MAS, VMC Q2 Earnings on Jul 31: Here are the Key Predictions

We are in the thick of the Q2 earnings season, with results evidently on solid ground in view of impressive top and bottom-line growth rates.

The construction companies appear to be on solid footing given strong demand, aided by favorable household formation trends and a strengthening macro backdrop. Elevated construction spending in the United States, an impressive labor market scenario, moderate inflation and Trump’s impetus to boost infrastructure spending seem to be vital growth catalysts for the companies under the sector.

Indeed, limited land availability, higher land/labor and material costs, as well as a constrained mortgage environment are restricting the construction stocks from responding to the growing demand. Then again, higher demand, booming economy along with solid job market will keep the momentum alive.

According to the latest Earnings Preview, the construction sector’s earnings, within the S&P 500 cohort, are expected to increase 53.6% in the second quarter compared with 49.7% in the last reported quarter. Revenues are also expected to improve 23.8% (versus 20.9% growth in Q1).

So far, a number of leading companies in the construction sector have reported Q2 results. United Rentals’ URI second-quarter 2018 earnings and revenues surpassed the Zacks Consensus Estimate, and also improved year over year. The upside can be attributed to strong gains in volume and rates, along with robust demand across its construction and industrial verticals in the United States, as well as Canada.

Martin Marietta Materials, Inc. MLM reported second-quarter 2018 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate and also improved year over year, given higher shipments, pricing improvements and benefits from growth initiatives.

Let’s have a sneak peek at the two major construction stocks that are scheduled to report second-quarter earnings on Jul 31 and find out how things are shaping up before the announcement.

Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Masco Corporation MAS is scheduled to report quarterly results on Jul 31, before the opening bell.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 8.16%. In fact, the company missed the consensus mark for earnings in two of the trailing four quarters, recording an average negative surprise of 2.87%.

Given solid underlying demand, supported by favorable household formation trends and a strengthening macro environment, building product companies like Masco are likely to register solid gains.

Masco’s repair and model business has been a key growth driver, contributing 80% to Masco’s revenues. The business has been performing well and the trend is likely to continue in the to-be-reported quarter as well, given solid housing fundamentals. KraftMaid, the company’s leading repair and remodel brand, posted mid-single digit growth on increased volumes in the first quarter. The trend is expected to have continued in the to-be-reported quarter as well.

Overall, the Zacks Consensus Estimate for second-quarter earnings of 76 cents implies year-over-year growth of 26.7%. The same for revenues is pegged at $2.29 billion, 11.3% higher than the prior-year quarter figure.

Meanwhile, our proven model does not hint at an earnings beat for the company in the to-be-reported quarter, as Masco has an Earnings ESP of +1.79% and a Zacks Rank #4 (Sell).

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

(Also Read: Masco Gears Up for Q2 Earnings: What's in the Cards?)

Vulcan Materials Company VMC is set to release second-quarter 2018 results on Jul 31, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 100%. Notably, the company surpassed the Zacks Consensus Estimate in three of the last four quarters, with the average being 21.5%.

Vulcan’s systematic inorganic strategy for expansion bodes well. The company strengthened its portfolio through acquisitions and divestitures that are expected to drive profits in the quarter to be reported.

This apart, improvement in private construction activities, especially private residential construction, bodes well. As a result, demand for Vulcan’ products might have increased, thereby driving its revenues. Construction spending in the United States has increased lately, supported by a steady increase in outlays on private as well as public construction projects. Sustained growth in construction activity drives demand for the company’s products, thereby helping it to boost the top line.

Overall, for the second quarter, the Zacks Consensus Estimate for revenues is pegged at $1.16 million, indicating a rise of 12.1% year over year.

Moreover, higher revenue expectation is likely to translate into higher earnings. Earnings are estimated at $1.37, reflecting a year-over-year increase of 52.2%.

Meanwhile, per our proven model, Vulcan will not be able to beat estimates in the to-be-reported quarter. The company has a Zacks Rank #3, which when combined with an Earnings ESP of -0.77% makes an earnings surprise uncertain. You can see the complete list of today’s Zacks #1 Rank stocks here.

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