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The Valspar's CEO Discusses Q2 2012 Results - Earnings Call Transcript

However, we did experience some headwinds in the quarter. Last year we made the decision to exit a small number of relatively high volume for unprofitable products and customers as part of our restructuring actions. Also in the quarter we saw a year-over-year inventory reduction in our North America home improvement channel. Absentee’s impacts our volumes would have been positive.

Looking at our segment results for the quarter, adjusted for currency and acquisitions, our Coatings segment sales increased 6%. Sales in this segment benefited from pricing a new business, which more than offset uneven market conditions and the exit of unprofitable product lines. Paint segment sales increased roughly 1%.

Growth in China and pricing offset soft market conditions in Australia and last year’s loss of the budding business. In North America, we had extremely strong sell through in our exterior and professional lines, up more than 30%. However, our overall North America paint sales were impacted by the inventory reduction in the home improvement channel as I just mentioned.

Sales in our other segment increased roughly 1%. I’m now going to move into a discussion of our EBIT margins for the quarter. All the numbers I’ll be discussing again exclude restructuring charges and acquisition related charges in the 2011 period. Our Coating segment EBIT margin was 16.6%, up 420 basis points from 12.4% in the second quarter of 2011. The segment benefited from better price cost balance, productivity improvement, exit of unprofitable customers and products, and strong incremental margins on new business.

Our paint segment EBIT margin was 12.5%, up 200 basis points from 10.5% in 2011. This improvement was driven by the benefits of prior restructuring, productivity gains and better price cost balance in Australia. The EBIT margin for our other segment was negative 12.4% compared with 1% in the second quarter last year. This is primarily due to the timing of incentive compensation expense. As a reminder other includes our corporate expenses. The total company EBIT margin for the quarter was 13% compared with 10.9% at the second quarter of 2011.

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