Valspar Reports Fiscal 2014 Second-Quarter Results

  • Second quarter net sales increased 10 percent to $1.1 billion
  • Second quarter diluted EPS (as adjusted) $1.07, increased 18 percent versus prior year
  • Volumes increased 10 percent driven by strength in Coatings and Paints segments
  • Fiscal 2014 annual diluted EPS (as adjusted) guidance reaffirmed at $3.95 to $4.15

MINNEAPOLIS--()--The Valspar Corporation (NYSE:VAL) today reported second quarter 2014 net sales of $1.1 billion, an increase of 10 percent over the prior year. Reported net income and earnings per diluted share for the current year includes nonrecurring items, which are detailed in the “Reconciliation of Non-GAAP Financial Measures” included in this release. Second quarter 2014 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $93 million and $1.07, respectively. Second quarter 2013 adjusted net income and earnings per diluted share were $83 million and $0.91, respectively.

“We are pleased to report another strong quarter of volume and sales growth from both our Coatings and Paints segments,” said Gary E. Hendrickson, chairman and chief executive officer. “We are successfully executing our growth plans by integrating acquisitions, scaling new business wins and improving productivity. These efforts are evident in our results as sales for the first half of the fiscal year increased 9 percent and adjusted diluted EPS is up 17 percent. We remain focused on executing these initiatives to achieve our full year sales and earnings growth objectives.”

Net sales in the Paints segment increased 8 percent to $472 million in the second quarter of 2014. Volume increased in all geographic regions including the U.S., China and Australia. Volume growth in the U.S. increased over 10 percent. Paints segment adjusted earnings before interest and taxes (EBIT) of $57 million was down slightly from the prior year due to planned increases in advertising and marketing investments to support new retail programs in both the home improvement and independent hardware channels, and higher incentive compensation expense.

Net sales in the Coatings segment increased 12 percent to $603 million in the second quarter of 2014. Excluding acquisitions, volumes in the segment increased 4 percent. Volume growth was led by another quarter of increases in Packaging coatings and Wood coatings. General Industrial and Coil coatings volumes declined mid-single digits in the second quarter due to uneven end market demand and supply chain disruptions caused by inclement weather conditions in the U.S. Coatings segment adjusted EBIT of $101 million increased 21 percent as a result of acquisitions, increased volume, improved sales mix and productivity initiatives.

The company reaffirmed its full year diluted EPS (as adjusted) guidance of $3.95 to $4.15.

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/investors. 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, Monday, May 19, through midnight, Monday, June 2, 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 325132.

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; possible interruption, failure or compromise of the information systems we use to operate our business; 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Six Months Ended April 25, 2014 and April 26, 2013
(Dollars in thousands, except per share amounts)
               
Three Months Ended Six Months Ended
April 25, April 26, April 25, April 26,
      2014     2013     2014     2013
 
Net Sales $ 1,130,178 $ 1,031,219 $ 2,086,297 $ 1,906,461
Cost of Sales 741,151 685,997 1,372,111 1,266,888
Restructuring Charges - Cost of Sales 8,269 6,669 14,375 6,669
Gross Profit 380,758 338,553 699,811 632,904
Research and Development 35,585 34,161 66,143 66,435
Selling, General and Administrative 201,512 171,221 388,747 339,767
Restructuring Charges 587 2,651 6,287 2,651
Operating Expenses 237,684 208,033 461,177 408,853
Income From Operations 143,074 130,520 238,634 224,051
Interest Expense 15,756 15,988 31,688 31,861
Other (Income) Expense, Net 318 27 689 977
Income Before Income Taxes 127,000 114,505 206,257 191,213
Income Taxes 41,041 37,597 66,745 59,276
Net Income     $ 85,959     $ 76,908     $ 139,512     $ 131,937
 
 
Average Number of Shares O/S - basic 84,161,922 88,416,020 84,654,825 88,946,806
Average Number of Shares O/S - diluted 86,523,938 91,165,745 87,081,533 91,781,907
 
 
Net Income per Common Share - basic $ 1.02 $ 0.87 $ 1.65 $ 1.48
Net Income per Common Share - diluted $ 0.99 $ 0.84 $ 1.60 $ 1.44
 
 
THE VALSPAR CORPORATION
SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three and Six Months Ended April 25, 2014 and April 26, 2013
(Dollars in thousands)
               
Three Months Ended Six Months Ended
April 25, April 26, April 25, April 26,
      2014     2013     2014     2013
 

Coatings Segment1

Net Sales $ 602,599 $ 536,699 $ 1,151,184 $ 1,034,315
Earnings Before Interest and Taxes (EBIT) 98,047 80,236 168,022 154,576
 
Key Metrics (GAAP):
Sales Growth 12.3 % (0.7 %) 11.3 % (0.1 %)
EBIT, % of Net Sales 16.3 % 14.9 % 14.6 % 14.9 %
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ 100,686 $ 82,961 $ 179,281 $ 157,301
Adjusted EBIT, % of Net Sales 16.7 % 15.5 % 15.6 % 15.2 %
 

Paints Segment1

Net Sales $ 471,830 $ 437,954 $ 833,235 $ 767,033
EBIT 50,423 52,902 81,420 75,445
 
Key Metrics (GAAP):
Sales Growth 7.7 % 2.7 % 8.6 % 0.2 %
EBIT, % of Net Sales 10.7 % 12.1 % 9.8 % 9.8 %
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ 56,759 $ 59,089 $ 90,575 $ 81,632
Adjusted EBIT, % of Net Sales 12.0 % 13.5 % 10.9 % 10.6 %
 

Other and Administrative

Net Sales $ 55,749 $ 56,566 $ 101,878 $ 105,113
EBIT (5,714 ) (2,645 ) (11,497 ) (6,947 )
 
Key Metrics (GAAP):
Sales Growth (1.4 %) (14.0 %) (3.1 %) (10.5 %)
EBIT, % of Net Sales (10.2 %) (4.7 %) (11.3 %) (6.6 %)
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ (5,833 ) $ (2,237 ) $ (11,249 ) $ (6,539 )
Adjusted EBIT, % of Net Sales (10.5 %) (4.0 %) (11.0 %) (6.2 %)
 
 
1 Certain insignificant products formerly classified in the Paints segment are now classified in the Coatings segment.
 
2 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
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of April 25, 2014 and April 26, 2013
(Dollars in thousands)
     
April 25, April 26,
      2014   2013
           

Assets

Current Assets:
Cash and Cash Equivalents $ 116,503 $ 228,309
Restricted Cash 2,966 20,423
Accounts and Notes Receivable, Net 852,678 711,599
Inventories 497,579 432,837
Deferred Income Taxes 40,754 43,697
Prepaid Expenses and Other       112,018     94,810
Total Current Assets       1,622,498     1,531,675
Goodwill 1,144,042 1,070,557
Intangibles, Net 603,978 549,576
Other Assets 76,527 37,469
Long-Term Deferred Income Taxes 7,021 5,092
Property, Plant & Equipment, Net       638,096     553,262
Total Assets     $ 4,092,162   $ 3,747,631
 

Liabilities and Stockholders' Equity

Current Liabilities:
Short-term Debt $ 556,672 $ 328,133
Current Portion of Long-Term Debt - 31,615
Trade Accounts Payable 606,614 507,386
Income Taxes 33,810 22,634
Other Accrued Liabilities       382,000     330,116
Total Current Liabilities       1,579,096     1,219,884
Long Term Debt, Net of Current Portion 1,092,419 1,012,550
Deferred Income Taxes 238,664 217,137
Other Long-Term Liabilities       134,117     155,791
Total Liabilities       3,044,296     2,605,362
Stockholders' Equity       1,047,866     1,142,269
Total Liabilities and Stockholders' Equity     $ 4,092,162   $ 3,747,631
 
 
THE VALSPAR CORPORATION
SELECTED INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three and Six Months Ended April 25, 2014 and April 26, 2013
(Dollars in thousands)
               
Three Months Ended Six Months Ended
April 25, April 26, April 25, April 26,
      2014     2013     2014     2013
 
Depreciation and Amortization $ 24,492 $ 21,608 $ 52,634 $ 42,177
 
Capital Expenditures 29,630 16,155 50,621 30,105
 
Dividends Paid 21,954 20,441 44,180 41,120
 
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Three Months Ended April 25, 2014 and April 26, 2013
(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 Three Months Ended
April 25, 2014 April 26, 2013
      Dollars     % of Net Sales     Dollars     % of Net Sales
 

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 98,047 16.3 % $ 80,236 14.9 %
Restructuring Charges - Cost of Sales 2,468 0.4 % 2,414 0.4 %
Restructuring Charges - Operating Expense   171   0.0 %   311   0.1 %
Adjusted EBIT $ 100,686 16.7 % $ 82,961 15.5 %
 

Paints Segment

EBIT $ 50,423 10.7 % $ 52,902 12.1 %
Restructuring Charges - Cost of Sales 5,828 1.2 % 4,255 1.0 %
Restructuring Charges - Operating Expense   508   0.1 %   1,932   0.4 %
Adjusted EBIT $ 56,759 12.0 % $ 59,089 13.5 %
 

Other and Administrative

EBIT $ (5,714 ) (10.2 %) $ (2,645 ) (4.7 %)
Restructuring Charges - Cost of Sales (27 ) (0.0 %) - 0.0 %
Restructuring Charges - Operating Expense   (92 ) (0.2 %)   408   0.7 %
Adjusted EBIT $ (5,833 ) (10.5 %) $ (2,237 ) (4.0 %)
 

Total

Gross Profit $ 380,758 33.7 % $ 338,553 32.8 %
Restructuring Charges - Cost of Sales   8,269   0.7 %   6,669   0.6 %
Adjusted Gross Profit $ 389,027 34.4 % $ 345,222 33.5 %
 
Operating Expenses $ 237,684 21.0 % $ 208,033 20.2 %
Restructuring Charges - Operating Expense   (587 ) (0.1 %)   (2,651 ) (0.3 %)
Adjusted Operating Expenses $ 237,097 21.0 % $ 205,382 19.9 %
 
EBIT $ 142,756 12.6 % $ 130,493 12.7 %
Restructuring Charges - Total   8,856   0.8 %   9,320   0.9 %
Adjusted EBIT $ 151,612 13.4 % $ 139,813 13.6 %
 
Net Income $ 85,959 $ 76,908
After Tax Restructuring Charges - Total   6,661     6,415  
Adjusted Net Income $ 92,620 $ 83,323
 
Net Income per Common Share - diluted $ 0.99 $ 0.84
Restructuring Charges - Total   0.08     0.07  
Adjusted Net Income per Common Share - diluted $ 1.07 $ 0.91
 
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Six Months Ended April 25, 2014 and April 26, 2013
(Dollars in thousands, except per share amounts)
               
Six Months Ended Six Months Ended
April 25, 2014 April 26, 2013
      Dollars     % of Net Sales     Dollars     % of Net Sales
 

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 168,022 14.6 % $ 154,576 14.9 %
Restructuring Charges - Cost of Sales 6,733 0.6 % 2,414 0.2 %
Restructuring Charges - Operating Expense   4,526   0.4 %   311   0.0 %
Adjusted EBIT $ 179,281 15.6 % $ 157,301 15.2 %
 

Paints Segment

EBIT $ 81,420 9.8 % $ 75,445 9.8 %
Restructuring Charges - Cost of Sales 7,603 0.9 % 4,255 0.6 %
Restructuring Charges - Operating Expense   1,552   0.2 %   1,932   0.3 %
Adjusted EBIT $ 90,575 10.9 % $ 81,632 10.6 %
 

Other and Administrative

EBIT $ (11,497 ) (11.3 %) $ (6,947 ) (6.6 %)
Restructuring Charges - Cost of Sales 39 0.0 % - 0.0 %
Restructuring Charges - Operating Expense   209   0.2 %   408   0.4 %
Adjusted EBIT $ (11,249 ) (11.0 %) $ (6,539 ) (6.2 %)
 

Total

Gross Profit $ 699,811 33.5 % $ 632,904 33.2 %
Restructuring Charges - Cost of Sales   14,375   0.7 %   6,669   0.3 %
Adjusted Gross Profit $ 714,186 34.2 % $ 639,573 33.5 %
 
Operating Expenses $ 461,177 22.1 % $ 408,853 21.4 %
Restructuring Charges - Operating Expense   (6,287 ) (0.3 %)   (2,651 ) (0.1 %)
Adjusted Operating Expenses $ 454,890 21.8 % $ 406,202 21.3 %
 
EBIT $ 237,945 11.4 % $ 223,074 11.7 %
Restructuring Charges - Total   20,662   1.0 %   9,320   0.5 %
Adjusted EBIT $ 258,607 12.4 % $ 232,394 12.2 %
 
Net Income $ 139,512 $ 131,937
After Tax Restructuring Charges - Total   14,242     6,415  
Adjusted Net Income $ 153,754 $ 138,352
 
Net Income per Common Share - diluted $ 1.60 $ 1.44
Restructuring Charges - Total   0.17     0.07  
Adjusted Net Income per Common Share - diluted $ 1.77 $ 1.51
 

Reconciliation of Fiscal 2014 Annual Adjusted Diluted EPS Guidance

Diluted EPS Guidance $ 3.68 - $3.83
Restructuring Charges   0.27 - 0.32  
Adjusted Diluted EPS Guidance $ 3.95 - $4.15
 

Contacts

The Valspar Corporation
Investor Contact:
Tyler Treat, 612-851-7358
ttreat@valspar.com

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Contacts

The Valspar Corporation
Investor Contact:
Tyler Treat, 612-851-7358
ttreat@valspar.com