Zacks_Analysts' Blog : Masco Profits In Line, Sales Up - Analyst Blog

Masco Corporation (MAS) reported earnings of 8 cents per share (excluding special items) in the third quarter of 2011, which was lower than the year-ago quarter earnings of 11 cents per share (excluding special items).

However, reported earnings were in line with the Zacks Consensus Estimate for the quarter. The continuous decline in the construction of new homes was primarily responsible for the company’s poor performance in the quarter.

Nevertheless, net sales increased 3% to $2.01 billion from $1.96 billion in the prior-year quarter, mainly driven by strong sales of plumbing-related products, market share gains in the Installation segment and favorable foreign currency translation, partly offset by the ongoing depression in the new homes construction industry.

Both cost of production and selling, general and administrative expenses (SG&A) increased marginally on a year-over-year basis. Cost of production was $1.51 billion versus $1.46 in the comparable quarter last year while SG&A expenses were $393 million compared with $392 in the year-ago quarter.

Masco’s adjusted gross profit declined to $503 million (25.1% of sales) from $526 million (26.9% of sales) in the third quarter of 2010. Similarly, adjusted operating profit dropped to $123 million (6.1% of sales) from $141 million (7.2% of sales) in the prior-year period.

North American sales remained almost flat at $1.52 billion while international sales rose 12% to $482 million during the quarter. In local currencies, international sales increased 4% year over year.

Sales from Plumbing Products witnessed a growth of 12% to $768 million. Sales from Installation and Other Services climbed 8% to $315 million and sales from Other Specialty Products inched up 1% to $161 million. However, Cabinets and Related Products sales fell 14% to $307 million while the same from Decorative Architectural Products dipped 2% to $455 million.

Masco had cash balance of $1.61 billion as of September 30, 2011, an increase from $1.54 billion in the prior-year period. The company’s total debt amounted to $4.03 billion as of September 30, 2011 compared with $4.10 billion as of September 30, 2010. Debt-to-capitalization ratio stood at 73% at the end of the reported quarter versus 60% at the end of the prior-year quarter.

Headquartered in Taylor, Michigan, Masco Corporation manufactures, sells, and installs home improvement and building products. Recently, the company is facing severe challenges from falling home prices, rising raw material prices and more importantly, intense competition from The Sherwin-Williams Company (SHW), The Valspar Corporation (VAL), PPG Industries (PPG), Rust-Oleum Corporation (Zinsser brand) and  Benjamin Moore & Co.

As a result, the shares of Masco are maintaining a Zacks #5 Rank (Strong Sell rating) over the short term and we have also reiterated our Underperform recommendation over the long term.