Analyst Note| Brian Bernard, CFA, CPA |
Masco's first-quarter performance came in stronger than we had anticipated; revenue grew approximately 4% year over year to almost $1.6 billion, adjusted operating margin expanded 80 basis points to 14.4%, and adjusted EPS from continued operations increased 24% to $0.46. However, Masco's strong first-quarter results will prove to be the calm before the coronavirus storm. Management said on the earnings call that they are expecting consolidated second-quarter sales to decline 20%-25% year over year, with plumbing sales down 30%-35% and decorative architectural sales 5%-10% lower than the prior-year quarter. With such a drastic sales contraction, management expects decremental margins of 40%-45% during the second quarter and approximately 35% for the full year. This 2020 outlook is about in line with our revised expectations, which we published on April 3. We've maintained our $49 per share fair value estimate for this medium uncertainty stock.