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Valspar Reports Fiscal 2013 Third-Quarter Results

An earnings conference call is scheduled for 11:00 a.m. Eastern Time (10:00 a.m. Central Time) today and will be webcast and accessible from the Investor Relations section of Valspar’s website at www.valsparglobal.com. Those unable to participate during the live broadcast can access an archive of the call on the Valspar website. An audio replay of the call will be available from 12:30 p.m. Central Time, Tuesday, August 13 th through midnight, Tuesday, August 27 th 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 299293.

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. For more information, visit www.valsparglobal.com .

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
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Nine Months Ended July 26, 2013 and July 27, 2012
(Dollars in thousands, except per share amounts)
       
 
Three Months Ended Nine Months Ended
July 26, July 27, July 26, July 27,
    2013   2012   2013   2012
 
Net Sales $ 1,089,013 $ 1,078,348 $ 2,995,474 $ 2,996,567
Cost of Sales 718,000 710,086 1,984,888 1,974,889
Restructuring Charges - Cost of Sales     1,652     4,312       8,321     8,972  
Gross Profit     369,361     363,950       1,002,265     1,012,706  
Research and Development 30,073 29,703 93,055 86,038
Selling, General and Administrative 182,118 189,325 525,338 555,508
Restructuring Charges 838 2,552 3,489 7,407
Acquisition-related Charges     758     -       758     -  
Operating Expenses     213,787     221,580       622,640     648,953  
Income From Operations     155,574     142,370       379,625     363,753  
Interest Expense 16,000 16,482 47,861 51,559
Other (Income) Expense, Net     1,065     (1,056 )     2,042     (1,212 )
Income Before Income Taxes     138,509     126,944       329,722     313,406  
Income Taxes     44,701     40,538       103,977     94,678  
Net Income   $ 93,808   $ 86,406     $ 225,745   $ 218,728  
 
                 
Average Number of Shares O/S - basic 87,227,248 90,601,291 88,373,620 91,843,596
Average Number of Shares O/S - diluted     89,910,681     93,573,205       91,163,437     94,775,436  
 
                 
Net Income per Common Share - basic $ 1.08 $ 0.95 $ 2.55 $ 2.38
Net Income per Common Share - diluted   $ 1.04   $ 0.92     $ 2.48   $ 2.31  
 
THE VALSPAR CORPORATION
SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three and Nine Months Ended July 26, 2013 and July 27, 2012
(Dollars in thousands)
       
 
Three Months Ended Nine Months Ended
July 26, July 27, July 26, July 27,
    2013   2012   2013   2012
 

Coatings Segment

Net Sales $ 572,837 $ 569,446 $ 1,607,152 $ 1,604,307
Earnings Before Interest and Taxes (EBIT) 99,026 98,238 253,602 261,290
 
Key Metrics (GAAP):
Sales Growth 0.6 % 1.5 % 0.2 % 5.1 %
EBIT, % of Net Sales 17.3 % 17.3 % 15.8 % 16.3 %
 
Key Metrics (non-GAAP) 1 :
Adjusted EBIT $ 101,026 $ 98,099 $ 258,327 $ 262,186
Adjusted EBIT, % of Net Sales 17.6 % 17.2 % 16.1 % 16.3 %
 

Paints Segment

Net Sales $ 454,969 $ 442,576 $ 1,222,002 $ 1,208,444
EBIT 50,761 48,819 126,206 121,506
 
Key Metrics (GAAP):
Sales Growth 2.8 % 0.2 % 1.1 % 1.1 %
EBIT, % of Net Sales 11.2 % 11.0 % 10.3 % 10.1 %
 
Key Metrics (non-GAAP) 1 :
Adjusted EBIT $ 52,251 $ 52,532 $ 133,883 $ 133,017
Adjusted EBIT, % of Net Sales 11.5 % 11.9 % 11.0 % 11.0 %
 

Other and Administrative

Net Sales $ 61,207 $ 66,326 $ 166,320 $ 183,816
EBIT 4,722 (3,631 ) (2,225 ) (17,831 )
 
Key Metrics (GAAP):
Sales Growth (7.7 %) (2.7 %) (9.5 %) 0.2 %
EBIT, % of Net Sales 7.7 % (5.5 %) (1.3 %) (9.7 %)
 
Key Metrics (non-GAAP) 1 :
Adjusted EBIT $ 4,480 $ (341 ) $ (2,059 ) $ (13,859 )
Adjusted EBIT, % of Net Sales 7.3 % (0.5 %) (1.2 %) (7.5 %)
 
1 The information on this page includes non-GAAP financial measures. Please refer to the "RECONCILIATION

OF NON-GAAP FINANCIAL MEASURES" included in this release for detailed information.

 
THE VALSPAR CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of July 26, 2013 and July 27, 2012
(Dollars in thousands)
     
 
July 26, July 27,
      2013   2012
           

Assets

Current Assets:
Cash and Cash Equivalents $ 349,142 $ 181,478
Restricted Cash 13,539 19,828
Accounts and Notes Receivable, Net 716,033 745,933
Inventories 416,749 377,226
Deferred Income Taxes 37,791 47,720
Prepaid Expenses and Other       102,656     91,609
Total Current Assets       1,635,910     1,463,794
Goodwill 1,065,071 1,050,942
Intangibles, Net 549,468 547,604
Other Assets 32,595 18,876
Long-Term Deferred Income Taxes 4,903 1,916
Property, Plant & Equipment, Net       555,568     541,978
Total Assets     $ 3,843,515   $ 3,625,110
 

Liabilities and Stockholders' Equity

Current Liabilities:
Short-term Debt $ 412,394 $ 115,993
Current Portion of Long-Term Debt 3,661 -
Trade Accounts Payable 575,667 521,654
Income Taxes 29,835 40,239
Other Accrued Liabilities       338,352     349,224
Total Current Liabilities       1,359,909     1,027,110
Long Term Debt, Net of Current Portion 1,012,550 1,056,955
Deferred Income Taxes 208,928 208,299
Other Long-Term Liabilities       155,676     136,091
Total Liabilities       2,737,063     2,428,455
Stockholders' Equity       1,106,452     1,196,655
Total Liabilities and Stockholders' Equity     $ 3,843,515   $ 3,625,110
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Three Months Ended July 26, 2013 and July 27, 2012
(Dollars in thousands, except per share amounts)
 
The following information provides reconciliations of non-GAAP financial measures from operations presented in the accompanying news release to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The company has provided non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the accompanying news release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the news release. The non-GAAP financial measures in the accompanying news release may differ from similar measures used by other companies. The following tables reconcile gross profit, operating expense, earning before interest and taxes (EBIT), net income, net income per common share - diluted, and diluted earnings per share (EPS) guidance for the periods presented (GAAP financial measures) to adjusted gross profit, adjusted operating expense, adjusted earning before interest and taxes (EBIT), adjusted net income, adjusted net income per common share - diluted, and adjusted diluted earnings per share (EPS) guidance (non-GAAP financial measures) for the periods presented.
 
  Three Months Ended   Three Months Ended
July 26, 2013 July 27, 2012
    Dollars   % of Net Sales   Dollars   % of Net Sales
   

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 99,026 17.3 % $ 98,238 17.3 %
Restructuring Charges - Cost of Sales 163 0.0 % (74 ) (0.0 %)
Restructuring Charges - Operating Expense 1,079 0.2 % (65 ) (0.0 %)
Acquisition-related Charges - Operating Expense   758   0.1 %   -   0.0 %
Adjusted EBIT $ 101,026 17.6 % $ 98,099 17.2 %
 

Paints Segment

EBIT $ 50,761 11.2 % $ 48,819 11.0 %
Restructuring Charges - Cost of Sales 1,489 0.3 % 1,823 0.4 %
Restructuring Charges - Operating Expense   1   0.0 %   1,890   0.4 %
Adjusted EBIT $ 52,251 11.5 % $ 52,532 11.9 %
 

Other and Administrative

EBIT $ 4,722 7.7 % $ (3,631 ) (5.5 %)
Restructuring Charges - Cost of Sales - 0.0 % 2,563 3.9 %
Restructuring Charges - Operating Expense   (242 ) (0.4 %)   727   1.1 %
Adjusted EBIT $ 4,480 7.3 % $ (341 ) (0.5 %)
 

Total

Gross Profit $ 369,361 33.9 % $ 363,950 33.8 %
Restructuring Charges - Cost of Sales   1,652   0.2 %   4,312   0.4 %
Adjusted Gross Profit $ 371,013 34.1 % $ 368,262 34.2 %
 
Operating Expenses $ 213,787 19.6 % $ 221,580 20.5 %
Restructuring Charges - Operating Expense (838 ) (0.1 %) (2,552 ) (0.2 %)
Acquisition-related Charges - Operating Expense   (758 ) (0.1 %)   -   0.0 %
Adjusted Operating Expenses $ 212,191 19.5 % $ 219,028 20.3 %
 
EBIT $ 154,509 14.2 % $ 143,426 13.3 %
Restructuring Charges - Total 2,490 0.2 % 6,864 0.6 %
Acquisition-related Charges - Total   758   0.1 %   -   0.0 %
Adjusted EBIT $ 157,757 14.5 % $ 150,290 13.9 %
 
Net Income $ 93,808 $ 86,406
After Tax Restructuring Charges - Total 1,853 4,442
After Tax Acquisition-related Charges - Total   758     -  
Adjusted Net Income $ 96,419 $ 90,848
 
Net Income per Common Share - diluted $ 1.04 $ 0.92
Restructuring Charges - Total 0.02 0.05
Acquisition-related Charges - Total   0.01     -  
Adjusted Net Income per Common Share - diluted $ 1.07 $ 0.97
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Nine Months Ended July 26, 2013 and July 27, 2012
(Dollars in thousands, except per share amounts)
       
 
Nine Months Ended Nine Months Ended
July 26, 2013 July 27, 2012
    Dollars   % of Net Sales   Dollars   % of Net Sales
 

Coatings Segment

Earnings Before Interest and Taxes (EBIT) $ 253,602 15.8 % $ 261,290 16.3 %
Restructuring Charges - Cost of Sales 2,577 0.2 % 546 0.0 %
Restructuring Charges - Operating Expense 1,390 0.1 % 350 0.0 %
Acquisition-related Charges - Operating Expense   758   0.0 %   -   0.0 %
Adjusted EBIT $ 258,327 16.1 % $ 262,186 16.3 %
 

Paints Segment

EBIT $ 126,206 10.3 % $ 121,506 10.1 %
Restructuring Charges - Cost of Sales 5,744 0.5 % 5,863 0.5 %
Restructuring Charges - Operating Expense   1,933   0.2 %   5,648   0.5 %
Adjusted EBIT $ 133,883 11.0 % $ 133,017 11.0 %
 

Other and Administrative

EBIT $ (2,225 ) (1.3 %) $ (17,831 ) (9.7 %)
Restructuring Charges - Cost of Sales - 0.0 % 2,563 1.4 %
Restructuring Charges - Operating Expense   166   0.1 %   1,409   0.8 %
Adjusted EBIT $ (2,059 ) (1.2 %) $ (13,859 ) (7.5 %)
 

Total

Gross Profit $ 1,002,265 33.5 % $ 1,012,706 33.8 %
Restructuring Charges - Cost of Sales   8,321   0.3 %   8,972   0.3 %
Adjusted Gross Profit $ 1,010,586 33.7 % $ 1,021,678 34.1 %
 
Operating Expenses $ 622,640 20.8 % $ 648,953 21.7 %
Restructuring Charges - Operating Expense (3,489 ) (0.1 %) (7,407 ) (0.2 %)
Acquisition-related Charges - Operating Expense   (758 ) (0.0 %)   -   0.0 %
Adjusted Operating Expenses $ 618,393 20.6 % $ 641,546 21.4 %
 
EBIT $ 377,583 12.6 % $ 364,965 12.2 %
Restructuring Charges - Total 11,810 0.4 % 16,379 0.5 %
Acquisition-related Charges - Total   758   0.0 %   -   0.0 %
Adjusted EBIT $ 390,151 13.0 % $ 381,344 12.7 %
 
Net Income $ 225,745 $ 218,728
After Tax Restructuring Charges - Total 8,268 11,259
After Tax Acquisition-related Charges - Total   758     -  
Adjusted Net Income $ 234,771 $ 229,987
 
Net Income per Common Share - diluted $ 2.48 $ 2.31
Restructuring Charges - Total 0.09 0.12
Acquisition-related Charges - Total   0.01     -  
Adjusted Net Income per Common Share - diluted $ 2.58 $ 2.43
 

Reconciliation of Fiscal 2013 Annual Adjusted Diluted EPS Guidance

Diluted EPS Guidance $3.19 - $3.24
Restructuring Charges 0.25 - 0.30
Acquisition-related Charges 0.01
Adjusted Diluted EPS Guidance $3.45 - $3.55




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