On Jul 3, we maintained a Neutral recommendation on
) based on sluggish first-quarter 2013 results.
Why the Neutral Recommendation?
Masco's first-quarter 2013 adjusted earnings of 13 cents per
share lagged the Zacks Consensus Estimate of 14 cents by 7.1% due
to lower-than-expected revenues. Its net sales of $1.88 billion
lagged the Zacks Consensus Estimate of $1.99 billion by 5.5%. We
believe that the top line missed the Zacks Consensus Estimate due
to weak performance in Europe and unfavorable weather conditions
in both Europe and the U.S.
Earnings, however, improved 85.7% year over year driven
largely by margin growth from cost savings and better
year-over-year top-line growth. Revenues rose 3.9% year over year
as the strong performance in North America was offset by weak
European sales. Consolidated margins improved significantly in
the quarter driven by cost controls and better operating
Overall, we have faith in Masco's long term fundamentals and
are encouraged by its continued focus on product innovation and
cost improvements. The company is also divesting its
less-profitable and underperforming assets to focus more on its
However, the housing downturn and overall economic recession
in the past 4-5 years significantly hurt consumer spending on
home improvement, especially large kitchen and bathroom
remodeling. Though some improving trends are being seen in
repair/remodeling spending, we prefer to wait until we see a
substantial resumption in spending for home improvements,
especially for large-projects.
Moreover, Masco's Cabinet business has been sluggish for some
time mainly because of the slowdown in consumer spending for big
ticket remodeling. The Eurozone crisis also remains a persistent
Other Stocks to Consider
Masco carries a Zacks Rank #3 (Hold). Stocks in the
building/construction industry that are currently doing well
Eagle Materials, Inc.
Armstrong World Industries, Inc.
). While EXP carries a Zacks Rank #1 (Strong Buy), USG and AWI
carry a Zacks Rank #2 (Buy) each.
ARMSTRONG WORLD (AWI): Free Stock Analysis
EAGLE MATERIALS (EXP): Free Stock Analysis
MASCO (MAS): Free Stock Analysis Report
USG CORP (USG): Free Stock Analysis Report
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