Internal Company Analysis Present Strategy

Internal Company Analysis

Present Strategy

Masco Corporation (NYSE: MAS) is a manufacturer and distributor of home improvement and building products, including kitchen cabinets, entertainment centers and similar wood products, and Delta plumbing products. Masco sells to a number of different customers, including retailers, wholesalers and homebuilders. The company's current strategy is to continue to expand operations through both geographic expansion and new product innovation. They have also undertaken steps in recent years to divest non-core businesses, cutting business units from 67 in 2003 to 29 in 2007 (Masco 2007 Annual Report).

The company has adopted a differentiation strategy, based on good quality products and competitive advantages in service and distribution capability. One of their five major niches in the cabinetry business, worth $2.8 billion. Masco operates under the Kraft-Maid and Merillat brands. In this segment, the company operates nationwide. They sell to retail and wholesale customers.

Assessment

The company has not been successful in the past few years. Revenue has declined in each of the past four years. Profit has decreased in the past five years, and the company turned a loss in 2008. Part of the revenue declines can be attributed to removing certain business lines. The company's margins have declined over this period. Gross margin is 24.75%, down from 30.9% five years ago. The general trend in net margin is also downward, from 8.1% five years ago to a loss last year. The balance sheet shows that Masco has maintained strong liquidity. The current ratio was 2.05 in 2004; last year it was 2.13. The company's leverage has increased significantly as a result of their recent poor performance. The level of debt has actually decreased over the past five years, but the level of equity has decreased more quickly. Retained earnings peaked in 2005 at $4.2 billion, but have since declined to $2.1 billion.

Some of this poor performance reflects difficulty in the industry. However, Masco has underperformed even its struggling industry in the past five years. Masco has seen sales decline more than the industry average, as has net income. The company's margins have been better than those of the industry. Although the company is slightly more leveraged than the industry average, it has slightly better liquidity ratios. The company's returns, including ROI are better than the industry average, both last year and over the past five years. The company's turnover ratios are slightly better than the industry -- the asset turnover is better; inventory turn is better, but receivable turn is worse. Overall, Masco is struggling, but this is reflective of struggles in the industry as a whole. The company therefore is generally performing on par with the industry, or perhaps slightly more poorly.

With declining sales, and general industry malaise, Masco has struggled to perform. Despite a diversified product range, Masco has demonstrated that its products are not sufficiently differentiated in order to withstand the rigors of a slump in the housing market. Even with the congruence between Masco's different product lines, the strategy has not been a success. Masco share price has dropped significantly, equity has been eroded. Masco shares were worth over $35 as recently as January 2005 but now trades at $7.66.

Strength & Weaknesses

Masco has several strengths. These include its diversified product lines. They have five major businesses, each providing revenues in excess of $1 billion. This diversification provides insulation against downturn in any one market. These businesses have high synergy with one another. Another strength is the company's significant manufacturing facilities. This gives them the ability to expand, and gives them greater control over quality relative to many of their competitors. The company has a wide range of products and brands. These brands are generally strong in their own niches. These strong brands can be leverage for future success.