Why Is Masco (MAS) Down 16% Since Last Earnings Report?

A month has gone by since the last earnings report for Masco (MAS). Shares have lost about 16% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Masco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Masco Q4 Earnings Beat Estimates, Margins Down Y/Y

Masco Corporation reported better-than-expected earnings in fourth-quarter 2019. However, net sales missed the Zacks Consensus Estimate due to the absence of Windows and Cabinetry businesses that are now represented as discontinued operations.

Inside the Headlines

The company reported adjusted earnings of 54 cents per share, beating the consensus mark of 53 cents by 1.9%. However, the metric was flat with the year-ago figure.

Net sales of $1,639 million lagged analysts’ expectation of $1,655 million by 1% but grew slightly from the year-ago figure of $1,635 million. Notably, the metric grew 1% year over year in local currency.

Sales in the North American region (in local currency) rose 1% from the prior-year period but fell 1% internationally.

Segmental Analysis

Plumbing Products: Sales in the segment inched up 2% year over year to $1,026 million, driven by 5% growth in North America. In local currency, the segment’s sales grew 3% year over year. Adjusted operating margin contracted 90 basis points (bps) year over year to 17.5%. Adjusted EBITDA declined 1.5% year over year to $201 million.

Decorative Architectural Products: The segment reported sales of $613 million, down 3% from the prior-year period. Growth in paints and other coating products was offset by lower sales in lighting. Adjusted operating margin decreased 240 bps to 16.3%. Adjusted EBITDA also declined 14.1% from the prior-year period to $110 million.

Notably, the company sold the Milgard Windows and Doors business. Also, it has signed an agreement to sell the Cabinetry business.

Margins Performance

Adjusted gross margin came in at 34.6%, which contracted 40 bps from the prior year. Adjusted selling, general and administrative expenses — as a percentage of net sales — were up 110 bps from the year-ago figure.

Adjusted operating margin fell 150 bps on a year-over-year basis to 15.7%. Adjusted EBITDA also declined 7.1% year over year to $290 million.

Financials

As of Dec 31, 2019, the company had cash and cash investments of $697 million versus more than $552 million recorded at the end of 2018. Net cash from operating activities was $833 million in 2019 compared with $1,032 million a year ago.

It returned $495 million to its shareholders through share repurchases and dividends.

2019 Highlights

In full-year 2019, Masco reported adjusted earnings of $2.25 per share, beating the consensus mark of $2.22 by 1.4% and increasing 5.6% from the prior year. Net sales of $6.71 billion also grew 0.8% from the year-ago period but slightly lagged analysts’ expectation of $6.72 billion.

Adjusted gross and operating margins contracted 20 bps and 40 bps, respectively, from 2018.

2020 View Strong

Backed by strong repair and remodel industry — which now represents approximately 90% of its business — the company provided higher year-over-year adjusted earnings guidance, despite input costs woes. Masco expects its 2020 adjusted earnings guidance in the range of $2.35-$2.55 per share, indicating 4.4-13.3% year-over-year growth.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -12.73% due to these changes.

VGM Scores

Currently, Masco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Masco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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