Will Masco's New Strategic Initiatives Turn it Around?
Last week, Masco Corporation (MAS) announced some transformative actions which included a tax-free spin-off of its Installation and Other Services segment into a separate company. The maker of home improvement products also plans to buy back shares and reduce its workforce.
Spin-Off
Theinstallation division will trade as a separate company which will be headquartered in Central Florida. The division, through Masco Contractor Services, installs building products, insulation, fireplaces, gutters and garage doors in newly built homes. The segment also distributes residential insulation products and related accessories across the U.S through Service Partners. Masco did not mention a proposed name for the new company.
The transaction, subject to necessary approvals and customary closing conditions, is expected to close in mid-2015.
The spin-off will simplify Masco’s product portfolio, allowing it to focus more on the home-repair and remodeling market. The company operates through various divisions with a large number of products that include popular names like Delta faucets and Behr paints. The installation division generated revenues of $1.4 billion last year, comprising around 17% of Masco’s total sales.
The installation and cabinetry businesses underperformed in the past few years, though recovering only in 2013 through the company’s initiatives which included closing of manufacturing facilities and headcount reduction.
Though the company has decided to let go of the installation business, it has retained the other struggling segment, Cabinetry. Masco’s president and chief executive officer, Keith Allman reportedly defended the decision by saying, "Cabinetry fits well in our portfolio” and that he intends to revive the business.
Share Repurchases
The board approved the buyback of around 14% of Masco’s total outstanding shares which equals to an aggregate of 50 million shares. The buybacks that will be made over a multi-year period beginning in 2014, should improve the company’s earnings per share in future quarters.
Cost Savings Initiatives
The board also approved some cost savings initiatives that target company-wide annual savings of $35-$40 million through reduction of corporate expense and simplification of Masco’s organizational structure. The plans include cut down of approximately 40% of Masco’s headquarter staff. The initiatives are expected to cost approximately $30 million over the next several quarters.
Other Stocks to Consider
Masco carries a Zacks Rank #3 (Hold). Better-ranked stocks in the building and construction sector include Gibraltar Industries, Inc. (ROCK), United Rentals, Inc. (URI) and UCP, Inc. (UCP). All the stocks carry a Zacks Rank #2 (Buy).
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Read the Full Research Report on UCP
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