Masco (MAS) Q3 Earnings & Revenues Beat Estimates, Rise Y/Y

Masco Corporation MAS reported impressive third-quarter 2020 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. Sturdy performance across both Plumbing Products and Decorative Architectural Products segments aided in delivering better-than-expected results. Clearly, robust demand and cost control led to growth.

This manufacturer of branded home improvement and building products expects demand for products to remain strong in the final quarter as well. Masco President and CEO, Keith Allman said, “Our lower ticket, repair and remodel-oriented products are well positioned to capitalize on consumers’ increased interest in enhancing their homes.” Also, management highlighted that the company’s strong liquidity positions it to recommence share repurchase activity in the fourth quarter.

Notably, this Zacks Rank #2 (Buy) stock has surged 29.1% in the past six months compared with the industry’s rally of 26%.

Inside the Headlines

Masco reported adjusted earnings of $1.04 per share that came ahead of the Zacks Consensus Estimate of 79 cents, and surged 73% year over year. Notably, this was the fourth straight quarter of positive earnings surprise.

Net sales of $1,983 million topped the consensus estimate of $1,850.9 million, thus marking the third successive beat. Markedly, top line registered an increase of 16% on a year-over-year basis. In local currency, net sales rose 15%.

We note that net sales in the North American region grew 16% to $1,599 million, while internationally the metric jumped 12% to $384 million. In local currency, international sales rose 9%.

Masco Corporation Price, Consensus and EPS Surprise

Masco Corporation Price, Consensus and EPS Surprise

Masco Corporation price-consensus-eps-surprise-chart | Masco Corporation Quote

Segment Analysis

Plumbing Products: Sales in the segment grew 13% year over year to $1,141 million. Excluding the impact of foreign currency, the segment’s sales rose 12%. Adjusted operating profit surged 44% to $271 million on account of incremental volume, cost productivity initiatives and a favorable price/cost relationship. Adjusted operating margin expanded 510 basis points to 23.8%. Adjusted EBITDA increased 40% year over year to $292 million.

Decorative Architectural Products: The segment generated sales of $842 million, up 19% from the prior-year period. Adjusted operating profit grew 34% to $180 million due to incremental volume and continued cost control, partly offset by an unfavorable price/cost relationship. Adjusted operating margin increased 250 basis points to 21.4%. Adjusted EBITDA also improved 31% from the prior-year period to $190 million.

Margins Performance

Impressively, adjusted gross margin increased 210 basis points to 38%. Again, adjusted operating margin expanded 400 basis points to 21.4% owing to strong volume growth in North American and international plumbing and DIY paint coupled with sustained cost containment efforts.

Adjusted selling, general and administrative expenses — as a percentage of net sales — were down 200 basis points to 16.5%. We note that adjusted EBITDA also rose 38% year over year to $458 million.

Other Financials

Masco ended the quarter with cash and cash investments of $1,326 million, long-term debt of $2,787 million and equity of $341 million. As of Sep 30, 2020, it had full availability of the $1-billion revolving credit facility.

Net cash from operating activities, on an adjusted basis, was $765 million in the first nine months of 2020. The company incurred capital expenditures of $72 million during the said period. Notably, the company generated free cash flow of $691 million during the nine-month period. Management anticipates capital expenditures of $100 million for the full year.

Q4 Projection

With demand expected to remain strong, Masco envisions net sales growth of 8-10% (excluding the currency impact) in the fourth quarter. Markedly, both Plumbing Products and Decorative Architectural Products segments are likely to register sales increase in the band of 8-10%.

Management anticipates fourth-quarter adjusted operating profit margin to be 17% with Plumbing Products and Decorative Architectural Products segments’ margin expected to be 19% and 17%, respectively.

Stocks to Consider

Installed Building Products IBP has a trailing four-quarter earnings surprise of 23.3%, on average. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens Corning OC with a Zacks Rank #1 has a long-term earnings growth rate of 4.2%.

Arcosa ACA has a long-term earnings growth rate of 4.5%. The stock carries a Zacks Rank #2.

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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 Nasdaq, Inc.

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