Masco Corporation’s (MAS) adjusted earnings of 24 cents per share in the fourth quarter of 2014 beat the Zacks Consensus Estimate of 20 cents by 20%. Adjusted earnings increased 60% year over year driven by improved revenues and strong margins.
Masco’s net sales of $2.06 billion missed the Zacks Consensus Estimate of $2.09 billion by 1.4%. Revenues, however, grew 3% year over year on the back of strong sales growth in Plumbing, Decorative Architectural Products, Other Specialty and Installation segments. This was offset by weakness in Cabinets. Organic revenues increased 5% year over year.
North American sales increased 4% year over year to $1.68 billion driven by growing demand for repair and remodeling and new home construction products with an improving U.S. economy.
International sales declined 2% (up 6% in local currency) to $389 million.
As regards repair and re-modeling activity, management is seeing steady growth in small ticket repair, mainly in the plumbing and window businesses. With regards to bigger ticket repairs, management is witnessing good volume in wholesale channels.
Strong Margins
Adjusted gross profit grew 5.6% to $571 million. Adjusted gross margin improved 60 basis points (bps) to 27.7%.
Adjusted operating profit was $202 million, up 32% from the prior-year quarter. Adjusted operating margin increased 210 bps year over year to 9.8%, driven by increased operating leverage and solid cost controls. Operating margin increased 170 bps in North America to 10.6%. Operating margin increased 150 bps in the international markets to 11.6%.
Segmental Analysis
Cabinets and Related Products: Segment revenues were $243 million, down 3% year over year owing to challenges in retail and dealer channels.
Operating loss of $7 million compared unfavorably with operating loss of $4 million in the prior-year quarter due to inefficiencies and costs associated with ERP implementation.
After suffering in 2012, the company saw improving demand for cabinets in repair-remodel and new construction channels in 2013. However, the segment once again weakened in 2014 due to lack of big-ticket repair activity and ERP-related disruption.
Plumbing Products: The segment recorded revenues of $804 million, up 1% year over year, driven by growth in the wholesale channels and across the segment. Organic revenues increased 5%.
Adjusted operating margin of 14.4% improved 230 bps year over year, driven by strength in wholesale/ trade channel and profitability improving initiatives.
Installation and Other Services: Installation and Other Services segment revenues amounted to $398 million, up 7% year over year, driven by consistent growth in new homes construction and commercial channels.
Adjusted operating margin of 6.5% was up 250 bps year over year driven by strong operating leverage and profit improvement initiatives.
Decorative Architectural Products: Decorative Architectural Products segment revenues of $438 million were up 7% on the back of new products and successful programs across business. Sales were also driven by Behr Marquee and Behr Pro.
Adjusted operating margin increased 210 bps to 18.3%, driven by continued share gains of builders’ hardware.
Other Specialty Products: Other Specialty Products segment revenues were $181 million, up 8% year over year, driven by a strong repair and remodeling environment and continued momentum in the international window business.
Segment adjusted operating margin was 4.4%, down 100 bps.
Fiscal 2014
Masco’s adjusted earnings of $1.02 per share in 2014 beat the Zacks Consensus Estimate of 98 cents by 4%. Adjusted earnings increased 32.5% year over year driven by improved revenues and strong margins.
Masco’s net sales of $8.52 billion missed the Zacks Consensus Estimate of $8.55 billion by 0.4%. Revenues, however, grew 4% year over year.
Masco carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Better-ranked stocks in the building/construction sector include Graña y Montero SAA (GRAM), Headwaters Inc. (HW) and Armstrong World Industries, Inc. (AWI). While Graña y Montero sports a Zacks Rank #1 (Strong Buy), Headwaters and Armstrong World Industries hold a Zacks Rank #2 (Buy).
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