Masco Corporation’s (MAS) third-quarter 2013 adjusted earnings of 27 cents per share beat the Zacks Consensus Estimate of 25 cents by 8% and the year-ago quarter’s earnings of 14 cents by 92.9%. Solid revenues and margins drove the earnings during the quarter.
Masco’s net sales of $2.15 billion also surpassed the Zacks Consensus Estimate of $2.10 billion by 2.4%. Revenues rose 12.4% year over year, driven by robust top-line increase in all the operational segments. Quarterly revenues benefited from the improvement in new home construction activity in North America and improving repair and remodel activity.
Revenues by Segment
The company generates revenues from five business segments — Cabinets and Related Products, Plumbing Products, Installation and Other Services, Decorative Architectural Products, and Other Specialty Products.
International sales rose 9% to $394 million with slow improvement in the Euro zone. North American sales increased 13% year over year to $1.76 billion on the back of increasing new home construction activity and product launches.
Cabinets and Related Products: Cabinets and Related Products segment revenues were up 15% year over year to $262 million in the third quarter with sales improving across all channels (direct to builder, dealer and retail) as well as brands (KraftMaid, Merillat and QualityCabinets).
Plumbing Products: The segment’s revenues of $820 million increased 11% year over year, driven by increased faucet and toilet sales in North America.
Installation and Other Services segment: Installation and Other Services segment’s revenues were up 19% from the prior-year level to $370 million, with the rise in construction of new homes.
Decorative Architectural Products: Decorative Architectural Products segment revenues increased 9% year over year to $522 million in the third quarter, benefiting from product and program launches.
Other Specialty Products: Other Specialty Products segment revenues were $176 million, up 13% from the year-ago level, due to strong growth in North American window sales.
Margins
Adjusted gross profit grew 17.4% to $613 million in the quarter. Gross margins expanded 120 basis points (bps) year over year to 28.5%. Adjusted operating profit was $222 million in the third quarter, up 50% from the prior-year quarter. Adjusted operating margin increased 260 bps year over year to 10.3% in the quarter on the back of solid volume growth.
Financial Details
The company ended the third quarter with cash and cash investments of $1.01 billion compared to $1.22 billion in the second quarter.
Outlook
The company expects better results, going ahead, as both new home construction and repair and remodel activities continue to recover despite believing that the overall economic recession will continue. However, the company is cautious about Europe and expects the general economic uncertainty in the region to continue.
Masco has undertaken several strategic initiatives to strengthen its business. These include improvements in underperforming businesses like Installation and Cabinet; leveraging its brands, product introduction and product innovation, and efforts to reduce costs and strengthen its balance sheet. Management believes that it will continue to gain from product and program introductions.
Masco carries a Zacks Rank #2 (Buy). We are positive about the long-term fundamentals of Masco. We are encouraged by Masco’s continued focus on product innovation and cost improvements.
Other Stocks to Consider
Other stocks in the sector that are performing well and deserve a mention include Universal Forest Products Inc. (UFPI), Boise Cascade Company (BCC) and Rayonier Inc. (RYN). Universal Forest carries a Zacks Rank #1 (Strong Buy), whereas both Boise Cascade and Rayonier carry a Zacks Rank #2.
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