Valspar's Q1 net income down 2.7% year-over-year to US$53.6M; net sales up 9% to US$956M driven by strong growth in paints and coatings segments, reflecting benefits of new business wins, acquisitions and productivity improvement

MINNEAPOLIS , February 12, 2014 () –

  • First quarter net sales increased 9% to $956 million
  • First quarter diluted EPS (as adjusted) $0.70, increased 17% versus prior year
  • Sales growth led by acquisitions and new business wins
  • Fiscal 2014 annual diluted EPS (as adjusted) guidance reaffirmed at $3.95 to $4.15
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 12th through midnight, Wednesday, February 26th 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.

 
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        

 

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