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Valspar Reports Third-Quarter Results

The Valspar Corporation (NYSE:VAL) today reported its results for the third-quarter ended July 27, 2012.

Third-quarter sales totaled $1.08 billion, an increase of one percent from the third quarter of 2011. Third-quarter adjusted net income per share was $0.97 in 2012, an increase of 21 percent from $0.80 in 2011. Third-quarter adjusted net income per share in 2012 excludes $0.05 per share in restructuring charges. Third-quarter adjusted net income per share in 2011 excludes $0.10 per share in restructuring charges. Net income for the third quarter of 2012 was $86.4 million and reported earnings per share were $0.92. Net income for the third quarter of 2011 was $67.4 million and reported earnings per share were $0.70.

“We were pleased with our performance in the quarter,” said Gary E. Hendrickson, chairman and chief executive officer. “Excluding negative currency impact, our revenue increased three percent and our strong earnings growth is the outcome of excellent execution in a challenging global environment. Looking ahead to our fourth quarter, we expect continued softness in some international markets and modest growth in North America. However, we are confident the strength of our portfolio, our growth initiatives and our proven ability to drive productivity improvements will offset these challenges and we are reaffirming our adjusted full year earnings per share guidance of $3.20 to $3.30.”

Hendrickson and Lori A. Walker, senior vice president and chief financial officer, will conduct a conference call for investors at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) today. The call can be heard live over the Internet at Valspar’s website at www.valsparcorporate.com under Investor Relations. Those unable to participate during the live broadcast can access an archive of the call on the Valspar website. A taped delay of the call will also be available from 12:30 p.m. Central Time August 14 through Midnight on August 28 by dialing +1 (800) 475-6701 from within the U.S. or +1 (320) 365-3844 from outside of the U.S., using access code 256471.

About The Valspar Corporation

The Valspar Corporation (NYSE: VAL) is a global leader in the paint and coatings industry. Since 1806, Valspar has been dedicated to bringing customers the latest innovations, the finest quality and the best customer service in the coatings industry.

FORWARD-LOOKING STATEMENTS

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are based on management’s current expectations, estimates, assumptions and beliefs about future events, conditions and financial performance. Forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from such statements. Any statement that is not historical in nature is a forward-looking statement. We may identify forward-looking statements with words and phrases such as “expects,” “projects,” “estimates,” “anticipates,” “believes,” “could,” “may,” “will,” “plans to,” “intend,” “should” and similar expressions. These risks, uncertainties and other factors include, but are not limited to, deterioration in general economic conditions, both domestic and international, that may adversely affect our business; fluctuations in availability and prices of raw materials, including raw material shortages and other supply chain disruptions, and the inability to pass along or delays in passing along raw material cost increases to our customers; dependence of internal sales and earnings growth on business cycles affecting our customers and growth in the domestic and international coatings industry; market share loss to, and pricing or margin pressure from, larger competitors with greater financial resources; significant indebtedness that restricts the use of cash flow from operations for acquisitions and other investments; dependence on acquisitions for growth, and risks related to future acquisitions, including adverse changes in the results of acquired businesses, the assumption of unforeseen liabilities and disruptions resulting from the integration of acquisitions; risks and uncertainties associated with operations and achievement of profitable growth in developing markets, including Asia and Central and South America; loss of business with key customers; damage to our reputation and business resulting from product claims or recalls, litigation, customer perception and other matters; our ability to respond to technology changes and to protect our technology; changes in governmental regulation, including more stringent environmental, health and safety regulations; our reliance on the efforts of vendors, government agencies, utilities and other third parties to achieve adequate compliance and avoid disruption of our business; unusual weather conditions adversely affecting sales; changes in accounting policies and standards and taxation requirements such as new tax laws or revised tax law interpretations; the nature, cost and outcome of pending and future litigation and other legal proceedings; and civil unrest and the outbreak of war and other significant national and international events. We undertake no obligation to subsequently revise any forward-looking statement to reflect new information, events or circumstances after the date of such statement, except as required by law.

THE VALSPAR CORPORATION COMPARATIVE CONSOLIDATED EARNINGSFor the Quarters Ended July 27, 2012 and July 29, 2011(Dollars in thousands, except per share amounts)
       
Third Quarter Year-to-Date
      2012     2011     2012     2011
      (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
Net Sales $ 1,078,348 $ 1,070,482 $ 2,996,567 $ 2,905,615
Cost of Sales     714,398       746,145     1,983,861       2,006,855
Gross Profit     363,950       324,337     1,012,706       898,760
Research and Development 29,703 30,049 86,038 87,932
Selling, General and Administrative     191,877       183,596     562,915       537,232
Operating Expenses     221,580       213,645     648,953       625,164
Income From Operations     142,370       110,692     363,753       273,596
Interest Expense 16,482 15,801 51,559 46,846
Other (Income) Expense, Net     (1,056 )     552     (1,212 )     1,099
Income Before Income Taxes     126,944       94,339     313,406       225,651
Income Taxes     40,538       26,952     94,678       68,529
Net Income   $ 86,406     $ 67,387   $ 218,728     $ 157,122
Average Number of Shares O/S - basic 90,601,291 93,063,614 91,843,596 94,788,124
Average Number of Shares O/S - diluted     93,573,205       95,851,211     94,775,436       97,670,507
Net Income per Common Share - basic $ 0.95 $ 0.72 $ 2.38 $ 1.66
Net Income per Common Share - diluted   $ 0.92     $ 0.70   $ 2.31     $ 1.61
 

NON-GAAP FINANCIAL MEASURES

In the accompanying press release, we have reported non-GAAP financial measures - "Adjusted net income per common share – diluted” and "Full year guidance for adjusted net income per common share - diluted". We disclose these measures because we believe the measures may assist investors in comparing our results of operations in the respective periods without regard to the effect on results of (i) after-tax restructuring charges and (ii) after-tax acquisition-related charges.
 

NON-GAAP RECONCILIATION

The following is a reconciliation of "Net income per common share - diluted" to "Adjusted net income per common share - diluted" for the periods presented:
 
Third Quarter Year-to-Date
2012 2011 2012 2011
Net Income per Common Share - diluted $ 0.92 $ 0.70 $ 2.31 $ 1.61
Restructuring Charges 0.05 0.10 0.12 0.12
Acquisition-related Charges -   - -   0.09
Adjusted Net Income per Common Share - diluted $ 0.97   $ 0.80 $ 2.43   $ 1.82
 
The following is a reconciliation of "Forecasted net income per common share - diluted" to our "Full year guidance for adjusted net income per common share - diluted" for the period presented:
Full Year
2012
Forecasted Net Income per Common Share - diluted $3.04 - $3.12
Restructuring Charges $0.16 - $0.18
Full Year Guidance for Adjusted Net Income per Common Share - diluted $3.20 - $3.30
 
July 27, October 28, July 29,
            2012     2011     2011
            (Unaudited)     (Note)     (Unaudited)
Assets
Current Assets:
Cash and Cash Equivalents $ 181,478 $ 178,167 $ 152,509
Restricted Cash 19,828 20,378 21,062
Accounts and Notes Receivable, Net 745,933 664,855 715,392
Inventories 377,226 336,750 429,733
Deferred Income Taxes 47,720 50,685 50,548
Prepaid Expenses and Other           91,609     74,302       78,302
Total Current Assets           1,463,794     1,325,137       1,447,546
Goodwill 1,050,942 1,058,006 1,396,203
Intangibles, Net 547,604 553,286 657,880
Other Assets 18,876 13,560 13,195
Long Term Deferred Income Taxes 1,916 1,909 4,988
Property, Plant & Equipment, Net           541,978     548,253       574,542
Total Assets         $ 3,625,110   $ 3,500,151     $ 4,094,354
 
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term Debt $ 115,993 $ 169,516 $ 267,995
Current Portion of Long-Term Debt - 207,803 208,594
Trade Accounts Payable 521,654 463,580 504,401
Income Taxes 40,239 17,684 43,205
Other Accrued Liabilities           349,224     401,350       357,153
Total Current Liabilities           1,027,110     1,259,933       1,381,348
Long Term Debt, Net of Current Portion 1,056,955 679,805 688,245
Deferred Income Taxes 208,299 214,920 265,300
Other Long Term Liabilities           136,091     132,943       151,245
Total Liabilities           2,428,455     2,287,601       2,486,138
Stockholders' Equity           1,196,655     1,212,550       1,608,216
Total Liabilities and Stockholders' Equity         $ 3,625,110   $ 3,500,151     $ 4,094,354
 
NOTE: The Balance Sheet at October 28, 2011 has been derived from the audited consolidated financial statements at that date.
 
THE VALSPAR CORPORATION OTHER FINANCIAL DATAFor the Quarters Ended July 27, 2012 and July 29, 2011(Dollars in thousands)
           
Third Quarter Year-to-Date
    2012   2011       2012   2011
    (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited)
I. Comparison year over year
Gross Profit, as a percentage of net sales (1)
Gross Profit, reported 33.8 % 30.3 % 33.8 % 30.9 %
Gross Profit, adjusted (2) 34.2 % 31.4 % 34.1 % 31.8 %
 
Operating Expense as a percentage of net sales (1)
Operating Expense, reported 20.5 % 20.0 % 21.7 % 21.5 %
Operating Expense, adjusted (2) 20.3 % 19.8 % 21.4 % 21.4 %
 
Operating Profit (Loss), as a percentage of net sales (1)
Operating Profit, reported 13.2 % 10.3 % 12.1 % 9.4 %
Operating Profit, adjusted (2) 13.8 % 11.7 % 12.7 % 10.5 %
 
 
Third Quarter Year-to-Date
    2012   2011       2012   2011
    (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited)
II. Segment Data
Sales
Coatings $ 569,713 $ 560,759 $ 1,605,187 $ 1,526,284
Paint 442,576 441,553 1,208,444 1,195,884
All Other less intersegment sales     66,059       68,170           182,936       183,447  
Total   $ 1,078,348     $ 1,070,482         $ 2,996,567     $ 2,905,615  
 
Earnings Before Interest and Taxes (EBIT) (1)
Coatings $ 98,252 $ 67,806 $ 261,248 $ 178,544
Paint 48,819 42,079 121,506 100,556
All Other     (3,645 )     255           (17,789 )     (6,603 )
Total   $ 143,426     $ 110,140         $ 364,965     $ 272,497  
 
 
Earnings Before Interest and Taxes (EBIT) (1), adjusted (2)
Coatings $ 98,113 $ 76,052 $ 262,144 $ 191,107
Paint 52,532 47,673 133,017 117,966
All Other     (355 )     599           (13,817 )     (6,259 )
Total   $ 150,290     $ 124,324         $ 381,344     $ 302,814  
 
(1) Certain amounts in prior year financial statements have been reclassified to conform with the 2012 presentation.
(2) Excludes restructuring charges in all periods and acquisition-related charges in the 2011 YTD period.




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