Masco Issues Cautious 2023 Guidance as Repair and Remodel Spending Slows; FVE to $71

While Masco’s fourth-quarter results weakened compared with the year-ago quarter (reported sales was down 5% and adjusted operating margin of 12.2% was 90 basis points lower), the firm’s performance was largely in line with our expectations. However, management painted a far bleaker 2023 outlook than we were anticipating. Management sees North American repair and remodel, or R&R, spending falling by a low-double-digit percentage compared with our forecast of a low-single-digit decline. Management expects a limited effect from channel inventory destocking (that is, inventory is at healthy levels for the demand environment), and, in our view, Masco’s risk from consumers trading down to lower-price brands is relatively muted compared with other building products firms. We have no reason to believe Masco is losing market share to competitors (in fact, we think the firm is gaining share with its professional paint strategy). As such, we view this cautious guidance is an indictment of consumer R&R spending activity in 2023. We say this guidance is cautious because other closely related firms have expressed more optimistic views (for example, Masco’s largest distributor, Ferguson, guided toward a low-single-digit market decline).