Masco Earnings Cheat Sheet: Margins Keep Shrinking, but Net Income Increases

Falling revenue did not prevent S&P 500 (NYSE:SPY) component Masco Corporation (NYSE:MAS) from reporting a profit boost in the second quarter. Masco Corporation manufactures and installs building and home improvement products including faucets, cabinets, architectural coatings and windows.

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Masco Earnings Cheat Sheet for the Second Quarter

Results: Net income for the lumber and wood company rose to $8 million (2 cents per share) vs. $3 million (one cent per share) in the same quarter a year earlier. This is a more than twofold rise from the year earlier quarter.

Revenue: Fell 1.3% to $2.02 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: MAS fell short of the mean analyst estimate of 8 cents per share. It beat the average revenue estimate of $1.98 billion.

Quoting Management: “Our sales would have increased one percent (excluding cabinet products that we have exited, as previously announced) compared to second quarter 2010, reflecting strong sales of plumbing related products driven by share gains of our Hansgrohe and Delta brands and foreign currency translation. The second quarter of 2011 was negatively impacted by continued declines in new home construction and in the deferral of “big ticket” repair and remodel activity,” said Tim Wadhams. “We completed several of the major initiatives that have been underway in our installation services and North American cabinet operations which marked significant milestones for these businesses. We believe that our installation business gained share sequentially in the second quarter of 2011 and our North American cabinet business maintained share in the second quarter of 2011, continuing the momentum from the first quarter of 2011. In addition, we further reduced cabinet capacity by idling another manufacturing facility.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 0.3 percentage point to 26.3% from the year earlier quarter. Over that time, margins have contracted on average 2.7 percentage points per quarter on a year-over-year basis.

Revenue has fallen in the past four quarters. Revenue declined 4.3% to $1.77 billion in the first quarter. The figure fell 7.2% in the fourth quarter of the last fiscal year from the year earlier and dropped 6.5% in the third quarter of the last fiscal year from the year-ago quarter.

The company has now fallen short of analyst estimates for the last three quarters. It missed the mark by 2 cents in the first quarter and by 6 cents in the fourth quarter of the last fiscal year.

MAS’ profit in the latest quarter follows losses in the three previous quarters. The company reported a net loss of $46 million in the first quarter, a loss of $1.03 billion in the fourth quarter of the last fiscal year and a loss of $5 million in the third of the last fiscal year.

Competitors to Watch: Fortune Brands, Inc. (NYSE:FO), American Woodmark Corp. (NASDAQ:AMWD), U.S. Home Systems, Inc. (NASDAQ:USHS), Patrick Industries, Inc. (NASDAQ:PATK), ALNO AG (AMEX:ANO), and Design Studio Furniture Manufacturer Ltd (D11).

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(Source: Xignite Financials)

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