We are maintaining our Outperform recommendation on The Valspar Corporation (VAL), the sixth largest paint and coatings manufacturer globally. Its second-quarter fiscal 2012 earnings of 84 cents a share topped the Zacks Consensus Estimate by 3 cents.
Revenues rose 4% year over year to $1,032.6 million led by higher sales from the Minnesota-based company’s Coating segment. However, sales fell short of the Zacks Consensus Estimate.
The company witnessed improved margins in the quarter, supported by pricing, better productivity and synergies from restructuring. Valspar raised its earnings forecast for 2012 based on volume gains and effective cost management.
Valspar expects sales to benefit from the diverse mix of businesses and growth in the fast growing coatings markets in Asia and Latin America. The company has delivered solid earnings gains over the last few quarters, backed by increasing product prices, aggressive cost reductions and productivity gains.
Valspar is managing its cost well and maintaining a cost structure that is appropriate for the current external environment. It is making good progress in restoring its operating margins through pricing and improved productivity.
Valspar continues to make progress by way of winning new businesses. Its fastest-growing markets are the emerging economies, such as China. Winning new businesses is a company-wide focus that will position it well for the future and help offset lower demand in core markets.
We believe Valspar has a strong pipeline of new products and significant opportunities for share gains across its Paint and Coatings segments globally. The company is expected to benefit from its restructuring actions while maintaining its operational and pricing discipline.
We are more optimistic on Valspar’s long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories. New business wins and gradually improving domestic industrial markets are expected to support volume growth in the coatings franchise. The company’s paint business is expected to benefit from expanded traction of products aimed at the affordable housing market in China.Read the Full Research Report on PPG
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