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Lower Volume & Tariffs to Hurt Masco's (MAS) Q1 Earnings

Zacks Equity Research
·4 mins read

Masco Corporation MAS is scheduled to report first-quarter 2019 results on Apr 29, before the opening bell.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 1.9% but revenues missed the same by 0.9%. On a year-over-year basis, earnings remained flat but revenues grew marginally by 0.2%. Solid growth in both North American plumbing, and paints and other coating products was offset by higher input costs due to the full impact of tariffs and an increase in variable cost.

Earnings & Revenue Expectations

The Zacks Consensus Estimate for Masco’s first-quarter earnings is pegged at 36 cents per share, indicating a decline of 18.2% on a year-over-year basis. The consensus estimate for revenues is $1.52 billion, indicating 20.3% year-over-year fall.

Masco Corporation Price and EPS Surprise

Masco Corporation Price and EPS Surprise
Masco Corporation Price and EPS Surprise

Masco Corporation price-eps-surprise | Masco Corporation Quote

Factors at Play

Masco’s sales have been suffering from lower volume, unfavorable mix and softness in some markets served. Overall, lower volumes in the International Plumbing business and Decorative Architectural Products are expected to have negatively impacted the company’s revenues in the first quarter. Softer international outlook, particularly in Europe and Latin America, added to the woes. Nonetheless, Masco’s inorganic efforts and strong housing fundamentals might have helped Masco to offset the negatives mostly throughout the first quarter.

However, widespread slowdown in economic activity owing to the coronavirus outbreak is expected to have impacted the company’s business operations and demand for products in the latter part of March, stretching into April.

Meanwhile, from the margins perspective, it has been undertaking cost-saving initiatives like business consolidations, system implementations, plant and branch closures, improvement in the global supply chain, as well as headcount reductions. However, higher input costs have been weighing on Masco’s margins for the last few quarters. Hence, higher input costs and incremental tariffs are expected to have weighed on the company’s first-quarter bottom line.

Segment wise, growth in North American plumbing business — given higher contribution from both Delta and Watkins — is expected to have aided Masco’s Plumbing business (contributing nearly 54.9% to revenues). However, excessive cost pressure on raw materials due to tariffs and difficult year-over-year comparison, thanks to pulled forward sales in 2018, are likely to have weighed on margins.

The Zacks Consensus Estimate for Plumbing Products adjusted EBITDA is currently pegged at $164 million, which implies a 4.7% decline from the year-ago period and 18.4% sequentially.

The consensus mark for the Decorative Architectural Products segment’s adjusted EBITDA is $75 million, which indicates a decrease of 18.5% from the prior-year period and 31.8% from fourth-quarter 2019.

Quantitative Model Prediction

Our proven model predicts an earnings beat for Masco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is exactly the case here as you will see below.

Earnings ESP: Its Earnings ESP is +10.73%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Masco currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks Worth a Look

Here are some other stocks in the construction sector that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming releases.

D.R. Horton, Inc. DHI has an Earnings ESP of +1.34% and a Zacks Rank #3.

Rayonier Inc. RYN has an Earnings ESP of +5.00% and holds a Zacks Rank #3.

Frontdoor, Inc. FTDR has an Earnings ESP of +9.76% and holds a Zacks Rank #3.

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