Masco: Paint prices to rise due to soaring material and shipping costs

Masco Corp. enjoys continued strong demand for its paint and plumbing products, but supply chain issues and rising raw material costs are hampering profitability.

Part of the solution, according to executives at the Livonia-based manufacturer, is to pass the costs on to customers. This means DIY enthusiasts should probably expect to pay more for Behr paint at Home Depot, for example.

The strategy was presented on Wednesday by CEO Keith Allman and CFO John Sznewajs during the presentation of the company’s third quarter results.

The company reported third-quarter revenue of $ 2.2 billion, up 11% from a year ago, while operating profit of $ 385 million fell from $ 425 million he took in the same period last year.

“The demand for our products and home improvement remains strong and at a much higher level than in 2019,” Allman said during the call with investors. “With the excellence of our supply chain and our ability to offset inflation with prices, we believe that we are well placed to continue this momentum until 2022 and increase our margins …”

Masco (NYSE: MAS) closed Wednesday at $ 64.26 per share, up 5% from the start of the day.

The company’s fifth consecutive quarter of double-digit sales growth was fueled by a strong performance from its Behr Pro paint segment, which saw sales increase 45% year-over-year. Executives said the rollout of a new product, Behr Dynasty, had also helped.

The COVID-19 pandemic has proven to be a source of revenue for the business as home renovations and DIY projects have become very popular. The company’s third-quarter revenue was 28% higher than in the third quarter of 2019, and its operating profit was 29% higher.

Painting is the core part of Masco’s decorative architectural products division, which grew sales 4% to $ 875 million. Its other main division, plumbing products, saw sales increase 16% to $ 1.33 billion.

Profits have been dragged down by high commodity and logistics costs – two of the biggest problems facing businesses around the world in the wake of the pandemic. Prices for shipping containers have reached unprecedented levels in the past year. This had a big impact on the bottom line of Masco, which imported around $ 600 million worth of products from China in 2019, Crain’s reported last year.

“Like everyone who has reported results so far this season, we’ve been facing some supply chain challenges, you know, crossing the Pacific,” Sznewajs said. “The good news is that while we have been through part of it, we have also experienced part of the price increase, not only because of commodity inflation, but because of part of it. logistics inflation that we have experienced. . “

Allman said the company saw “low double-digit inflation” in the third quarter and expects it to be in the “teenage region” in the fourth quarter. He said the company would respond with product price adjustments to come out of the year without price-to-cost ratio.

The company attributed its sharp increase in sales to its ability to keep paint cans on shelves and other products in stock amid record demand and supply chain stress.

“First and foremost, we’ve had some truly exceptional supply chain execution,” said Allman. “We’ve been working with the supply base and have been pretty consistent in our supply ledger for about 20 years, so these relationships have really paid off.”

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