Valspar Corporation (The) (VAL)

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The Valspar Corporation (VAL)

F4Q 2012 Earnings Call

November 20, 2012 11:00 am ET


Lori Walker - Senior Vice President and Chief Financial Officer

Gary Hendrickson - Board Chairman and Chief Executive Officer


P.J. Juvekar - Citi

Bob Koort - Goldman Sachs

David Begleiter - Deutsche Bank

Duffy Fischer - Barclays

Dmitri Silversteyn - Longbow Research

Silke Kueck - JPMorgan

John McNulty - Credit Suisse

Ivan Marcuse - KeyBanc

Kevin Hocevar - Northcoast Research

Rosemarie Morbelli - Gabelli & Company

Steve Schwartz - First Analysis



Ladies and gentlemen, thank you for standing by. Welcome to The Valspar Fourth Quarter and Fiscal Year End Conference Call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). And as a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host Senior Vice President and Chief Financial Officer, Lori Walker. Please go ahead.

Lori Walker

Good morning, and welcome to our fiscal 2012 fourth quarter and full year earnings conference call. Gary Hendrickson, our Chairman and Chief Executive Officer, is with me on our call this morning.

Before we begin, I'll direct your attention to the press release we issued this morning, which contains much of the information that we'll be covering during the call. This call is subject to forward-looking statements language contained in our press release and our comments may include forward-looking statements as that term is defined by securities laws. This morning, I'll start with a summary of our fourth quarter and full year results.

Details are provided in the press release we issued this morning, which is available in the Investor Relations section of our corporate website at Gary will follow with his comments including our outlook for 2013, and then we'll respond to your questions.

Fourth-quarter sales totaled $1.02 billion, compared to $1.05 billion in 2011. Excluding the negative impact of currency, sales were flat. Adjusted net income per share for the quarter increased to $0.86 in 2012, a 2% increase from $0.84 in 2011. However, last year's net income per share includes non-recurring benefit from favorable tax rulings totaling $0.09. Excluding this benefit, our net income per share increased $0.11, or 15%, and our EBIT margin for the quarter increased to 12.6% from 10.8% last year, a 180-basis point improvement. Our press release includes details showing the reconciliation of our reported to adjusted results.

For fiscal year 2012, sales totaled $4.02 billion. When adjusted for currency, sales increased roughly 3% from fiscal year 2011. Adjusted net income per share increased 24% to $3.28 in 2012 from $2.65 in 2011. Again, please refer to our press release for the reconciliation to our reported results.

As I just mentioned, our sales growth for the year was 3%, driven by new business and pricing. However, due to weak international markets and our decision to exit about 2% of our volume from unprofitable customers and product lines, volumes were down 1% for the year. As we began to anniversary some of these decisions, our volume trends have improved. So, in the third and the fourth quarter, volumes were up about 1% and 3%, respectively, driven by our new business wins.

As I comment on our fourth quarter gross margin and operating expense performance, note that restructuring is excluded in both years, also excluded is last year's non-cash impairment charge for goodwill and intangibles associated with our wood coating and some gelcoat product lines.

For the fourth quarter, our gross margin was 34%, up 110 basis points from 32.9% in 2011. Margins benefitted from productivity improvements and higher margin new business, particularly in our coatings segment.

Operating expenses as a rate to revenue were 21.5%, down from 22.1% in the fourth quarter of 2011. Quarter-over-quarter, operating expense dollars decreased $10.8 million, due to benefits from prior restructuring actions, productivity improvements and currency impact.

Now, I'll shift to a discussion of our tax rate for the quarter and the full year. As a note, the 2011 rate excludes the after-tax non-cash impairment charge. So, the tax rate for the fourth quarter of 2012 was 29.4%, compared with the rate of 16.3% in the fourth quarter last year. Our tax rate for the full year was 29.9%, compared with 26.7% in 2011. The higher tax rate for the quarter and the full year was primarily due to non-recurring benefits from favorable tax rulings in 2011.

For fiscal 2013, we expect the effective tax rate to be approximately 31% to 32%. The higher projected tax rate for 2013 is due to a non-recurring favorable benefit for a foreign subsidiary realized in the first quarter of 2012. The impact of this benefit was roughly $0.04 in the first quarter.

Average shares outstanding for the fourth quarter were 93.1 million, a decrease of 2.1 million shares resulting from share repurchases partially offset by option exercises. During the fourth quarter, we repurchased 1.3 million shares for approximately $70 million.

For the full year, we repurchased 5.7 million shares for $273 million and we have 2.5 million shares remaining under our current authorization. We estimate average shares outstanding for the first quarter to be approximately 93 million.

Recapping our sales performance in the quarter, volume was up 3%. However, this was offset by the impact of mix in currency resulting in a reported sales growth of negative 2.2%. And, as I discussed our sales performance by segment, the results will be adjusted for currency.

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