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The Valspar's CEO Discusses F3Q2012 Results - Earnings Call Transcript

Stocks in this article: VAL

Third quarter sales totaled $1.08 billion, a slight increase from the third quarter of 2011. Adjusted net income per share for the quarter was $0.97, a 21% increase from $0.80 in 2011. Our press release includes details, showing the reconciliation of our reported to our adjusted results.

As I comment on our gross margin and operating expense performance, note that restructuring is excluded in both years. For the third quarter, our gross margin was 34.2%, up 280 basis points from 2011.

Let me offer some context on how we achieved this improvement. First, we delivered a significant amount of new business in the quarter which is coming in at a higher average margin rate. All of our significant product lines in our coatings segment had new business wins in the quarter. This new business helped to offset soft market conditions and our decision in last year to exit a small number of high volume but unprofitable product lines.

Next, our internal initiatives around productivity as well as prior restructuring actions continued to deliver significant savings. And finally, we continued to see the benefit from previous pricing actions that we put in place to offset raw material inflation. Once again in the quarter Valspar employees did an excellent job of executing against our growth and our productivity initiatives.

Looking at raw materials, we experienced sequential low single digit increases in the quarter and for the full year, we expect raw material inflation to be in the mid-single digit range.

Operating expenses as a rate to revenue were 20.3%, up slightly from 19.8% in the third quarter of 2011 primarily related to the timing of incentive compensation accrual. The reported tax rate for the quarter was 32%, up from a rate of 29% in the third quarter of last year. The lower rate in 2011 was due to adjustments related to prior year. Our full year tax rate guidance remains unchanged at 30% to 31%. And as a reminder, our tax rate in the fourth quarter last year included a $0.09 per share benefit for non-recurring items.

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