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Masco Corporation
CEO : Mr. Keith J. Allman

Quarterly earnings growth(YoY,%)

Keith Allman says,

Q4 2022 Earnings Call Highlights:

• Masco’s top-line decreased 5% in Q4 2022 due to lower volumes, partially offset by significant pricing actions of 9%.
• Operating profit declined in the quarter due to the lower volumes, higher operational costs, and currency.
• Plumbing grew 2% in local currency with a 1% decline in North American Plumbing, offset by 7% growth in International Plumbing.
• Decorative Architectural segment sales declined 8% against a strong 15% comp, with DIY paint sales declining in the low double digits.
• John Sznewajs, the CFO of the company, has decided to retire from Masco, effective at the end of May, and the company is working to identify his replacement.

Full-Year 2022 Performance Highlights:

• Masco grew sales 4% for a two-year stacked comp of 21%.
• Strong pricing actions increased sales by 9%, offset by volume declines of 3% and currency impact of 2%.
• Operating profit declined 7% with an operating margin of 15.6%, and earnings per share increased from $3.70 to $3.77.
• Masco repurchased 16.6 million shares for $914 million, representing approximately 7% of its outstanding shares, and increased its quarterly dividend by 19%.
• Behr earned its second consecutive Partner of the Year Award for the Home Depot.

2023 Outlook Highlights:

• Masco expects volumes to decline in the low double-digit range, offset to a small extent by pricing actions.
• The North American repair and remodel market is expected to be down approximately low double digits, while the DIY paint market is expected to be down high-single digits, and the PRO market is expected to decline by mid-single digits.
• Masco is focused on recovering the significant cost inflation experienced over the past two years through operational productivity, supply chain normalization, and additional pricing actions, with an operating margin to be approximately 15% in 2023.
• Masco expects its cash flow conversion to be over 100% in 2023 and will deploy that free cash flow after dividends to share repurchases or acquisitions. The company expects to deploy approximately $500 million to share repurchases or acquisitions in 2023.
• Masco anticipates earnings per share for 2023 to be in the range of $3.10 to $3.40 per share.

John Sznewajs says,

Expected Impact on Stock Movement

• Sales Volume: Sales volume decreased in Q4 2022 by 11%, which resulted in a 5% decrease in overall sales. North American sales decreased by 5%, while international sales increased by 7%. Sales increased by 4% in 2022, with North American sales increasing by 6% and international sales increasing by 8%. These figures will impact the stock’s movement depending on how investors view them.
• Operating Profit: Operating profit for the full year was $1.4 billion, with an operating margin of 15.6%. In Q4 2022, operating profit was $234 million, and the operating margin was 12.2%. Operating profit in the Decorative Architectural segment was $101 million, with an operating margin of 13.9%. These figures will be important to investors to understand the company’s profitability and future growth potential.
• EPS: EPS in Q4 2022 was $0.65, and for the full year 2022, it increased 2% to $3.77. The company anticipates its 2023 EPS to be $3.10 to $3.40, assuming a 24% effective tax rate. These figures will be important to investors as they evaluate the company’s earnings potential.
• Plumbing Sales: Plumbing sales decreased by 3% in Q4 2022, and sales are expected to decline in the range of 10% to 14% in 2023. North American Plumbing sales decreased by 1% in local currency. International Plumbing sales increased by 7% in local currency. These figures will impact investors’ perception of the company’s performance in this segment.
• Decorative Architectural Sales: Sales in the Decorative Architectural segment decreased by 8% in Q4 2022, but sales in 2022 increased by 6%. The company anticipates sales to decline in the range of 5% to 10% in 2023. These figures will be important to investors as they evaluate the company’s performance in this segment.

Q & A sessions,

expected in the MAS Q4 2022 earning call transcript, there are several points that are expected to have a significant impact on the stock’s movement. These include:

Impact of Inflation and Supply Chain Issues

• Significant inflation and supply chain difficulties impacted margins
• Company is focused on bringing costs out of operations and taking additional price where needed
• Incremental pricing will be taken in some parts of the business to combat margin erosion
• Expected to drive margin expansion as the company moves through 2023

Estimated Market Performance

• North American repair and remodeling market expected to be down low double digits
• International market expected to be down high single digits
• DIY market expected to be down high single digits and PRO market expected to be down mid-single digits
• Estimations are based on trends, industry research and performance in the back half of ’22

Investment in Growth Levers

• Investment in PRO paint and high-growth markets such as China and Europe
• Investing in operations such as buy online, pick up in store, expanding delivery options and expanding the PRO sales force
• Committed to managing decrementals in the downturn while investing to exit stronger

Margins

• Recovering the dollar cost and inflation will result in margin compression
• Incremental investment in the PRO business will also impact 2023 margins
• Commodities rolling over and input cost deflation would lead to margin expansion due to potential pricing concessions

Input Costs

• Inflation in base metals (copper, zinc) and ocean freight still elevated but off their highs
• Wage inflation still impacting the business
• Energy cost in Europe also impacting the business