May 17, 2022

Charlie Doodle

Unique Art & Entertainment

Masco: Paint prices to rise due to soaring costs of materials and shipping

3 min read

Masco Corp. is benefiting from continued strong demand for its paint and plumbing products, but supply chain kinks and rising raw material costs are hurting profitability.

Part of the solution, according to executives of the Livonia-based manufacturer, is passing on costs to customers. That means do-it-yourselfers should probably expect to pay more for Behr paint at Home Depot, for example.

The strategy was laid out Wednesday by CEO Keith Allman and CFO John Sznewajs during the company’s third-quarter earnings presentation.

The company reported third-quarter revenue of $2.2 billion, up 11 percent from last year, while its operating profit of $385 million fell from the $425 million it took in the same time last year.

“Demand for our products and home renovation remains strong and at a much higher level than experienced in 2019,” Allman said on the call with investors. “With our demonstrated supply chain excellence and our ability to offset inflation with price, we believe we are well-positioned to carry this momentum into 2022 and deliver margin expansion …”

Masco (NYSE: MAS) closed Wednesday at $64.26 per share, up 5 percent from where it started the day.

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

The COVID-19 pandemic proved to be a revenue boon for the company as home renovations and DIY projects became wildly popular. The company’s revenue in the third quarter was 28 percent higher than in the third quarter of 2019, and its operating profit was 29 percent higher.

Paint is the primary part of Masco’s decorative architectural products division, which had a 4 percent revenue increase to $875 million. Its other main division, plumbing products, saw a revenue increase of 16 percent to $1.33 billion.

Profits were dragged down by high commodity and logistics costs — two of the largest issues companies around the world have grappled with in the wake of the pandemic. Shipping container prices have soared to unprecedented levels in the past year. That’s had a big impact on the bottom line at Masco, which imported about $600 million in products from China in 2019, Crain’s reported last year.

“Like everyone else that’s reported so far this earnings season, we’ve faced supply chain challenges, you know, coming across the Pacific,” Sznewajs said. “The good news is even though we’ve experienced some of that, we have also as a result passed through some of the price increase, not only because of the raw material inflation but because of some of the logistics inflation that we’ve experienced.”

Allman said the company saw “low double-digit inflation” in the third quarter and is expecting it to be in the “mid-teens region” in the fourth quarter. He said the company will respond with product price adjustments to exit the year price-cost neutral.

The company attributed its sustained sales surge to being able to keep paint cans on shelves and other products in stock amid record demand and stress on the supply chain.

“First and foremost, we had really outstanding supply chain execution,” Allman said. “We’ve been working with the supply base and have been pretty consistent in our supply register for like 20 years. So those relationships really paid off.”

https://www.crainsdetroit.com/manufacturing/masco-paint-prices-rise-due-soaring-costs-materials-and-shipping

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