Bear of the Day: Masco (MAS) - Bear of the Day

By Zacks | June 02, 2014 AAA

Masco Corporation (MAS) hit a bump in the road in April when it posted a surprising first quarter earnings miss. This Zacks Rank #5 (Strong Sell) got hit by the slowing home sales and polar vortexes but is it seeing improvement?

Masco makes faucets, cabinets and windows under several well-known brands including Delta faucets and KraftMaid cabinets.

It is directly impacted by the recovery in both consumer spending and housing.

Bearish Miss in Q1

On Apr 25, Masco missed the Zacks Consensus by 3 cents. Earnings were $0.15 compared to the consensus of $0.18.

Sales were up 5% to $2 billion from $1.9 billion a year ago.

The deceleration of housing starts at the end of 2013, in addition to extreme weather, hurt sales in the first quarter.

2014 Earnings Estimates Slashed

Analysts were wary of several warning signs in the quarter.

Plumbing margins were an astounding 15% but even the company admitted that was unsustainable. Masco also raised prices on its cabinets through the retail channel but its competitors did not which meant a loss of market share in the quarter.

It also warned on April sales, which were trending in the low-to-mid single digits despite improvement in the weather.

As a result of all the bearishness, 14 estimates were cut in the last 60 days for the full year, pushing the 2014 Zacks Consensus Estimate down to $1.02 form $1.11 just 60 days before.

That's still 32% earnings growth as Masco made just $0.77 in 2013.

Is a Turnaround Coming?

Shares sold off on Masco's bearish tone and weak April guidance.

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However, on May 15, the company came out to confirm that April sales would be in the mid-single digit range, which is better than the "low" range. Shares bounced back on the news.

Masco also announced it was raising its dividend by 20%. That was significant because it was the first dividend increase since it was slashed in 2008 during the financial crisis.

The Zacks Rank is a short-term recommendation of just 1 to 3 months so it is registering the analysts' dismay at the first quarter earnings report and not what might happen later this year. So far, the analysts appear to be sticking with their lowered estimates out of a sense of caution.

If you want to play this industry right now as a turnaround story for later this year, you might want to take a look at Home Depot (HD) which is a Zacks Rank #3 (Hold). It recently reported earnings and was upbeat about the summer. Analysts expect it to book double digit earnings growth this year.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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