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Home-building design and manufacturing company Masco Corporation (NYSE:MAS) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 1.7% year on year to $2.09 billion. It made a non-GAAP profit of $1.20 per share, improving from its profit of $1.19 per share in the same quarter last year.
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Masco (MAS) Q2 CY2024 Highlights:
- Revenue: $2.09 billion vs analyst estimates of $2.10 billion (small miss)
- Adj EBITDA: $437 million vs analyst estimates of $400.7 million (9.1% beat)
- EPS (non-GAAP): $1.20 vs analyst estimates of $1.18 (1.9% beat)
- Full year EPS (non-GAAP) guidance of $4.13 at the midpoint, above expectations of $4.09
- Gross Margin (GAAP): 37.5%, up from 36.2% in the same quarter last year
- Free Cash Flow of $303 million is up from -$125 million in the previous quarter
- Organic Revenue fell 2% year on year (-9.1% in the same quarter last year)
- Market Capitalization: $15.57 billion
Headquartered just outside of Detroit, MI, Masco (NYSE:MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.
Home Construction MaterialsTraditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Masco grew its sales at a weak 3.4% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Masco's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.3% annually.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Masco's organic revenue averaged 4.7% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company's core operations (not M&A) drove most of its performance.
This quarter, Masco reported a rather uninspiring 1.7% year-on-year revenue decline to $2.09 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.
Operating Margin Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Masco has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.7%. This isn't too surprising as its gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Masco's annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.
In Q2, Masco generated an operating profit margin of 19%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Masco's EPS grew at a solid 10.5% compounded annual growth rate over the last five years, higher than its 3.4% annualized revenue growth. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
We can take a deeper look into Masco's earnings to better understand the drivers of its performance. A five-year view shows that Masco has repurchased its stock, shrinking its share count by 24.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Masco, its two-year annual EPS growth of 2.2% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q2, Masco reported EPS at $1.20, up from $1.19 in the same quarter last year. This print beat analysts' estimates by 1.9%. Over the next 12 months, Wall Street expects Masco to grow its earnings. Analysts are projecting its EPS of $3.95 in the last year to climb by 8.4% to $4.28.
Key Takeaways from Masco's Q2 Results While revenue missed slightly, adjusted EBITDA beat by a convincing amount. The company also beat on EPS and maintained its full year EPS outlook, which is slightly above expectations. Overall, this was a solid quarter for Masco. The stock traded up 4.1% to $73.50 immediately following the results.
