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Valspar Collaborates with B&Q

Zacks Equity Research

Leading paints and coatings maker The Valspar Corporation (VAL) announced the collaboration with B&Q, an operating company of Kingfisher plc, to provide a comprehensive suite of premium Valspar paint across all of its 350 locations in the U.K. and Ireland. The collaboration is a part of Valspar’s effort to expand its global paint business by offering new paint solutions to customers and new retail partners.

Valspar will also provide exterior and interior paints to its customers apart from making available customized colors as per the customers’ choice. The concept is expected to come online in all the locations throughout 2013.

B&Q is the leading Do-It-Yourself (:DIY) and garden center retailer in the U.K. and Ireland and offers a host of inspirational home improvement and garden products for the homemaker and trade professionals.

In August 2012, Valspar released its results for the third quarter of fiscal 2012 ended July 27. The company’s adjusted (excluding restructuring expenses) earnings of 97 cents per share in the quarter beat the Zacks Consensus Estimate by a penny and exceeded the year-ago quarter’s earnings of 80 cents. Profit, as reported, surged 28% year over year to $86.4 million or 92 cents a share, helped by lower cost of sales.

Revenues crept up 0.7% year over year to $1,078.3 million, missing the Zacks Consensus Estimate of $1,135 million. Revenues were negatively affected by unfavorable currency exchange swings. Barring the currency impact, sales rose 3% in the quarter.

Revenues from the larger Coatings segment edged up 1.6% to $569.7 million, aided by new businesses, while the same from the Paints segment rose just 0.2% to $442.6 million, due to a soft residential housing market in Australia.

Valspar’s continued efforts in winning new businesses will position it well for the future and help offset lower demand in core markets. Its fastest growing markets are the emerging economies, such as China. However, we are concerned about cost pressures associated with raw material inflation. Moreover, weakness in the residential housing market in Australia may continue to hurt paint sales moving ahead.

Minneapolis-based Valspar competes with Sherwin Williams Company (SHW) and PPG Industries Inc. (PPG) and currently retains a short-term (1 to 3 months) Zacks #3 Rank (Hold). We have a long-term (more than 6 months) Neutral recommendation on the stock.

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