Valspar Misses Estimates in 1Q

Zacks

Leading paint and coatings maker The Valspar Corporation’s (VAL) first-quarter fiscal 2013 (ended Jan 25, 2013) earnings of 60 cents per share missed the Zacks Consensus Estimate of 66 cents but were ahead of the year-ago quarter earnings of 58 cents per share. Excluding restructuring charges of 4 cents a share, earnings were 62 cents a year ago. The company did not incur any one-time charge in the reported quarter.

Revenues

Sales were down 1.2% year over year to $875.2 million in the first quarter, missing the Zacks Consensus Estimate of $916 million.

Sales from the Minneapolis-based company’s larger Coatings segment edged up 0.6% to $497.6 million in the quarter. Sales benefited from new business which helped to offset the weak market conditions. Paints segment revenues declined 3.1% to $329.1 million in the quarter.

Margins and Expenses

Gross margin (as reported) increased to 33.6% in the reported quarter from 33.1% a year ago. Adjusted gross margin rose to 33.6% from 33.5% in the prior-year quarter. Operating expenses (as a percentage of sales) were 22.9%, up modestly from 22.6% last year, impacted by lower sales and investments made to support new business growth.

Cost of sales fell 1.9% year over year to $580.9 million. Research and development expenses dropped 14.5% year over year to $30.8 million in the quarter. Selling, general and administrative expenses decreased 3.2% to $170 million.

Financial Condition

As of Jan 25, 2013, cash and cash equivalents amounted to $248.6 million compared with $305.7 million as of Jan 27, 2012. Long-term debt declined 5.1% year over year to roughly $1,012.6 million.

Outlook

Moving ahead, Valspar anticipates weak demand in certain international markets. It has reduced its earnings forecast for fiscal 2013 to $3.60 to $3.80 per share from $3.65 to $3.85 per share. The company remains optimistic that it will achieve its new business plans for 2013.

Our Take

Valspar has a strong pipeline of new products and significant opportunities for share gains in both its Paint and Coatings segments globally. The company should also benefit from its restructuring actions while maintaining its operational and pricing discipline. However, we are concerned about cost pressures associated with raw material inflation.

Another coatings company PPG Industries Inc. (PPG) released its fourth-quarter 2012 results last month. The company met earnings expectations and continued momentum across automotive OEM and aerospace markets helped it to post better-than-expected sales in the quarter.

Sherwin-Williams (SHW), in Jan 2013, came out with better-than-expected results in the fourth quarter. Higher paint sales volume and pricing led to an increase in its revenues. The company’s Paint Stores Group division posted healthy results in the quarter.

Valspar currently retains a short-term Zacks Rank #2 (Buy).

Another paint maker having a favorable Zacks Rank is Akzo Nobel NV (AKZOY). It holds a Zacks Rank #2 (Buy).
 

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