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Mixed 4Q for Valspar

Zacks Equity Research

Leading paint and coatings maker The Valspar Corporation’s (VAL) fourth-quarter fiscal 2012 (ended on Oct 26) adjusted (excluding restructuring expenses) earnings of 86 cents per share beat the Zacks Consensus Estimate by a penny and exceeded the year-ago quarter earnings of 84 cents per share.

The company reported a profit of $73.8 million or 79 cents a share in the quarter, in contrast to a loss of $295.7 million or $3.18 per share incurred in the year-ago quarter. The results were aided by its focus on productivity and acquisition of new businesses.

For fiscal 2012, adjusted earnings came in at $3.28 per share, in line with the Zacks Consensus Estimate, and above $2.65 a share earned a year ago. Reported earnings for the year were $3.10 per share compared with a loss of $1.47 in fiscal 2011.


Sales in the fourth quarter were down 2.2% year over year to $1.02 billion, missing the Zacks Consensus Estimate of $1.08 billion. For fiscal 2012, sales increased 2% year over year to $4.02 billion.

Sales from the Minneapolis-based company’s larger Coatings segment edged up 0.9% to $571.5 million in the quarter, aided by the new businesses. Paints segment revenues declined 4.8% to $396.2 million in the quarter.

Margins and Expenses

Gross margin (as reported) increased to 33.3% in the reported quarter from 31.8% a year ago. Adjusted gross margin rose to 34% from 32.9% in the prior-year quarter. Margins benefited from product improvements and higher-margin new businesses, especially in the coatings segment.

Cost of sales fell 4.3% year over year to $683.3 million. Research and development expenses dipped 13.1% year over year to $31.1 million in the quarter. Selling, general and administrative expenses decreased 8.6% to $191.4 million.

Financial Condition

As of October 26, 2012, cash and cash equivalents amounted to $253.3 million compared with $178.2 million as of October 28, 2011. Long-term debt jumped 49% year over year to roughly $1,012.6 million.


Moving ahead, Valspar anticipates uneven global demand, but it has a strong line up of new products which will help drive its market share. The company expects earnings of $3.65 to $3.85 per share for fiscal 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.

Valspar, which competes with Sherwin Williams Company (SHW) and PPG Industries Inc. (PPG), currently retains a short-term Zacks #3 Rank (Hold). We have a long-term (more than 6 months) Neutral recommendation on the stock.

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