Masco Corporation (MAS) Earnings & Analysis

Latest quarter

Masco reported third-quarter revenue of $2.0 billion, above the $1.9 billion consensus, while adjusted earnings per share of $1.19 exceeded the $1.01 consensus. Revenue was $1.9 billion a year earlier, and diluted earnings per share rose to $1.22 from $0.90.

Masco’s filing said higher selling prices and North American plumbing volume drove sales growth, partly offset by lower decorative architectural and international plumbing volumes and an unfavorable product mix. The filing said plumbing sales increased, while decorative architectural sales were flat as higher prices offset lower volume.

The company reported gross margin of 36.6%, up from 34.2% a year earlier, and operating margin of 17.2%, up from 15.8%. Its filing attributed the gross profit increase partly to higher selling prices, cost savings and lower tariff costs, offset in part by higher commodity and employee-related costs.

Masco reported free cash flow of $332.0 million, compared with $415.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jon Nudi said Delta led North American plumbing growth, with recent product launches gaining traction in showroom and e-commerce channels. He said international plumbing sales fell against a difficult comparison in some European markets and amid continued softness in China.

Nudi said professional paint sales grew in the quarter as Masco retained existing professional customers and attracted new painters to Behr. He said do-it-yourself paint sales declined amid continued market softness. In response to questions, Nudi said repair and remodeling accounts for the bulk of Masco’s business and that bolt-on acquisitions remain its focus.

CFO Rick Westenberg said pricing, cost savings and lower year-over-year tariff costs contributed to adjusted operating profit, partly offset by higher commodity and employee-related costs. He said plumbing pricing increased sales by 5% and higher North American volume contributed 2.00% to growth, while lower international volume and unfavorable mix provided offsets.

Asked about tariff-refund investments, Westenberg said Masco plans to deploy part of the refunds over several quarters in areas including brands, digital marketing and customer partnerships. He declined to give specific details of the investments. Nudi said Masco is also building digital pricing capabilities, but described pricing as the last lever the company pulls.

On competition, Nudi said Masco faces many plumbing competitors and is focused on its brands, innovation and digital capabilities. Asked about commodity costs, Westenberg said they generally reach plumbing costs after roughly two quarters and decorative costs after roughly one quarter.

For the fourth quarter, Westenberg said he expects revenue growth primarily in plumbing, with decorative sales roughly flat year over year. He said cost savings and sales growth would be offset by higher commodity and employee-related costs, and he expects operating profit and margin to be roughly in line with the prior year.

Guidance

Masco raised its full-year adjusted earnings guidance to $4.65 to $4.75 per share from its previous range. It also raised its adjusted operating-margin outlook to 18.0% to 18.5%, from approximately 18.0%.

For decorative architectural products, CFO Rick Westenberg raised the expected adjusted operating margin to approximately 19.5% from approximately 19.0%. He said cost reductions contributed to the revised outlook.