Valspar Reports Fiscal 2013 Third-Quarter Results

Valspar Reports Fiscal 2013 Third-Quarter Results

  • Volumes increased 7% in the third quarter (4% excluding new Ace paint volumes)

  • Strong performance in the U.S. where volumes increased double digits, driven by growth in consumer paints, packaging, coil and wood product lines

  • Challenging demand in the general industrial market and macro-economic headwinds in international regions constrains overall business results

  • Updating fiscal 2013 EPS guidance (as adjusted) to $3.45 to $3.55

MINNEAPOLIS--(BUSINESS WIRE)-- The Valspar Corporation (NYS: VAL) today reported third quarter 2013 net sales of $1.1 billion, up 1% versus the prior year. Reported net income and earnings per diluted share for the current and prior year include several nonrecurring items, which are detailed in the "Reconciliation of Non-GAAP Financial Measures" included in this release. Third quarter 2013 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $96 million and $1.07 respectively. Third quarter 2012 adjusted net income and earnings per diluted share were $91 million and $0.97, respectively.

"We continue to drive strong volume growth from our new business initiatives in the consumer paint, packaging and wood product lines," said Gary E. Hendrickson, chairman and chief executive officer. "However, sales and earnings finished slightly below our expectations for the quarter due to continued macro-economic headwinds in key general industrial market segments and certain international regions. Based on our third quarter results and the anticipated impact of these trends, we have updated our annual adjusted EPS guidance to $3.45 to $3.55. We continue to expect improved sales and earnings growth in the fourth quarter, but not at the level we had anticipated earlier in the year."


Net sales in the Paints segment increased 3% to $455 million in the quarter, driven by strength in U.S. and China. Paints segment adjusted earnings before interest and taxes (EBIT) decreased 0.5% to $52 million, due to increased investments in long-term growth initiatives. Paints segment adjusted EBIT margins decreased approximately (40) bps to 11.5%.

Net sales in the Coatings segment increased 1% to $573 million. Sales growth in packaging, coil and wood product lines was offset by lower demand in the general industrial product line, primarily in coatings for off-road equipment and shipping containers. Coatings segment adjusted EBIT increased 3% to $101 million driven by leverage on increased volumes. Coatings segment adjusted EBIT margins increased in the quarter by approximately 40 bps to 17.6%.

An earnings conference call is scheduled for 11:00 a.m. Eastern Time (10:00 a.m. Central Time) today and will be webcast and accessible from the Investor Relations section of Valspar's website at www.valsparglobal.com. Those unable to participate during the live broadcast can access an archive of the call on the Valspar website. An audio replay of the call will be available from 12:30 p.m. Central Time, Tuesday, August 13th through midnight, Tuesday, August 27th by dialing +1 800-475-6701 from within the U.S. or +1 (320) 365-3844 from outside of the U.S., using access code 299293.

About The Valspar Corporation

The Valspar Corporation (NYS: VAL) is a global leader in the paint and coatings industry. Since 1806, Valspar has been dedicated to bringing customers the latest innovations, the finest quality and the best customer service in the coatings industry. For more information, visitwww.valsparglobal.com.

FORWARD-LOOKING STATEMENTS

Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are based on management's current expectations, estimates, assumptions and beliefs about future events, conditions and financial performance. Forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from such statements. Any statement that is not historical in nature is a forward-looking statement. We may identify forward-looking statements with words and phrases such as "expects," "projects," "estimates," "anticipates," "believes," "could," "may," "will," "plans to," "intend," "should" and similar expressions.These risks, uncertainties and other factors include, but are not limited to, deterioration in general economic conditions, both domestic and international, that may adversely affect our business; fluctuations in availability and prices of raw materials, including raw material shortages and other supply chain disruptions, and the inability to pass along or delays in passing along raw material cost increases to our customers; dependence of internal sales and earnings growth on business cycles affecting our customers and growth in the domestic and international coatings industry; market share loss to, and pricing or margin pressure from, larger competitors with greater financial resources; significant indebtedness that restricts the use of cash flow from operations for acquisitions and other investments; dependence on acquisitions for growth, and risks related to future acquisitions, including adverse changes in the results of acquired businesses, the assumption of unforeseen liabilities and disruptions resulting from the integration of acquisitions; risks and uncertainties associated with operations and achievement of profitable growth in developing markets, including Asia and Central and South America; loss of business with key customers; damage to our reputation and business resulting from product claims or recalls, litigation, customer perception and other matters; our ability to respond to technology changes and to protect our technology; changes in governmental regulation, including more stringent environmental, health and safety regulations; our reliance on the efforts of vendors, government agencies, utilities and other third parties to achieve adequate compliance and avoid disruption of our business; unusual weather conditions adversely affecting sales; changes in accounting policies and standards and taxation requirements such as new tax laws or revised tax law interpretations; the nature, cost and outcome of pending and future litigation and other legal proceedings; and civil unrest and the outbreak of war and other significant national and international events. We undertake no obligation to subsequently revise any forward-looking statement to reflect new information, events or circumstances after the date of such statement, except as required by law.

THE VALSPAR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three and Nine Months Ended July 26, 2013 and July 27, 2012

(Dollars in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

July 26,

July 27,

July 26,

July 27,

2013

2012

2013

2012

Net Sales

$

1,089,013

$

1,078,348

$

2,995,474

$

2,996,567

Cost of Sales

718,000

710,086

1,984,888

1,974,889

Restructuring Charges - Cost of Sales

1,652

4,312

8,321

8,972

Gross Profit

369,361

363,950

1,002,265

1,012,706

Research and Development

30,073

29,703

93,055

86,038

Selling, General and Administrative

182,118

189,325

525,338

555,508

Restructuring Charges

838

2,552

3,489

7,407

Acquisition-related Charges

758

-

758

-

Operating Expenses

213,787

221,580

622,640

648,953

Income From Operations

155,574

142,370

379,625

363,753

Interest Expense

16,000

16,482

47,861

51,559

Other (Income) Expense, Net

1,065

(1,056

)

2,042

(1,212

)

Income Before Income Taxes

138,509

126,944

329,722

313,406

Income Taxes

44,701

40,538

103,977

94,678

Net Income

$

93,808

$

86,406

$

225,745

$

218,728

Average Number of Shares O/S - basic

87,227,248

90,601,291

88,373,620

91,843,596

Average Number of Shares O/S - diluted

89,910,681

93,573,205

91,163,437

94,775,436

Net Income per Common Share - basic

$

1.08

$

0.95

$

2.55

$

2.38

Net Income per Common Share - diluted

$

1.04

$

0.92

$

2.48

$

2.31

THE VALSPAR CORPORATION

SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)

For the Three and Nine Months Ended July 26, 2013 and July 27, 2012

(Dollars in thousands)

Three Months Ended

Nine Months Ended

July 26,

July 27,

July 26,

July 27,

2013

2012

2013

2012

Coatings Segment

Net Sales

$

572,837

$

569,446

$

1,607,152

$

1,604,307

Earnings Before Interest and Taxes (EBIT)

99,026

98,238

253,602

261,290

Key Metrics (GAAP):

Sales Growth

0.6

%

1.5

%

0.2

%

5.1

%

EBIT, % of Net Sales

17.3

%

17.3

%

15.8

%

16.3

%

Key Metrics (non-GAAP)1:

Adjusted EBIT

$

101,026

$

98,099

$

258,327

$

262,186

Adjusted EBIT, % of Net Sales

17.6

%

17.2

%

16.1

%

16.3

%

Paints Segment

Net Sales

$

454,969

$

442,576

$

1,222,002

$

1,208,444

EBIT

50,761

48,819

126,206

121,506

Key Metrics (GAAP):

Sales Growth

2.8

%

0.2

%

1.1

%

1.1

%

EBIT, % of Net Sales

11.2

%

11.0

%

10.3

%

10.1

%

Key Metrics (non-GAAP)1:

Adjusted EBIT

$

52,251

$

52,532

$

133,883

$

133,017

Adjusted EBIT, % of Net Sales

11.5

%

11.9

%

11.0

%

11.0

%

Other and Administrative

Net Sales

$

61,207

$

66,326

$

166,320

$

183,816

EBIT

4,722

(3,631

)

(2,225

)

(17,831

)

Key Metrics (GAAP):

Sales Growth

(7.7

%)

(2.7

%)

(9.5

%)

0.2

%

EBIT, % of Net Sales

7.7

%

(5.5

%)

(1.3

%)

(9.7

%)

Key Metrics (non-GAAP)1:

Adjusted EBIT

$

4,480

$

(341

)

$

(2,059

)

$

(13,859

)

Adjusted EBIT, % of Net Sales

7.3

%

(0.5

%)

(1.2

%)

(7.5

%)

1 The information on this page includes non-GAAP financial measures. Please refer to the "RECONCILIATION

OF NON-GAAP FINANCIAL MEASURES" included in this release for detailed information.

THE VALSPAR CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of July 26, 2013 and July 27, 2012

(Dollars in thousands)

July 26,

July 27,

2013

2012

Assets

Current Assets:

Cash and Cash Equivalents

$

349,142

$

181,478

Restricted Cash

13,539

19,828

Accounts and Notes Receivable, Net

716,033

745,933

Inventories

416,749

377,226

Deferred Income Taxes

37,791

47,720

Prepaid Expenses and Other

102,656

91,609

Total Current Assets

1,635,910

1,463,794

Goodwill

1,065,071

1,050,942

Intangibles, Net

549,468

547,604

Other Assets

32,595

18,876

Long-Term Deferred Income Taxes

4,903

1,916

Property, Plant & Equipment, Net

555,568

541,978

Total Assets