We have maintained a Neutral recommendation on
) following the appraisal of its third quarter 2012 results.
Masco's adjusted earnings of 13 cents per share in the third
quarter of 2012 increased 44% year over year and beat the Zacks
Consensus Estimate by a penny. Net sales were flat year over year
as well as with the Zacks Consensus Estimate at $1.98 billion;
hurt significantly by currency headwinds, sluggish big ticket
remodeling activity in the U.S., weakness in Europe and
challenges in the cabinetry business. Organic revenues, however,
grew 2% on the back of higher selling price, innovation and
increase in new home construction activity in the U.S.
Masco Corporation manufactures, sells, and installs home
improvement and building products. Its main products and services
include plumbing products, cabinets and related products,
installation and other services, decorative architectural
products, and other specialty products. The company is a leading
cabinetry manufacturer in the U.S. and the market leader for
faucets and kitchen cabinets. The company owns some of the
popular brands like KraftMaid and Merillat cabinets, Delta and
Hansgrohe faucets, Behr paint and Milgard windows.
Going forward, management is apprehensive about the weak big
ticket remodeling industry and slow European economies. Further,
Masco's Cabinet business has been sluggish for sometime, mainly
because the repair and remodel spending trends have slowed in the
U.S. and the dealer segment is not showing any major
Despite the short-term headwinds, we like the long-term
fundamentals of Masco. We believe that the company's leadership
brands, its continued focus on innovation and new product
launches can help drive growth in the long term.
Masco has taken several strategic initiatives to boost
long-term growth. These initiatives include improvement of
underperforming businesses like Installation and Cabinet;
leveraging its brands and continued innovation, reducing costs
and strengthening its balance sheet. The company's cost-saving
initiatives included business consolidations, system
implementations, plant closures, improvement in the global supply
chain and headcount reductions. The restructuring initiatives are
expected to result in about $175 million of gross cost reduction,
excluding the impact of inflation in 2012.
Moreover, the housing dynamics are improving in North America.
The new home construction activity in North America is benefiting
from improved demand and affordability of homes, owing to low
mortgage rates and increased rentals as well as rising home
prices. Inventory of existing homes is declining and there is
limited supply of new homes in the market, thus stabilizing home
prices. In 2011, 75% of Masco's top line was related to
repair/remodel activity, and the remaining 25% was derived from
new home construction. Though the new home construction market is
improving, the overall recovery, and repair and remodel activity
is still moderate and uneven. However, once the housing market
recovers substantially, we believe the recovery, repair and
remodel market will see significant improvement. Masco competes
), which carries a Zacks #3 Rank (short-term 'Hold' rating).
MASCO (MAS): Free Stock Analysis Report
OWENS CORNING (OC): Free Stock Analysis
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