Valspar Reports Fiscal 2013 Third-Quarter Results

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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 EndedNine 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 Sales718,000710,0861,984,8881,974,889
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 Development30,07329,70393,05586,038
Selling, General and Administrative182,118189,325525,338555,508
Restructuring Charges8382,5523,4897,407
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 Expense16,00016,48247,86151,559
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 - basic87,227,24890,601,29188,373,62091,843,596
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 EndedNine 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)99,02698,238253,602261,290
 
Key Metrics (GAAP):
Sales Growth0.6%1.5%0.2%5.1%
EBIT, % of Net Sales17.3%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 Sales17.6%17.2%16.1%16.3%
 

Paints Segment

Net Sales$454,969$442,576$1,222,002$1,208,444
EBIT50,76148,819126,206121,506
 
Key Metrics (GAAP):
Sales Growth2.8%0.2%1.1%1.1%
EBIT, % of Net Sales11.2%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 Sales11.5%11.9%11.0%11.0%
 

Other and Administrative

Net Sales$61,207$66,326$166,320$183,816
EBIT4,722(3,631)(2,225)(17,831)
 
Key Metrics (GAAP):
Sales Growth(7.7%)(2.7%)(9.5%)0.2%
EBIT, % of Net Sales7.7%(5.5%)(1.3%)(9.7%)
 
Key Metrics (non-GAAP)1:
Adjusted EBIT$4,480$(341)$(2,059)$(13,859)
Adjusted EBIT, % of Net Sales7.3%(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 Cash13,53919,828
Accounts and Notes Receivable, Net716,033745,933
Inventories416,749377,226
Deferred Income Taxes37,79147,720
Prepaid Expenses and Other   102,656  91,609
Total Current Assets   1,635,910  1,463,794
Goodwill1,065,0711,050,942
Intangibles, Net549,468547,604
Other Assets32,59518,876
Long-Term Deferred Income Taxes4,9031,916
Property, Plant & Equipment, Net   555,568  541,978
Total Assets   Read Full Story

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