It's Time To Shut The Door On Masonite International After having risen more than 200% from the pandemic low it is time to shut the door on Masonite International (NYSE: DOOR). That is not a judgment of the company...

Masonite International Growth Outlook Is Priced In

After having risen more than 200% from the pandemic low it is time to shut the door on Masonite International (NYSE: DOOR). That is not a judgment of the company or its health but a simple statement of truth that we see in the charts. The technical outlook points to another drop in prices that could take the stock down to the $80 or $70 level before the bottom is found. Underlying that move is another fundamental truth, Masonite International is still growing but it's all because of inflation. The top line is growing because selling prices rose enough to offset a decline in volume and there is worse news. The increase in prices didn't offset the full impact of inflation, margins contracted, and there is weakness in both the bottom-line results and the outlook for next year.

Headwinds Impair Results For Masonite International

Masonite International did not have a poor quarter per se but the results are well below expectations even considering the extra week in the previous year's quarter. In our view, the analysts have surely accounted for the difference which makes the shortfall versus the Marketbeat.com consensus for revenue and earnings all the more severe. The company reported $636 million in net revenue which is good for a gain of 2.8% over last year but missed the consensus by 740 basis points. The shortfall is also blamed on labor shortages and supply disruptions which are not likely to ease until the middle of this year.

In terms of pricing and volume, pricing increased an average of 14% across the product line to offset the 10% decline in volume. The decline in volume is partly due to the loss of the week but is still of concern given the underlying strength in the housing market. The increase in prices is more so because it is part of a larger problem, that of rapidly accelerating home prices and building costs and their impact on the overall housing market, and we expect to see more price increases this year.

On the bottom line, the company reported a GAAP loss due to impairment charges related to the architectural segment and pension-related charges that are not expected to persist. On an adjusted basis, the $2.01 is up in the 1 and 2-year comparisons but fell short of the consensus by $0.21 or nearly 1000 basis points.

Masonite Increases Its Capital Return Program

Masonite International doesn't pay a dividend but it does repurchase shares and upped the allotment with the release of Q4 results. The new buyback is worth $300 million or 12.8% of the market cap with shares trading near $92.25 and that includes $100 million of accelerated repurchases that are expected to be completed in the first quarter of the year. Looking at the balance sheet, the debt and coverage ratios are starting to get out of balance so we have some concerns about the future of buybacks once the new allotment is completed.

The Technical Outlook: Masonite International Is Ready To Fall

Shares of Masonite International started the week with a gap higher but quickly fell to 5.0% below the previous week's close. If this action keeps up the stock will form a clear continuation signal that could lead it down to the $80 and $70 levels if not lower. If, however, support is able to keep price action above the $90 into the end of the week the stock may enter a trading range.