Decorative Architectural Products and Other Specialty
Plumbing Products (38% of 2013 revenues): The segment
manufactures and markets an array of faucets, bathing and showering
devices, valves, bathtubs, spas and toilets (launched in 2012).
Cabinets and Related Products (13%): The segment manufactures
and sells stock and semi-custom, assembled cabinetry for kitchen,
bath, storage, home office and home entertainment applications in
both North America and Europe. In North America, the company also
sells kitchen countertops, integrated bathroom vanity and
countertop solutions. In Europe, it also sells ready-to-assemble
cabinetry for kitchen.
Installation and Other Services (1%): In this segment, Masco
sells installed building products, installed gutters, after-paint
products, fireplaces and garage doors. The company also distributes
building products in the new home construction market. The company,
however, plans to divest this business into a separate independent
company by mid-2015.
Decorative Architectural Products (24%): The segment
manufactures architectural coatings, including paints, primers,
specialty paint products, stains and waterproofing products. These
products are sold in the U.S., Canada, China, Mexico and South
America. The company's Behr branded products are principally sold
through The Home Depot. The segment also manufactures Liberty and
Brainerd branded cabinets, doors, windows and other hardware which
are sold to home centers, retailers, wholesalers and original
Other Specialty Products (8%): The segment manufactures a full
range of windows and doors, manual and electric staple gun tackers,
staples and other fastening tools.
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