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Valspar Reports Fiscal 2013 Second-Quarter Results
  • Volumes increased 7% in the second quarter (3% excluding Ace volumes)
  • Second quarter net sales of $1.03 billion, flat to prior year
  • Paints segment net sales in North America increased 13%
  • Second quarter adjusted earnings per diluted share of $0.91, increased 8% over prior year
  • Maintaining Fiscal 2013 EPS guidance (as adjusted) of $3.60 to $3.80

MINNEAPOLIS--(BUSINESS WIRE)--May. 14, 2013-- The Valspar Corporation (NYSE: VAL) today reported second quarter 2013 net sales of $1.03 billion, equal to 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. Second quarter 2013 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $83 million and $0.91, respectively. Second quarter 2012 adjusted net income and earnings per diluted share were $80 million and $0.84, respectively.

“Strong volume growth in the quarter was driven by new business wins. The seven percent growth in total volumes, inclusive of Ace volumes, was a significant accomplishment especially given the uneven demand this year in several markets,” said Gary E. Hendrickson, chairman and chief executive officer. “We saw improving momentum in the U.S., driven by solid performance in our consumer paints, packaging, wood and coil product lines. The strengthening U.S. housing market, coupled with our continued new business initiatives, should provide further improvements in the second half of the year. We are affirming our full year adjusted EPS guidance of $3.60 to $3.80.”

Net sales in the Paints segment increased 3% to $438 million in the quarter, primarily due to volume and sales growth in North America. Paints segment adjusted earnings before interest and taxes (EBIT) increased 11% to $59.1 million, driven by higher sales volume. Paints segment adjusted EBIT margins increased approximately 100 bps to 13.5%.

Net sales in the Coatings segment declined 1% to $537 million. Sales growth in packaging, wood and coil coatings was offset by lower demand in the general industrial product line, primarily for off-road equipment, shipping container and pipeline coatings products. Coatings segment adjusted EBIT decreased 8% to $83 million. Coatings segment adjusted EBIT margins decreased in the quarter by approximately (110 bps) to 15.5%.

The company also announced restructuring actions primarily focused on improving its North American paint manufacturing footprint following the Ace paint acquisition and to continue improving profitability in its Australian business. These actions are expected to result in total non-recurring charges estimated at $18 to $23 million (after tax) in fiscal 2013 and 2014. In addition, approximately $30 million of the company’s planned capital spending will be used to support facility consolidations, production line transfers and efficiency improvements. When fully implemented, these actions are expected to generate annual savings of approximately $0.10 per diluted share by fiscal 2015.

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, May 14th through midnight, Tuesday, May 28th 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 291954.

About The Valspar Corporation

The Valspar Corporation (NYSE: 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, visit www.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 Six Months Ended April 26, 2013 and April 27, 2012
(Dollars in thousands, except per share amounts)
       
Three Months Ended Six Months Ended
    April 26,
2013
  April 27,
2012
  April 26,
2013
  April 27,
2012
 
Net Sales $ 1,031,219 $ 1,032,572 $ 1,906,461 $ 1,918,219
Cost of Sales 685,997 675,426 1,266,888 1,264,803
Restructuring Charges - Cost of Sales     6,669     1,706     6,669     4,660  
Gross Profit     338,553     355,440     632,904     648,756  
Research and Development 32,199 29,442 62,982 56,335
Selling, General and Administrative 173,183 192,618 343,220 366,183
Restructuring Charges     2,651     2,712     2,651     4,855  
Operating Expenses     208,033     224,772     408,853     427,373  
Income From Operations     130,520     130,668     224,051     221,383  
Interest Expense 15,988 19,288 31,861 35,077
Other (Income) Expense, Net     27     366     977     (156 )
Income Before Income Taxes     114,505     111,014     191,213     186,462  
Income Taxes     37,597     34,474     59,276     54,140  
Net Income   $ 76,908   $ 76,540   $ 131,937   $ 132,322  
 
                 
Average Number of Shares O/S - basic 88,416,020 92,068,366 88,946,806 92,464,748
Average Number of Shares O/S - diluted     91,165,745     95,094,369     91,781,907     95,342,549  
 
                 
Net Income per Common Share - basic $ 0.87 $ 0.83 $ 1.48 $ 1.43
Net Income per Common Share - diluted   $ 0.84   $ 0.80   $ 1.44   $ 1.39  
 
THE VALSPAR CORPORATION
SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three and Six Months Ended April 26, 2013 and April 27, 2012
(Dollars in thousands)
       
Three Months Ended Six Months Ended
    April 26,
2013
  April 27,
2012
  April 26,
2013
  April 27,
2012
 

Coatings Segment

Net Sales $ 536,699 $ 540,488 $ 1,034,315 $ 1,034,861
Earnings Before Interest and Taxes (EBIT) 80,236 89,183 154,576 163,052
 
Key Metrics (GAAP):
Sales Growth (0.7 %) 6.2 % (0.1 %) 7.2 %
EBIT, % of Net Sales 14.9 % 16.5 % 14.9 % 15.8 %
 
Key Metrics (non-GAAP)1:
Adjusted EBIT $ 82,961 $ 89,829 $ 157,301 $ 164,087
Adjusted EBIT, % of Net Sales 15.5 % 16.6 % 15.2 % 15.9 %

 

Paints Segment

Net Sales $ 437,954 $ 426,311 $ 767,033 $ 765,868
EBIT 52,902 49,322 75,445 72,687
 
Key Metrics (GAAP):
Sales Growth 2.7 % 1.9 % 0.2 % 1.5 %
EBIT, % of Net Sales 12.1 % 11.6 % 9.8 % 9.5 %
 
Key Metrics (non-GAAP)1:
Adjusted EBIT $ 59,089 $ 53,094 $ 81,632 $ 80,485
Adjusted EBIT, % of Net Sales 13.5 % 12.5 % 10.6 % 10.5 %
 

Other and Administrative

Net Sales $ 56,566 $ 65,773 $ 105,113 $ 117,490
EBIT (2,645 ) (8,203 ) (6,947 ) (14,200 )
 
Key Metrics (GAAP):
Sales Growth (14.0 %) 0.9 % (10.5 %) 1.9 %
EBIT, % of Net Sales (4.7 %) (12.5 %) (6.6 %) (12.1 %)
 
Key Metrics (non-GAAP)1:
Adjusted EBIT $ (2,237 ) $ (8,203 ) $ (6,539 ) $ (13,518 )
Adjusted EBIT, % of Net Sales (4.0 %) (12.5 %) (6.2 %) (11.5 %)
 

   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 April 26, 2013 and April 27, 2012
(Dollars in thousands)
   
    April 26,
2013
  April 27,
2012
         

Assets

Current Assets:
Cash and Cash Equivalents $ 228,309 $ 208,491
Restricted Cash 20,423 21,309
Accounts and Notes Receivable, Net 711,599 738,706
Inventories 432,837 391,562
Deferred Income Taxes 43,697 49,303
Prepaid Expenses and Other     94,810     86,812
Total Current Assets     1,531,675     1,496,183
Goodwill 1,070,557 1,064,189
Intangibles, Net 549,576 555,654
Other Assets 37,469 20,382
Long-Term Deferred Income Taxes 5,092 1,936
Property, Plant & Equipment, Net     553,262     540,926
Total Assets   $ 3,747,631   $ 3,679,270
 

Liabilities and Stockholders' Equity

Current Liabilities:
Short-term Debt $ 328,133 $ 9,138
Current Portion of Long-Term Debt 31,615 200,000
Trade Accounts Payable 507,386 471,471
Income Taxes 22,634 27,433
Other Accrued Liabilities     330,116     347,156
Total Current Liabilities     1,219,884     1,055,198
Long Term Debt, Net of Current Portion 1,012,550 1,061,875
Deferred Income Taxes 217,137 210,352
Other Long-Term Liabilities     155,791     139,893
Total Liabilities     2,605,362     2,467,318
Stockholders' Equity     1,142,269     1,211,952
Total Liabilities and Stockholders' Equity   $ 3,747,631   $ 3,679,270
 

THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)

For the Three Months Ended April 26, 2013 and April 27, 2012
(Dollars in thousands, except per share amounts)

 
The following information provides reconciliations of non-GAAP financial measures from operations presented in the accompanying news release to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The company has provided non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the accompanying news release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the news release. The non-GAAP financial measures in the accompanying news release may differ from similar measures used by other companies. The following tables reconcile gross profit, operating expense, earning before interest and taxes (EBIT), net income, net income per common share - diluted, and diluted earnings per share (EPS) guidance for the periods presented (GAAP financial measures) to adjusted gross profit, adjusted operating expense, adjusted earning before interest and taxes (EBIT), adjusted net income, adjusted net income per common share - diluted, and adjusted diluted earnings per share (EPS) guidance (non-GAAP financial measures) for the periods presented.
 
  Three Months Ended
April 26, 2013
  Three Months Ended
April 27, 2012
    Dollars   % of Net Sales   Dollars   % of Net Sales
   

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 80,236 14.9 % $ 89,183 16.5 %
Restructuring Charges - Cost of Sales 2,414 0.4 % 343 0.1 %
Restructuring Charges - Operating Expense   311   0.1 %   303   0.1 %
Adjusted EBIT $ 82,961 15.5 % $ 89,829 16.6 %
 

Paints Segment

EBIT $ 52,902 12.1 % $ 49,322 11.6 %
Restructuring Charges - Cost of Sales 4,255 1.0 % 1,363 0.3 %
Restructuring Charges - Operating Expense   1,932   0.4 %   2,409   0.6 %
Adjusted EBIT $ 59,089 13.5 % $ 53,094 12.5 %
 

Other and Administrative

EBIT $ (2,645 ) (4.7 %) $ (8,203 ) (12.5 %)
Restructuring Charges - Cost of Sales - 0.0 % - 0.0 %
Restructuring Charges - Operating Expense   408   0.7 %   -   0.0 %
Adjusted EBIT $ (2,237 ) (4.0 %) $ (8,203 ) (12.5 %)
 

Total

Gross Profit $ 338,553 32.8 % $ 355,440 34.4 %
Restructuring Charges - Cost of Sales   6,669   0.6 %   1,706   0.2 %
Adjusted Gross Profit $ 345,222 33.5 % $ 357,146 34.6 %
 
Operating Expenses $ 208,033 20.2 % $ 224,772 21.8 %
Restructuring Charges - Operating Expense   (2,651 ) (0.3 %)   (2,712 ) (0.3 %)
Adjusted Operating Expenses $ 205,382 19.9 % $ 222,060 21.5 %
 
EBIT $ 130,493 12.7 % $ 130,302 12.6 %
Restructuring Charges - Total   9,320   0.9 %   4,418   0.4 %
Adjusted EBIT $ 139,813 13.6 % $ 134,720 13.0 %
 
Net Income $ 76,908 $ 76,540
After Tax Restructuring Charges - Total   6,415     3,293  
Adjusted Net Income $ 83,323 $ 79,833
 
Net Income per Common Share - diluted $ 0.84 $ 0.80
Restructuring Charges - Total   0.07     0.04  
Adjusted Net Income per Common Share - diluted $ 0.91 $ 0.84
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Six Months Ended April 26, 2013 and April 27, 2012
(Dollars in thousands, except per share amounts)
       
Six Months Ended
April 26, 2013
Six Months Ended
April 27, 2012
    Dollars   % of Net Sales   Dollars   % of Net Sales
 

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 154,576 14.9 % $ 163,052 15.8 %
Restructuring Charges - Cost of Sales 2,414 0.2 % 620 0.1 %
Restructuring Charges - Operating Expense   311   0.0 %   415   0.0 %
Adjusted EBIT $ 157,301 15.2 % $ 164,087 15.9 %

 

Paints Segment

EBIT $ 75,445 9.8 % $ 72,687 9.5 %
Restructuring Charges - Cost of Sales 4,255 0.6 % 4,040 0.5 %
Restructuring Charges - Operating Expense   1,932   0.3 %   3,758   0.5 %
Adjusted EBIT $ 81,632 10.6 % $ 80,485 10.5 %
 

Other and Administrative

EBIT $ (6,947 ) (6.6 %) $ (14,200 ) (12.1 %)
Restructuring Charges - Cost of Sales - 0.0 % - 0.0 %
Restructuring Charges - Operating Expense   408   0.4 %   682   0.6 %
Adjusted EBIT $ (6,539 ) 6.2 % $ (13,518 ) (11.5 %)
 

Total Valspar

Gross Profit $ 632,904 33.2 % $ 648,756 33.8 %
Restructuring Charges - Cost of Sales   6,669   0.3 %   4,660   0.2 %
Adjusted Gross Profit $ 639,573 33.5 % $ 653,416 34.1 %
 
Operating Expenses $ 408,853 21.4 % $ 427,373 22.3 %
Restructuring Charges - Operating Expense   (2,651 ) (0.1 %)   (4,855 ) (0.3 %)
Adjusted Operating Expenses $ 406,202 21.3 % $ 422,518 22.0 %
 
EBIT $ 223,074 11.7 % $ 221,539 11.5 %
Restructuring Charges - Total   9,320   0.5 %   9,515   0.5 %
Adjusted EBIT $ 232,394 12.2 % $ 231,054 12.0 %
 
Net Income $ 131,937 $ 132,322
After Tax Restructuring Charges - Total   6,415     6,817  
Adjusted Net Income $ 138,352 $ 139,139
 
Net Income per Common Share - diluted $ 1.44 $ 1.39
Restructuring Charges - Total   0.07     0.07  
Adjusted Net Income per Common Share - diluted $ 1.51 $ 1.46
 
 

Reconciliation of Fiscal 2013 Annual Adjusted Diluted EPS Guidance

Diluted EPS Guidance $3.45 - $3.65
Restructuring Charges $0.15
Adjusted Diluted EPS Guidance $3.60 - $3.80

Source: The Valspar Corporation

The Valspar Corporation
Mark Goldman, 612-851-7802 (Media)
news@valspar.com
Tyler Treat, 612-851-7358 (Investors)
ttreat@valspar.com


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