Valspar Reports Fiscal 2014 First-Quarter Results

The Valspar Corporation (NYSE: VAL) today reported first quarter 2014 net sales of $956 million, an increase of nine percent over the prior year. Reported net income and earnings per diluted share for the current year includes nonrecurring items, which are detailed in the “Reconciliation of Non-GAAP Financial Measures” included in this release. First quarter 2014 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $61 million and $0.70, respectively. First quarter 2013 adjusted net income and earnings per diluted share were $55 million and $0.60, respectively.

“We are pleased to report a good start to our fiscal year with first quarter sales increasing nine percent over the previous year and diluted EPS (as adjusted) up 17 percent,” said Gary E. Hendrickson, chairman and chief executive officer. “We saw strong growth in both our Paints and Coatings segments, reflecting the benefits of new business wins, acquisitions and productivity improvements. We remain focused on executing our significant new business initiatives and productivity plans to drive growth in fiscal 2014.”

Net sales in the Paints segment increased 10 percent to $361 million in the first quarter of 2014, primarily driven by strong volume growth in the U.S., China and improving volume in Australia. Adjusted earnings before interest and taxes (EBIT) increased 50 percent to $34 million. Paints segment adjusted EBIT margins increased approximately 250 bps to 9.4 percent. The growth in EBIT margins was primarily due to higher volume, improved mix and increased profitability in our international markets.

Net sales in the Coatings segment increased 10 percent to $549 million in the first quarter of 2014, primarily driven by acquisitions and the continued growth of our wood product line. Coatings segment adjusted EBIT increased six percent to $79 million. EBIT margins decreased in the quarter by approximately 60 bps to 14.3 percent, driven primarily by the impact of acquisitions.

The company reaffirmed its full year diluted EPS (as adjusted) guidance of $3.95 to $4.15.

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/investors. 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, Wednesday, February 12 th through midnight, Wednesday, February 26 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 316682.

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; possible interruption, failure or compromise of the information systems we use to operate our business; 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended January 24, 2014 and January 25, 2013
(Dollars in thousands, except per share amounts)
         
 
 
Three Months Ended
January 24, January 25,
        2014     2013
 
Net Sales $ 956,119 $ 875,242
Cost of Sales 630,960 580,891
Restructuring Charges - Cost of Sales         6,106       -
Gross Profit         319,053       294,351
Research and Development 30,558 30,783
Selling, General and Administrative 187,235 170,037
Restructuring Charges         5,700       -
Operating Expenses         223,493       200,820
Income From Operations         95,560       93,531
Interest Expense 15,932 15,873
Other (Income) Expense, Net         371       950
Income Before Income Taxes         79,257       76,708
Income Taxes         25,704       21,679
Net Income       $ 53,553     $ 55,029
 
               
Average Number of Shares O/S - basic 85,147,728 89,477,591
Average Number of Shares O/S - diluted         87,641,304       92,397,428
 
               
Net Income per Common Share - basic $ 0.63 $ 0.62
Net Income per Common Share - diluted       $ 0.61     $ 0.60
 
 
THE VALSPAR CORPORATION
SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three Months Ended January 24, 2014 and January 25, 2013
(Dollars in thousands)
             
 
 
Three Months Ended
January 24, January 25,
            2014     2013
 

Coatings Segment1
Net Sales $ 548,585 $ 497,616
Earnings Before Interest and Taxes (EBIT) 69,975 74,340
 
Key Metrics (GAAP):
Sales Growth 10.2 % 0.6 %
EBIT, % of Net Sales 12.8 % 14.9 %
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ 78,595 $ 74,340
Adjusted EBIT, % of Net Sales 14.3 % 14.9 %
 

Paints Segment1
Net Sales $ 361,405 $ 329,079
EBIT 30,997 22,543
 
Key Metrics (GAAP):
Sales Growth 9.8 % (3.1 %)
EBIT, % of Net Sales 8.6 % 6.9 %
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ 33,816 $ 22,543
Adjusted EBIT, % of Net Sales 9.4 % 6.9 %
 

Other and Administrative
Net Sales $ 46,129 $ 48,547
EBIT (5,783 ) (4,302 )
 
Key Metrics (GAAP):
Sales Growth (5.0 %) (5.6 %)
EBIT, % of Net Sales (12.5 %) (8.9 %)
 
Key Metrics (non-GAAP)2:
Adjusted EBIT $ (5,416 ) $ (4,302 )
Adjusted EBIT, % of Net Sales (11.7 %) (8.9 %)
 

1 Certain insignificant products formerly classified in the Paints segment are now classified in the Coatings segment.

2 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
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of January 24, 2014 and January 25, 2013
(Dollars in thousands)
                 
 
 
January 24, January 25,
                2014     2013
                       

Assets
Current Assets:
Cash and Cash Equivalents $ 192,591 $ 248,642
Restricted Cash 3,241 19,893
Accounts and Notes Receivable, Net 669,975 585,539
Inventories 504,151 425,590
Deferred Income Taxes 40,440 43,637
        Prepaid Expenses and Other         117,452       89,956
    Total Current Assets         1,527,850       1,413,257
Goodwill 1,147,356 1,075,692
Intangibles, Net 611,374 551,131
Other Assets 56,237 28,488
Long-Term Deferred Income Taxes 6,835 5,194
    Property, Plant & Equipment, Net         632,912       556,905
Total Assets       $ 3,982,564     $ 3,630,667
 

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term Debt $ 540,162 $ 217,283
Current Portion of Long-Term Debt - 39,737
Trade Accounts Payable 593,777 470,187
Income Taxes 12,307 15,277
        Other Accrued Liabilities         358,238       298,669
Total Current Liabilities         1,504,484       1,041,153
Long Term Debt, Net of Current Portion 1,012,354 1,012,563
Deferred Income Taxes 240,679 217,025
    Other Long-Term Liabilities         135,666       155,094
Total Liabilities         2,893,183       2,425,835
    Stockholders' Equity         1,089,381       1,204,832
Total Liabilities and Stockholders' Equity       $ 3,982,564     $ 3,630,667
 
 
THE VALSPAR CORPORATION
SELECTED INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three Months Ended January 24, 2014 and January 25, 2013
(Dollars in thousands)
           
 
 
Three Months Ended
January 24, January 25,
          2014     2013
 
Depreciation and Amortization $ 28,142 $ 20,569
 
Capital Expenditures 20,991 13,950
 
Dividends Paid 22,226 20,679
 
 
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Three Months Ended January 24, 2014 and January 25, 2013
(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
January 24, 2014 January 25, 2013
          Dollars     % of Net Sales     Dollars     % of Net Sales
 

Coatings Segment
Earnings Before Interest and Taxes (EBIT) $ 69,975 12.8 % $ 74,340 14.9 %
Restructuring Charges - Cost of Sales 4,265 0.8 % - 0.0 %
Restructuring Charges - Operating Expense   4,355   0.8 %   -   0.0 %
Adjusted EBIT $ 78,595 14.3 % $ 74,340 14.9 %
 

Paints Segment
EBIT $ 30,997 8.6 % $ 22,543 6.9 %
Restructuring Charges - Cost of Sales 1,775 0.5 % - 0.0 %
Restructuring Charges - Operating Expense   1,044   0.3 %   -   0.0 %
Adjusted EBIT $ 33,816 9.4 % $ 22,543 6.9 %

 

Other and Administrative
EBIT $ (5,783 ) (12.5 %) $ (4,302 ) (8.9 %)
Restructuring Charges - Cost of Sales 66 0.1 % - 0.0 %
Restructuring Charges - Operating Expense   301   0.7 %   -   0.0 %
Adjusted EBIT $ (5,416 ) (11.7 %) $ (4,302 ) (8.9 %)
 

Total
Gross Profit $ 319,053 33.4 % $ 294,351 33.6 %
Restructuring Charges - Cost of Sales   6,106   0.6 %   -   0.0 %
Adjusted Gross Profit $ 325,159 34.0 % $ 294,351 33.6 %
 
Operating Expenses $ 223,493 23.4 % $ 200,820 22.9 %
Restructuring Charges - Operating Expense   (5,700 ) (0.6 %)   -   0.0 %
Adjusted Operating Expenses $ 217,793 22.8 % $ 200,820 22.9 %
 
EBIT $ 95,189 10.0 % $ 92,581 10.6 %
Restructuring Charges - Total   11,806   1.2 %   -   0.0 %
Adjusted EBIT $ 106,995 11.2 % $ 92,581 10.6 %
 
Net Income $ 53,553 $ 55,029
After Tax Restructuring Charges - Total   7,581     -  
Adjusted Net Income $ 61,134 $ 55,029
 
Net Income per Common Share - diluted $ 0.61 $ 0.60
Restructuring Charges - Total   0.09     -  
Adjusted Net Income per Common Share - diluted $ 0.70 $ 0.60
 

Reconciliation of Fiscal 2014 Annual Adjusted Diluted EPS Guidance
Diluted EPS Guidance $3.68 - $3.83
Restructuring Charges 0.27 - 0.32  
Adjusted Diluted EPS Guidance $3.95 - $4.15

Copyright Business Wire 2010

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