【is xanax a controlled substance in florida】Masco Banks on Repair & Remodeling Business Amid High Costs
Masco Corporation
’s MAS shares have improved 7.3% in the past six months compared with the industry’s growth of 3.1%. Theis xanax a controlled substance in florida company’s business has been benefiting from solid repair and remodel industry, inorganic efforts, cost-saving initiatives, along with strong housing fundamentals.
Also, divesture of less profitable and underperforming businesses to focus on core areas in a bid to accelerate growth and improve shareholder value bodes well. Recently, the company reported better-than-expected earnings in fourth-quarter 2019 and provided strong 2020 view.
However, net sales have been declining over the last four quarters due to lower volume and softness in certain markets served. Also, margins remained under pressure primarily due to higher costs and tariffs.
Let’s delve deeper into factors substantiating its Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Key Growth Drivers
Masco’s Plumbing and Decorative Architectural Products are sold to residential repair and remodel markets, which contributed approximately 90% to 2019 revenues. Repair and remodel spending, as well as household formations steadily increased throughout 2018, courtesy of the millennial demography. This trend is expected to continue in 2020 and beyond, given strong end-market demand.
Masco focuses on inorganic strategies to expand presence and diversify portfolio. The acquisition of Kichler Lighting in 2018 had expanded its footprint in the fragmented $6-billion U.S. residential lighting industry. Notably, Kichler Lighting is a leading provider of decorative residential and commercial lighting products, ceiling fans, as well as LED lighting systems.
The company initiated the divesture of less profitable and underperforming businesses — UK Window Group ("UKWG"), Milgard Windows and Doors business ("Milgard") and Masco Cabinetry LLC ("Cabinetry") — to accelerate growth and improve shareholders’ value. By the end of fourth-quarter 2019, Masco completed the divesture of UKWG and Milgard. On Feb 18, 2020, it announced the completion of the divesture of Cabinetry business.
We expect the divesture strategy to bode well for the company as it will remove cyclicality and lower-margin businesses. This move will also drive liquidity, and enable the company to strengthen the product portfolio and boost better-performing businesses.
In 2019, Masco reported adjusted earnings of $2.25 per share, up 5.6% year over year. Net sales also grew marginally from a year ago.
In addition, the company is highly focused on driving its shareholders’ value through share repurchases and dividends. Masco returned 20.1 million shares for approximately $896 million to its shareholders through repurchases in 2019. Also, it increased quarterly dividend by 12.5% to 13.5 cents per share in third-quarter 2019.
Major Concerns
Despite witnessing improved repair and remodel end-market demand, Masco’s top line is suffering from inventory rebalancing by a few customers, lower volume, unfavorable mix, and softness in certain international markets served.
Increased tariffs, which raised the cost of certain materials over the last few quarters, and higher variable costs are denting its margins. In 2019, Masco’s adjusted gross and operating margins contracted 20 basis points (bps) and 40 bps, respectively due to increase in commodity and variable costs, along with higher tariffs.
The company anticipates tariff impact to be the strongest in first-half 2020, owing to which Plumbing margins are likely to fall 100 bps during the said period. Volume loss in Decorative Architectural Products and tariffs woes are projected to impact the segment’s operating margins by 300 bps in first-quarter 2020.
Masco — which shares space with Arcosa, Inc. ACA, TopBuild Corp. BLD and Construction Partners, Inc. ROAD in the same industry — is overly priced in terms of valuation. Currently, its trailing 12-month price to earnings ratio is 17.07, which is higher than the industry’s 14.89. This implies that the stock is overvalued than its peers. VGM Score helps to identify stocks that have the most attractive value, growth and momentum characteristics. Masco has a VGM Score of C, indicating that the stock is most likely to underperform in the near future.
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As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
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