Masco (MAS)

Home-building design and manufacturing company Masco Corporation (NYSE:MAS) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 6.5% year on year to $1.80 billion. Its non-GAAP profit of $0.87 per share was 4.8% below analysts’ consensus estimates.

Company Overview

Headquartered just outside of Detroit, MI, Masco (NYSE:MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Other companies that compete in Masco’s markets include The Home Depot (NYSE:HD), Lowe’s (NYSE:LOW), and private company American Standard Brands.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Masco’s 2.6% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Masco’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.6% annually.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Masco’s organic revenue averaged 4% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Masco missed Wall Street’s estimates and reported a rather uninspiring 6.5% year-on-year revenue decline, generating $1.80 billion of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Masco’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 34.7% gross margin over the last five years. Said differently, Masco paid its suppliers $65.26 for every $100 in revenue.

Masco’s gross profit margin came in at 35.8% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Masco has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.8%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Masco’s operating margin decreased by 1.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Masco generated an operating profit margin of 15.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Masco, its EPS declined by 3.1% annually over the last five years while its revenue grew by 2.6%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Masco’s earnings can give us a better understanding of its performance. As we mentioned earlier, Masco’s operating margin was flat this quarter but declined by 1.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Although it wasn’t great, Masco’s two-year annual EPS growth of 5.1% topped its two-year revenue performance.

In Q1, Masco reported EPS at $0.87, down from $0.93 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Masco’s full-year EPS of $4.04 to grow 7.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Masco has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.6% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Masco’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Masco burned through $190 million of cash in Q1, equivalent to a negative 10.5% margin. The company’s cash burn increased from $125 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Masco hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 50.3%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Masco’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Masco reported $377 million of cash and $3.31 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.41 billion of EBITDA over the last 12 months, we view Masco’s 2.1× net-debt-to-EBITDA ratio as safe. We also see its $49 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. It seems expectations were low, though, and the stock traded up 1.1% to $61.99 immediately following the results.

Updated: July 10, 2025 at 12:05 AM EDT

Before making an investment decision, investors should account for Masco’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies making their customers lives easier, but in the case of Masco, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its organic revenue declined.

Masco’s P/E ratio based on the next 12 months is 15.4x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $69.91 on the company (compared to the current share price of $66.89).