Valspar (NYSE:VAL):

Summary Financials
   
Fiscal First Quarter 2016 (Ended January 29, 2016)
Reported

Results
  %

Change
  Adjusted*

Results
  %

Change
    2016   2015       2016   2015    
Net Sales   $885.8   $1,014.7   (13%)   $885.8   $1,014.7   (13%)
Gross Profit   $318.6   $333.3   (4%)   $319.1   $338.1   (6%)
EBIT   $93.1   $158.3   (41%)   $94.0   $116.9   (20%)
Net Income   $52.4   $104.0   (50%)   $53.0   $70.9   (25%)
EPS (diluted)   $0.65   $1.24   (48%)   $0.66   $0.85   (22%)

$ millions except EPS
         

Notes on Net Sales and Volume: Acquisitions added 3% to net sales and 2% to volume for fiscal Q1 2016 (0% and 0% respectively for fiscal Q1 2015). Foreign currency translation negatively impacted net sales by 6% for fiscal Q1 2016 (3% for fiscal Q1 2015).

* Adjusted Results exclude certain items, which are detailed in the "Reconciliation of Non-GAAP Financial Measures" included in this release. Fiscal Q1 2015 adjusted results exclude a pre-tax gain of approximately $48 million the company recorded to reported income from operations, from the divestiture of certain assets related to a non-strategic product.

CEO Comment

"The results in the first quarter were in line with our expectations. The quarter was highlighted by new business wins in many of our product lines and strong EBIT growth in our Coatings segment," said Gary E. Hendrickson, chairman and chief executive officer.

"Our Coatings segment is well positioned for growth, with a robust pipeline of new business and a strong product portfolio, enhanced by the recent acquisition of ISVA Vernici, a European coil coatings manufacturer. In our Paints segment, we have several key new business wins this year, including the introduction of Cabot® stain at Lowe's. In addition, we expect to benefit from improved productivity and easing year over year comparisons in the balance of the fiscal year. Based on our outlook, we are reaffirming our fiscal 2016 guidance." Hendrickson added.

Coatings Segment Results

Fiscal first quarter 2016 net sales in the Coatings segment decreased 10 percent to $544 million. This includes the effects of foreign currency translation that negatively impacted net sales by 6 percent. Volumes decreased 3 percent in the fiscal first quarter of 2016, compared to growth of 10 percent in fiscal first quarter of 2015. The Coatings segment adjusted earnings before interest and taxes (adjusted EBIT) of $97 million increased 6 percent, as the benefits from productivity initiatives and cost/price more than offset the decline in sales and the impact of currency translation. Adjusted EBIT as a percent of net sales increased to 17.8% from 15.1% in the prior year.

Paints Segment Results

Fiscal first quarter 2016 net sales in the Paints segment decreased 20 percent to $291 million. This includes the effects of foreign currency translation that negatively impacted net sales by 5 percent. Acquisitions added 9 percent to net sales in the quarter. Volumes were down 20 percent in the fiscal first quarter of 2016. Acquisitions added 4 percent to volume in the quarter. Volumes were negatively affected by (1) the expected impact from the change at Lowe's; (2) temporary actions taken by customers to lower inventory; and (3) difficult comparisons to the strong volume growth from the International businesses in the prior year. Paints segment adjusted EBIT of $4.5 million declined 84 percent, driven by lower sales and the impact of currency translation, partially offset by positive benefits from productivity initiatives, cost/price and the Quest acquisition. Adjusted EBIT as a percent of net sales declined to 1.5% from 7.9% in the prior year.

Dividends and Share Repurchases

During the quarter, the company paid a quarterly dividend of $0.33 per common share outstanding, or $26 million. Valspar is a member of the S&P High Yield Dividend Aristocrats®, which is comprised of companies increasing dividends every year for at least 20 consecutive years. The company repurchased 221 thousand shares of its stock, for $18 million, during the quarter.

Fiscal 2016 Guidance

The company reaffirmed its guidance for fiscal 2016. This guidance includes sales growth in the "mid-single digits" in constant currency (reported sales including the estimated impact of foreign currency translation is expected to be "up slightly" compared to fiscal 2015). Adjusted diluted EPS expected to be in the range of $4.80 to $5.00.

An earnings conference call is scheduled for 10:00 a.m. Eastern Time (9:00 a.m. Central Time) today and will be webcast and accessible from the Investor Relations section of Valspar's website at http://investors.valspar.com.

Valspar: If it matters, we're on it.®

Valspar is a global leader in the coatings industry providing customers with innovative, high-quality products and value-added services. Our 11,100 employees worldwide deliver advanced coatings solutions with best-in-class appearance, performance, protection and sustainability to customers in more than 100 countries. Valspar offers a broad range of superior coatings products for the consumer market, and highly-engineered solutions for the construction, industrial, packaging and transportation markets. Founded in 1806, Valspar is headquartered in Minneapolis. Valspar's reported net sales in fiscal 2015 were $4.4 billion and its shares are traded on the New York Stock Exchange (symbol: VAL). For more information, visit www.valspar.com and follow @valspar on Twitter.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). The PSLRA 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 "expect," "project," "forecast," "outlook," "estimate," "anticipate," "believe," "could," "may," "will," "plan to," "intend," "should" and similar words or 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 operating in foreign markets, including achievement of profitable growth in developing markets; impact of fluctuations in foreign currency exchange rates on our financial results; 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; civil unrest and the outbreak of war and other significant national and international events; and other factors set forth in the risk factors section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission. We caution investors not to place undue reliance on any such forward-looking statements, which speak only as of the date on which such statements were made. 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 29, 2016 and January 30, 2015
(Dollars in thousands, except per share amounts)
   
Three Months Ended
January 29, January 30,
    2016   2015
 
Net Sales $ 885,756 $ 1,014,669
Cost of Sales 566,694 676,528
Restructuring Charges - Cost of Sales     435     4,849  
Gross Profit     318,627     333,292  
Research and Development 32,528 32,602
Selling, General and Administrative 191,957 189,641
Restructuring Charges - Operating Expenses     434     1,694  
Operating Expenses     224,919     223,937  
Gain on Sale of Certain Assets         48,001  
Income From Operations     93,708     157,356  
Interest Expense 22,415 16,315
Other (Income) Expense, Net     615     (965 )
Income Before Income Taxes 70,678 142,006
Income Taxes     18,247     38,032  
Net Income   $ 52,431   $ 103,974  
         
Average Number of Shares O/S - basic 78,760,765 81,724,627
Average Number of Shares O/S - diluted     80,612,302     83,866,879  
         
Net Income per Common Share - basic $ 0.67 $ 1.27
Net Income per Common Share - diluted   $ 0.65   $ 1.24  
   
THE VALSPAR CORPORATION
SEGMENT INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three Months Ended January 29, 2016 and January 30, 2015
(Dollars in thousands)
 
Three Months Ended
January 29, January 30,
    2016   2015
 

Coatings Segment
Net Sales $ 543,563 $ 603,057
Earnings Before Interest and Taxes (EBIT) 96,547 135,609
 
Key Metrics (GAAP):
Sales Growth (9.9%) 6.7%
EBIT, % of Net Sales 17.8% 22.5%
 
Key Metrics (non-GAAP) 1:
Adjusted EBIT $ 96,752 $ 90,961
Adjusted EBIT, % of Net Sales 17.8% 15.1%
 

Paints Segment
Net Sales $ 291,097 $ 362,523
EBIT 3,819 25,329
 
Key Metrics (GAAP):
Sales Growth (19.7%) (0.9%)
EBIT, % of Net Sales 1.3% 7.0%
 
Key Metrics (non-GAAP) 1:
Adjusted EBIT $ 4,497 $ 28,519
Adjusted EBIT, % of Net Sales 1.5% 7.9%
 

Other and Administrative
Net Sales $ 51,096 $ 49,089
EBIT (7,273) (2,617)
 
Key Metrics (GAAP):
Sales Growth 4.1% 2.4%
EBIT, % of Net Sales (14.2%) (5.3%)
 
Key Metrics (non-GAAP) 1:
Adjusted EBIT $ (7,273) $ (2,617)
Adjusted EBIT, % of Net Sales (14.2%) (5.3%)

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
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of January 29, 2016 and January 30, 2015
(Dollars in thousands)
 
January 29, January 30,
    2016   2015
         

Assets
Current Assets:
Cash and Cash Equivalents $ 151,676 $ 191,766
Restricted Cash 1,383 2,720
Accounts and Notes Receivable, Net 672,296 747,800
Inventories 515,226 511,171
Deferred Income Taxes 31,899 29,805
Prepaid Expenses and Other     129,242     109,636
Total Current Assets     1,501,722     1,592,898
Goodwill 1,281,756 1,103,225
Intangibles, Net 633,521 587,960
Other Assets 118,171 93,707
Long-Term Deferred Income Taxes 10,911 7,017
Property, Plant & Equipment, Net     629,160     622,054
Total Assets   $ 4,175,241   $ 4,006,861
 

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term Debt $ 338,185 $ 193,702
Current Portion of Long-Term Debt 116 162,502
Trade Accounts Payable 504,639 578,954
Income Taxes 20,675 36,731
Other Accrued Liabilities     361,707     364,463
Total Current Liabilities     1,225,322     1,336,352
Long Term Debt, Net of Current Portion 1,708,431 1,350,081
Deferred Income Taxes 234,969 218,914
Other Long-Term Liabilities     151,793     138,749
Total Liabilities     3,320,515     3,044,096
Stockholders' Equity     854,726     962,765
Total Liabilities and Stockholders' Equity   $ 4,175,241   $ 4,006,861
   
THE VALSPAR CORPORATION
SELECTED INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION)
For the Three Months Ended January 29, 2016 and January 30, 2015
(Dollars in thousands)
 
Three Months Ended
January 29, January 30,
    2016   2015
 
Depreciation and Amortization $ 23,021 $ 23,901
 
Capital Expenditures 24,117 17,839
 
Dividends Paid 26,063 24,574
       
THE VALSPAR CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
For the Three Months Ended January 29, 2016 and January 30, 2015
(Dollars in thousands, except per share amounts)
 
The following information provides reconciliations of non-GAAP financial measures from operations, which are presented in the accompanying news release and may be discussed in the earnings conference call today, 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. The company uses these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions. The company believes that these measures are useful to an investor for period-to-period comparisons of our operating results. 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, net income, net income per common share - diluted, diluted earnings per share (EPS) guidance (GAAP financial measures) and earnings before interest and taxes (EBIT) for the periods presented to adjusted gross profit, adjusted operating expense, adjusted net income, adjusted net income per common share - diluted, adjusted diluted earnings per share (EPS) guidance and adjusted EBIT (non-GAAP financial measures) for the periods presented.
 
Three Months Ended Three Months Ended
January 29, 2016 January 30, 2015
    Dollars   % of Net Sales   Dollars   % of Net Sales
 

Coatings Segment
EBIT $ 96,547 17.8 % $ 135,609 22.5 %
Restructuring Charges - Cost of Sales 70 0.0 % 2,390 0.4 %
Restructuring Charges - Operating Expense 121 0.0 % 963 0.2 %
Acquisition-related Charges - Operating Expense 14 0.0 % 0.0 %
Gain on Sale of Certain Assets     0.0 %   (48,001 ) (8.0 %)
Adjusted EBIT 1 $ 96,752 17.8 % $ 90,961 15.1 %
 

Paints Segment
EBIT $ 3,819 1.3 % $ 25,329 7.0 %
Restructuring Charges - Cost of Sales 365 0.1 % 2,459 0.7 %
Restructuring Charges - Operating Expense   313   0.1 %   731   0.2 %
Adjusted EBIT 1 $ 4,497 1.5 % $ 28,519 7.9 %
 

Other and Administrative
EBIT $ (7,273 ) (14.2 %) $ (2,617 ) (5.3 %)
Restructuring Charges - Cost of Sales 0.0 % 0.0 %
Restructuring Charges - Operating Expense     0.0 %     0.0 %
Adjusted EBIT 1 $ (7,273 ) (14.2 %) $ (2,617 ) (5.3 %)
 

Total
Gross Profit $ 318,627 36.0 % $ 333,292 32.8 %
Restructuring Charges - Cost of Sales   435   0.0 %   4,849   0.5 %
Adjusted Gross Profit 1 $ 319,062 36.0 % $ 338,141 33.3 %
 
Operating Expenses $ 224,919 25.4 % $ 223,937 22.1 %
Restructuring Charges - Operating Expense (434 ) (0.0 %) (1,694 ) (0.2 %)
Acquisition-related Charges - Operating Expense   (14 ) (0.0 %)     0.0 %
Adjusted Operating Expenses 1 $ 224,471 25.3 % $ 222,243 21.9 %
 
EBIT $ 93,093 10.5 % $ 158,321 15.6 %
Restructuring Charges - Total 869 0.1 % 6,543 0.6 %
Acquisition-related Charges - Total 14 0.0 % 0.0 %
Gain on Sale of Certain Assets - Total     0.0 %   (48,001 ) (4.7 %)
Adjusted EBIT 1 $ 93,976 10.6 % $ 116,863 11.5 %
 
Net Income $ 52,431 $ 103,974
After Tax Restructuring Charges - Total 546 4,118
After Tax Acquisition-related Charges - Total 14
Gain on Sale of Certain Assets - Total       (37,216 )
Adjusted Net Income 1 $ 52,991 $ 70,876
 
Net Income per Common Share - diluted $ 0.65 $ 1.24
After Tax Restructuring Charges - Total 0.01 0.05
After Tax Acquisition-related Charges - Total 0.00

After Tax Gain on Sale of Certain Assets -Total
      (0.44 )
Adjusted Net Income per Common Share - diluted 1 $ 0.66 $ 0.85
 

Reconciliation of Fiscal 2016 Annual Adjusted Diluted EPS Guidance
Diluted EPS Guidance $4.70 - $4.85
After Tax Restructuring Charges 0.10 - 0.15
Adjusted Diluted EPS Guidance 1 $4.80 - $5.00
 
1 The data in this schedule has been individually rounded and therefore may not sum.

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