New York, NY, Oct. 6--Strong sales in the housing market and stepped-up consumer spending should translate into solid third-quarter results for suppliers of building products.
As an early indicator, Masco Corp. last month predicted its third-quarter operating earnings would modestly surpass a previously forecasted range of $0.48 to $0.51 a share, based on business trends.
The Taylor, MI home improvement and building products manufacturer earned $0.44 a share in the year-earlier third quarter. Analysts on average expect the maker of cabinets and faucets to report earnings of $0.52 a share, according to Thomson First Call.
Legg Mason Wood Walker, Inc. recently added Masco to its select list as the firm's "compelling idea," noting that home-improvement companies are doing better than expected.
"We believe this is the result of projects being done in summer and fall that were delayed due to the cold and wet spring in many parts of the country. Second, housing markets have remained strong throughout the summer building season," Legg Mason said in a Sept. 30 note.
"Due to the strong housing market and sales to home centers, we believe Masco will have better-than-previously expected sales in its paint, plumbing and installation segments," the firm said. Disclosures on the Legg Mason note didn't indicate that the firm has an investment-banking relationship with the company.
Housing and home-center sales trends generally appear favorable for building products suppliers' third-quarter reports, although consumer confidence fell in September and economists have suggested spending may have slowed after a summertime surge.
Big-box home-improvement chain Lowe's Cos. recently raised its third-quarter earnings guidance by $0.02 a share, citing better-than-expected same-store sales driven partly by an improving economy.
Sales of existing homes reached a record level in August--a 6.47 million annual rate--5.5% more than the high mark set in July, the National Association of Realtors reported last month. New-home sales set a record high in June, slipped in July and bounced back in August.
Building products companies' third-quarter results should benefit from accelerating consumer discretionary spending, Lawrence Horan, Parker/Hunter, Inc.'s research director, said.
Horan, who covers Masco, Black & Decker Corp., Stanley Works and Sherwin-Williams Co., said all four companies should show improved year-over-year profits for the period.
"Masco continues to do well in its installation business, which is a growth business for them," Horan said, noting that the company recently agreed to supply insulation to homebuilder Beazer Homes USA, Inc.
For hand-tools and hardware manufacturer Stanley Works and power-tool maker Black & Decker, fastening equipment accounts for a significant portion of business, "and that won't be recovering for a while," Horan said. But Horan said he thinks Black & Decker could easily beat his $1.02 a share earnings estimate for the third quarter. The First Call consensus estimate for Black & Decker is $1.03 a share, compared with year-earlier earnings of $0.95 a share.
Stanley Works is "still trying to turn the boat around," Horan said. He expects the company to post earnings of $0.63 a share, $0.01 more than consensus and year-ago earnings of $0.62 a share. Stanley Works announced large-scale job cuts and plant closures earlier this year.
Paint maker Sherwin-Williams might come in $0.01 or $0.02 higher than Horan's earnings estimate of $0.80 a share, the analyst said. Analysts on average expect the company to earn $0.78 a share, compared with $0.73 a share in the year-earlier period.
