Masco Corporation MAShas been expanding its portfolio through acquisitions. In January, the company signed an agreement to take over Kichler Lighting which will complement its product line. Through the deal, the company aims to expand in the fragmented $6-billion U.S. residential lighting industry.
Also, Masco acquired Mercury Plastics in 2017. Mercury Plastics manufactures water handling systems for appliances and faucets as well as various other plumbing products. The company posted revenues of $45 million in 2017. These acquisitions will prove accretive to Masco’s earnings in 2018 and are expected to raise shareholder value.
Moreover, Masco regularly divests its less profitable and underperforming businesses to focus on its core areas to accelerate growth and improve shareholder value. In 2017, the company divested Moores Furniture Group — its small UK cabinet operation — which was no longer core to its long-term strategy. Also, Masco completed the divestiture of its Arrow Fastener business for $126 million.
Apart from acquisitions & divestitures, increasing demand for repair and remodeling as well as product launches are driving sales growth.
Repair/Remodel Activity
Increased demand for repair/remodel products have been an important revenue generator for Masco. Over 80% of Masco’s revenues are generated through repair/remodel activity. Repair and remodel sales grew mid-single digits in the first quarter of 2018.
With 70% of homes in the United States now more than 25 years old, U.S. residential housing market has become a key driver of repair and remodel revenues.
Cost-Saving Initiatives
The company’s cost-saving initiatives help boost profits through business consolidations, system implementations, plant closures, branch closures, improvement in the global supply chain and headcount reductions.
However, expenses related to product launches and raw material costs raise concern. Masco projects additional spending of $4 million in the first half of 2018, split equally between the first and second quarters. Also, a significant portion of Masco’s sales comes from only two customers — Home Depot and Lowe's.