Masco Misses Overall - Analyst Blog

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Masco Corporation' s ( MAS ) adjusted earnings of 10 cents per share in the second quarter of 2012 missed the Zacks Consensus Estimate by a penny due to lower-than-expected revenues. Earnings, however, grew 66% from the prior-year quarter.

Masco's net sales of $2.0 billion in the reported quarter missed the Zacks Consensus Estimate of $2.08 billion. Revenues were flat from the prior-year quarter, hurt significantly by currency headwinds and a sluggish global economy. Excluding the impact of currency, revenues were up 3% year over year. The year-over-year top-line growth is attributed to positive pricing, rise in sales of plumbing products in North America and increase in new home construction activity.

Adjusted gross profit decreased to $523 million from $543 million in prior-year quarter. The gross profit margins were 26.1% in the second quarter of 2012, down 110 basis points year over year, due to decrease in top line.

Adjusted operating profit was $124 million in the second quarter of 2012, up 7% from the prior-year quarter. Adjusted operating margin increased to 6.2% in the quarter, up 40 basis points from the prior-year quarter due to lower Selling, General and Administrative expenses and profit improvement strategies. Selling, General and Administrative expenses decreased 6.5% year over year to $403 million in the second quarter of 2012. Selling, General and Administrative expenses declined due to cost control measures adopted by the company.

The company generates revenue from five business segments: Cabinets and Related Products, Plumbing Products, Installation and Other Services, Decorative Architectural Products, and Other Specialty Products.

North American sales grew 3% and International sales declined 9%. In local currencies, International sales were flat compared with the second quarter of 2011.

Segment analysis

Cabinets and Related Products: The Cabinets and Related Products segment's revenue was $312 million, down 5.5% year over year. The segment revenue declined due to foreign currency headwinds. The segment incurred operating loss of $11 million, recording an improvement from a loss of $21 million in the previous-year quarter. The improvement in operating loss was driven by the company's business rationalization activities and other cost savings initiatives.

Plumbing Products: The segment recorded revenues of $738 million in second quarter 2012, down 3% from the prior-year quarter. The segment reported an operating profit of $73 million in the quarter versus $100 million in prior-year quarter.

Installation and Other Services segment: The revenue of Installation and Other Services segment was $296 million in the second quarter of 2012, up 10% year over year, owing to the rise in construction of new homes, growth in retro sales and commercial sales. The segment incurred operating loss of $9 million, recording an improvement from a loss of $19 million in the previous-year quarter.

Decorative Architectural Products segment: The revenue of Decorative Architectural Products segment was $517 million in the reported quarter, up 5% year over year. The segment reported an operating profit of $95 million in the quarter versus $90 million in prior-year quarter.

Other Specialty Products segment: The revenue of Other Specialty Products segment was $141 million in the quarter, down 3% year over year.

Outlook

The company expects the Cabinets and Installation segments to perform well in the second half of 2012, owing to the increase in new home construction in North America. During the second half of 2012, the company expects operating profit to grow by $10 million to $15 million in the Cabinets segment.  However, management is apprehensive that the Cabinets segment growth will be offset in the second half of 2012, owing to the implementation of countertop and dealer strategies and Euro-zone macroeconomic conditions.

Overall, the company anticipates weaker-than-expected growth in the second half of 2012, owing to slower-than-expected recovery of the U.S economy and Euro-zone macroeconomic conditions.

We currently have a Neutral recommendation on Masco Corporation. The stock carries a Zacks #4 Rank (a short-term 'Sell' rating).

Overall, we are encouraged by Masco's continued focus on product innovation and cost improvements. However, we prefer to wait and see how the year actually shapes up for the company. Slow recovery of the U.S economy and Euro-zone macroeconomic conditions are affecting the company's results.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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