Masco's Strong Momentum Continues - Analyst Blog

On Mar 14, 2014, we issued an updated research report on Masco Corporation MAS.

The home improvement products maker reported decent fourth-quarter fiscal 2013 results on Feb 11.

Despite missing the Zacks Consensus Estimate, Masco's fourth-quarter earnings of 15 cents per share increased a massive 150% year over year. Strong revenues, solid margin expansion, cost controls and better operating leverage led to the earnings growth.

Moreover, revenues went up 9.1% year over year while beating the Zacks Consensus Estimate, despite difficult year-ago comparisons, driven by volume growth.

Volumes benefited from new products/programs launches; increased new home construction activity and improvement in repair/remodel activity in North America; and increased outside U.S. sales due to improvement in Europe. In fact, in the second half of 2013, the company saw some traction in consumer spending on large ticket home improvementsafter struggling for the past few quarters.

Gross margins improved 100 basis points (bps) while operating margins grew 210 bps helped by strong revenues and solid cost controls. Most encouragingly, Installation and Cabinetry segments were profitable in 2013 after underperforming in 2012 driven by the company's strategic initiatives and gaining from the housing recovery.

We are encouraged by Masco's continued focus on product innovation and cost improvements. The company is also divesting its less profitable and underperforming assets to focus more on its core areas. During 2014, the company expects further momentum in new home construction, and repairs and remodel activity in North America and international markets.

Positive trends in new home construction activity from 2012 and improved repair/remodeling spending more recently boosted demand for Masco's home improvement products like Delta faucets, Behr paint and Milgard windows in the last few quarters. However, with the U.S. residential activity growth slowing down in the second half of 2013, the demand for Masco's products could be hurt in future quarters.

Other Stocks to Consider

Masco carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the building/construction sector include Gibraltar Industries, Inc. ROCK,Wolseley plc (WOSYY) and USG Corporation USG. While Gibraltar Industries enjoys a Zacks Rank #1 (Strong Buy), Wolseley and USGcarry a Zacks Rank #2 (Buy).