Masco (NYSE:MAS) reported its Q2 2014 earnings after hours on 7/28/14 with the results topping consensus expectations. Revenue of $2.26B was in-line with expectations, while EPS of $.32c beat expectations by $.04c per share. Revenue increased by 5% on a YoY basis, and the company saw growth in both its North American and International business segments. The results from Masco highlight an important part of the original thesis regarding the company, a geographically diversified business benefiting from strength in the European markets this quarter. This is in contrast to other companies tied to the housing or housing supplies market solely in the US, where the nationwide boom experienced last year has taken on more of a local level recovery in 2014.
An interesting item of note comes from the recent earnings disappointments from other housing names, such as Lumber Liquidators (NYSE:LL) and D.R. Horton (NYSE:DHI). These misses highlight a theme I anticipate chronicling in more detail, which is that a macro trade in housing-related stocks provided a sector-wide boost over the last 24 months. That trade is over, which is creating opportunity in a number of stocks in the sector, as investors sell the entire sector without giving credence to those companies that continue to outperform. Masco provided a great example of this continued outperformance in its most recent quarter.
I would continue to focus on the revenue growth and related operating margin % expansion. The thesis surrounding Masco is that the company is significantly leaner than it was prior to the housing downturn, and moderate revenue growth, will have an outsized impact on operating margin expansion. This thesis played out entirely during the quarter, as adjusted operating margin % expanded 140 bps to 11.0% compared to the prior quarter. This on the back of a respectable 5% increase in revenue, but not the rip-roaring increase most companies need, to see that type of operating margin expansion. Continue to watch Masco as a stock worth owning for the long term in a sector that is generally out of favor with investors today.
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