Leading paint and coatings maker
The Valspar Corporation
) third-quarter fiscal 2012 (end July 27) adjusted (excluding
restructuring expenses) earnings of 97 cents per share beat the
Zacks Consensus Estimate by a penny and exceeded the year-ago
quarter's earnings of 80 cents. Profit, as reported, surged 28%
year over year to $86.4 million or 92 cents a share, helped by
lower cost of sales.
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Sales crept up 0.7% year over year to $1,078.3 million, missing the
Zacks Consensus Estimate of $1,135 million. Revenues were hit by
unfavorable currency exchange swings. Barring the currency impact,
sales rose 3% in the quarter.
Sales from the Minneapolis-based company's larger Coatings segment
edged up 1.6% to $569.7 million, aided by new businesses. Paints
segment revenues improved just 0.2% to $442.6 million, impacted by
a soft Australian residential housing market.
Margins and Expenses
Gross margin (as reported) increased to 33.8% in the reported
quarter from 30.3% a year ago. Adjusted gross margin rose to 34.2%
from 31.4% in the prior-year quarter. Margins benefited from the
company's pricing actions, which helped to offset raw material cost
increases. Productivity improvements, prior restructuring actions
and incremental margins on new businesses also contributed to the
Cost of sales fell 4.3% year over year to $714.4 million. Research
and Development expenses inched down 1.2% year over year to $29.7
million in the quarter. Selling, General and Administrative
expenses rose 4.5% to $191.9 million.
Valspar exited the quarter with cash and cash equivalents of $181.5
million, up 19% year over year. Long-term debt increased 18% year
over year to roughly $1,057 million.
Valspar Sees Challenges Ahead
Valspar anticipates a challenging fourth quarter based on the
uncertain macroeconomic backdrop, slow recovery in the U.S. and
decelerating growth in China. The company expects sluggish growth
in North America and sustained weakness in some overseas markets.
Nevertheless, Valspar has reaffirmed its adjusted earnings guidance
of $3.20 to $3.30 per share for fiscal 2012 as it expects its
ability to win new business, productivity initiatives and strong
execution will help it to weather the economic headwinds. The
current Zacks Consensus Estimate is $3.24 per share.
Valspar has a strong pipeline of new products and significant
opportunities for share gains in both its Paint and Coatings
segments. The company is also expected to benefit from its
restructuring actions and productivity gains while maintaining its
operational and pricing discipline.
Winning new businesses also remain a company-wide focus that will
position Valspar well for the future and help offset lower demand
in core markets. Its fastest growing markets are the emerging
economies, such as China.
However, we are concerned about cost pressures associated with raw
material inflation. Moreover, weakness in the residential housing
market in Australia may continue to hurt paint sales moving ahead.
Valspar, which competes with
Sherwin Williams Company
PPG Industries Inc.
), currently retains a short-term Zacks #3 Rank (Hold). We have a
long-term (more than 6 months) Neutral recommendation on the