Valspar Reports Fiscal 2015 Second Quarter Results

The Valspar Corporation (NYSE:VAL) today reported fiscal second quarter 2015 net sales of $1.08 billion, a decrease of 7 percent over the prior year. Net sales in local currency decreased 2 percent. Total volumes decreased 3 percent, driven by the expected decline in the Paints segment. Reported net income and earnings per diluted share for the current fiscal year include nonrecurring items, which are detailed in the “Reconciliation of Non-GAAP Financial Measures” included in this release. Second quarter 2015 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $92 million and $1.11, respectively. Second quarter 2014 adjusted net income and earnings per diluted share were $93 million and $1.07, respectively. The effects of foreign currency translation negatively impacted net sales by approximately $55 million and EPS (as adjusted) by $0.04 in the second quarter of 2015.

“Our results for second quarter were in line with our expectations. EPS (as adjusted) grew four percent, despite the negative impact of currency translation and the expected volume decline in our Paints segment in North America,” said Gary E. Hendrickson, chairman and chief executive officer. “We saw continued volume and profit growth from our Coatings segment, driven by new business wins and benefits from productivity and cost savings. In the Paints segment, volume and sales were up in local currency in all of our international regions.”

“Based on our solid first half results and our outlook for the rest of the year, we are reiterating our fiscal 2015 EPS (as adjusted) guidance,” Hendrickson added.

Fiscal Second Quarter 2015 Segment Results

Net sales in the Coatings segment decreased 1 percent to $615 million in the fiscal second quarter of 2015. Net sales in local currency increased 5 percent, and volumes were up 3 percent. Volume increased significantly in the General Industrial and the Coil product lines and declined slightly in the Packaging and Wood product lines. Coatings segment adjusted earnings before interest and taxes (EBIT) of $110 million (or 17.8% of net sales) increased 9 percent as a result of benefits from productivity initiatives, cost/price and increased volume.

Net sales in the Paints segment decreased 15 percent to $403 million in the fiscal second quarter of 2015. Net sales in local currency and volumes both decreased 12 percent. Volume growth in Europe, Asia and Australia regions was more than offset by a decline in North America. The volume decline in North America was driven by the previously disclosed product line adjustment at a significant customer and from difficult prior year comparisons when the company launched several significant new products in the home improvement and hardware channels. Paints segment adjusted EBIT of $47 million (or 11.7% of net sales) was down 17 percent from the prior year driven by the volume decline in North America.

Fiscal 2015 Guidance

The company is reaffirming its fiscal 2015 annual diluted EPS (as adjusted) guidance of $4.45 to $4.65. Based on the company’s updated estimate of foreign currency translation for the year, the company is updating its fiscal 2015 annual sales guidance to reflect a sales decline in the “low single-digits” from fiscal 2014, compared to the previous guidance of “approximately flat sales”. Excluding the expected impact of currency translation, fiscal 2015 annual sales are expected to increase “low single-digits”. The company’s fiscal 2015 guidance does not include the impact of the pending acquisition of the businesses from Quest Specialty Chemicals, as described below.

Dividends and Share Repurchases

During the quarter, the company paid a quarterly dividend of $0.30 per common share outstanding, or $24.4 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. Also during the quarter, the company repurchased 1.1 million shares of its stock, for $92.5 million.

Acquisition of the Performance Coating Businesses from Quest Specialty Chemicals

The company announced today that it has reached a definitive agreement to acquire the performance coatings businesses of Quest Specialty Chemicals, which includes products serving the automotive refinish and industrial end markets. The transaction, which is expected to close in the company’s third fiscal quarter, is subject to customary closing conditions. Financial terms were not disclosed. Please refer to the separate press release issued today for more details.

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 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 10,500 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 2014 were $4.5 billion and its shares are traded on the New York Stock Exchange (symbol:VAL). For more information, visit www.valspar.com and follow @valsparCo on Twitter.

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,” “intends,” “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 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; 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.

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