Masco Corporation MAS intends to sell off cabinetry and window businesses in an attempt to minimize exposure to the new construction market. This move follows the completion of its strategic review of businesses, which was announced in March.
The company has plans to divest Ann Arbor-based Masco Cabinetry, which includes well-known brand names such as Merillat and KraftMaid, and window businesses Milgard Windows and Doors of Tacoma, Wash, and United Kingdom-based UK Window Group, in three separate transactions.
Notably, Cabinetry Products, and Windows and Other Specialty Products segments reported combined net sales of $1.7 billion, operating profit of $120 million, and adjusted earnings before interest, taxes, depreciation and amortization of $161 million in 2018. The segments represent about 20% of Masco’s consolidated net sales and 10% of consolidated operating profit.
The sale is expected to be completed within the next six-nine months. Post the competition of the transactions, Masco aims to focus on the repair and remodel segment of the housing market.
Over the past five years, the company has been pursuing strategic alternatives such as growing its exposure in the housing market’s repair and remodel segment in order to reduce cyclicality. The sale of cabinetry and window businesses will mark Masco’s completion of the process of reducing exposure to the new construction segment of the market. This will position the company to focus on less cyclical Plumbing Products and Decorative Architectural Products businesses, going forward.
Post the completion of the divestments, Masco's portfolio will comprise Behr paint, Delta and Hansgrohe faucets, bath and shower fixtures, Kichler decorative and outdoor lighting, and HotSpring spas.
Share Price Performance
Shares of Masco have outperformed its industry year to date. However, bottom-line estimates for 2019 have moved 0.7% south over the past 60 days, depicting analysts’ concern over the stock’s earnings growth potential. The company has been experiencing negative impact of inventory rebalancing by a few customers, and lower volume and softness in certain markets served. During the first quarter, its adjusted gross and operating margins were hurt by lower volumes and unfavorable mix. Nonetheless, Masco remains confident about the rest of 2019, considering the recent sales trend and industry perspective.
Zacks Rank & Key Picks
Masco currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Arcosa, Inc. ACA, Construction Partners, Inc. ROAD and TopBuild Corp. BLD, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arcosa, Construction Partners and TopBuild have a three-five year earnings growth rate of 12.6%, 10%, and 28%, respectively.
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