On May 21, we issued an updated research report on
The Valspar Corporation
). While the paints and coatings maker should gain from new
business wins, acquisitions and effective cost management, it
remains exposed to weakness in general industrial markets and an
uncertain demand environment.
Both revenues and adjusted earnings for the second quarter of
fiscal 2014 (ended Apr 25, 2014), reported on May 19, beat Zacks
Consensus Estimates. Revenues and profit rose on strength across
the company's paints and coatings businesses and contributions from
acquisitions. Valspar backed its earnings guidance for fiscal
Valspar, a Zacks Rank #3 (Hold) stock, has a strong pipeline of
new products and significant opportunities for share gains in both
its Paints and Coatings segments. It continues to see strength in
its coatings business as evidenced by new business wins. Valspar is
also managing its cost well and maintaining a cost structure that
is appropriate for the current external environment.
Winning new businesses remain a company-wide focus that will
position Valspar well for the future. The acquisition of paint
manufacturing assets of Ace Hardware boosted its retail foothold in
the U.S. The company is making a good progress with the integration
of the acquired business and now has over 3,000 Ace stores with
Valspar products. Moreover, the company has strengthened its
position in the $6 billion European industrial coatings market with
the takeover of Italy-based industrial coatings maker Inver Holding
Valspar's Paints division is benefiting from continued rollout
of Valspar branded products at Ace Hardware. Moreover, the recently
launched Valspar Reserve interior and exterior paints are driving
sales in the home improvement channel. Valspar is aggressively
investing to promote this new product.
However, Valspar is still seeing weakness in general industrial
markets. It continues to witness weak coatings demand for general
industrial products, mainly for off-road equipment, pipelines and
shipping containers. The overall demand environment remains
We also account for volatility in raw material costs. Valspar
has experienced disruptions in supplies of certain raw materials at
various times, impacting its ability to manufacture products.
Moreover, higher investments associated with the launch of
Valspar Reserve and other initiatives coupled with elevated
incentive compensation expenses may affect earnings in the
company's paints business in the third quarter.
Other Stocks to Consider
Other companies in the specialty chemicals space with favorable
Zacks Rank are
International Flavors & Fragrances Inc.
Sensient Technologies Corporation
) with all holding a Zacks Rank #2 (Buy).
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