Tic-tac-toe, investors want to know: Will home fixtures maker Masco (NYSE:MAS) make it three in a row for earnings beats when it reports its fiscal third-quarter 2006 numbers tomorrow?

What analysts say:

  • Buy, sell, or waffle? Fifteen analysts follow Masco. The stock gets three each of buy and sell ratings, and nine holds.
  • Revenues. On average, they expect to see quarterly sales fall 2% to $3.3 billion.
  • Earnings. .and profits fall 3% to $0.59 per share.

What management says:
Masco's big news of the quarter was its earnings warning, released back in September. The firm announced that it has seen a "softening" of "orders for building products and services in recent weeks." It also anticipates that new housing starts will decline 20% year over year in Q4. Result: Masco now expects flat Q3 sales and Q4 sales declining in the "low- to mid-single digits" year over year, with full-year 2006 earnings declining 6% to 8%, "excluding costs and charges related to profit improvement programs and any other items."

Don't be fooled by the terminology, though. CEO Richard Manoogian isn't saying that GAAP results will be better than his now-projected pro forma earnings of $2.25 to $2.30 per share for the year. "Profit improvement programs" is corporate-speak for "plant closures." As described in the firm's last quarterly report, Masco has already incurred about $26 million in pre-tax charges for closing down a plumbing products plant and a cabinets factory, and anticipates incurring another $44 million in similar charges by year-end.

What management does:
Although Manoogian promises that closing down plants to right-size with the housing slowdown will "improve the Company's earnings outlook for 2007 and beyond," so far the opposite is happening at Masco. Rolling gross, operating, and net margins have each been declining all year long.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

30.4

29.8

29.2

28.5

28.3

28.3

Op.

13.7

13.4

13.1

13.0

12.9

12.7

Net

8.0

8.0

7.0

7.4

7.1

6.6
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Not that Masco hasn't been trying to improve its profits. And having some success, to boot. Reviewing the firm's income statement for year-to-date results, we can see that sales are up 6% year over year, and that it's the faster 7% rise in cost of goods sold that is crimping gross and operating margins. Operationally, the firm's selling, general, and administrative costs are up only 5%.

Over on the balance sheet, we see the firm is again making all the right moves to manage the housing industry's downturn. Bill collection is tight, with accounts receivable up only 3% year over year, and inventories, while not improving, at least have not outpaced sales growth; they're tracking the sales trend at 6% growth. All in all, I'd say Masco is managing the downturn pretty well so far. Let's check back on the next batch of numbers tomorrow to see if they can keep up the good work.

Competitors:

  • American Standard (NYSE:ASD)
  • American Woodmark (NASDAQ:AMWD)
  • Fortune Brands (NYSE:FO)
  • PPG (NYSE:PPG)
  • Sherwin-Williams (NYSE:SHW)
  • Stanley (NASDAQ:STLY)

Keep track of how these competitors have been doing in:

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Fool contributor Rich Smith does not own shares of any company named above.