Valspar Corporation (The) (VAL)

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Valspar Corp. (VAL)

Q4 FY08 Earnings Call

November 24, 2008, 11:00 AM ET


Lori A. Walker - Sr. VP and CFO

William L. Mansfield - Chairman of the Board and CEO


Jeffrey Zekauskas - J.P. Morgan

Prashant Juvekar - Citigroup

David Begleiter - Deutsche Bank

Rosemarie Morbelli - Ingalls & Snyder Llc

Saul Ludwig - Keybanc Capital Markets

Donald Carson - Merrill Lynch

Dmitry Silversteyn - Longbow Research

Robert Koort - Goldman Sachs

Steven Schwartz - First Analysis Corp

Michael Hamilton - RBC Capital Markets



Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter and Fiscal 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session instructions will be given at that time. [Operator instructions] And as a reminder, this conference is being recorded.

I would now like to turn the conference over to Lori Walker. Please go ahead.

Lori A. Walker - Senior Vice President and Chief Financial Officer

Good morning everyone, and welcome to our earnings conference call. Today we will be covering results for the fourth quarter and the full year. Bill Mansfield, our Chairman and CEO is with me on our call this morning.

A couple of brief comments before we begin; first, I would direct your attention to the press release we issued this morning which contains much of the information that we'll be covering on the call. Also a quick reminder that this call is subject to the forward-looking statements language contained in our press release as our comments this morning may include forward-looking statements; as that term is defined by Security's Law.

This morning, I'll cover our fourth quarter and full year results. Bill will make comments particularly about our 2009 outlook. Then we'll get to your questions.

Results for the quarter were in line with our expectations reflecting a solid effort from Valspar employees in a challenging economic environment. As a reminder, our fourth quarter this year does include 14 weeks versus 13 weeks in 2007. This extra week only impacts our domestic business, which accounts for about 60% of total company revenue

Fourth quarter sales totaled $923.2 million, an 8.3% increase from last year. Sales for the quarter increased 3.8% excluding the fourteenth week. Demand for our products in international markets remains strong driven by acquisitions and core growth in Asia. In coatings, we continue to see solid growth in our packaging and general industrial product line, and sales in our paint segment were quite strong. Net income for the fourth quarter was $38.9 million.

Fourth quarter adjusted net income per share was $0.42, which excludes a $0.13 per share charge related to restructuring action, a non-cash of $0.03 per share for the Huarun minority interest share, and a $0.09 per share after tax gain from the sale of assets. Fourth quarter reported earnings per share for 2008 were $0.35.

Net income for the fourth quarter of 2007 was $48.8 million. Fourth quarter adjusted net income per share in 2007 was $0.38 which excludes a $0.10 per share after tax gain from the sale of assets and a non-cash charge of $0.03 per share for Huarun minority interest shares.

Fourth quarter reporting earnings per share in 2007 were $0.45. The underlying earnings per share comparison for the fourth quarter is $0.42 in 2008 and $0.38 in 2007, a 10.5% year-over-year increase and the extra week accounts for about $0.01 to $0.02 per share.

On a full year basis, again adjusting for restructuring one time gain and Huarun, the underlying earnings per share comparison is $1.57 in fiscal 2008 and $1.58 in fiscal 2007. For the fourth quarter our reported gross margin was 26.9% or 28.3% after excluding the impact of our restructuring actions, down 70 basis points from 29% in the fourth quarter of 2007. The 70 basis point decline was due to higher raw material cost which were partially offset by pricing.

Operating expenses were 18.7% of sale or 19.6% excluding restructuring and the gain from the sale of assets, down 50 basis points from 20.1% in the fourth quarter of 2007. The 50 basis point decline was driven by good control of expenses. The tax rate for the fourth quarter was 34.7% down from 36% in the fourth quarter of last year. For the full year our tax rate was 34.1% compared with 33.7% in 2007.

For fiscal 2009 we expect the effective tax rate on income from ongoing operations to be approximately 33.5 to 34%. Average shares outstanding were down $1.5 million from a year ago with the decline related to the share repurchases that we completed in the first half of fiscal 2008. We did not purchase any additional shares during the fourth quarter. Average sales outstanding were $100.4 million for the quarter and are projected to be approximately the same for the first quarter of 2009. As a reminder, we repurchased $1.85 million shares in 2008.

Recapping our sales performance for the quarter, our core growth defined as volume price mix was up 4%, currency added 2.3% and acquisitions added another 2% for total growth of 8.3% in the quarter. Without the extra week, price volume mix was essentially flat, reflecting an increase in price, which offset a decline in volume.

Turning to our segment results for the quarter, coating sales increased 8.6% and were up lower single-digit when adjusted for currency and acquisitions. We had solid performance in our packaging and general industrial product lines with packaging in particular continuing to show excellent strength. Soft sales in wood coatings continued.

Paints sales increased 11.6% and were up high single digit when adjusted for currency and acquisition, driven primarily by strong performance of our Huarun operations and price increases. Sales in our other category which includes resins, colorants, gel coats, and our furniture repair business were down 5.1% reflecting weak market conditions.

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