Valspar Corporation (The) (VAL)

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Valspar Corp. (VAL)

F4Q09 Earnings Call

November 23, 2009; 11:00 am ET


William L. Mansfield - Chairman of the Board & Chief Executive Officer

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


Jason Minor - Deutsche Bank

Anthony Pettinari - Citigroup

Silka Koopf - J.P. Morgan

Don Carson - UBS

Saul Ludwig - Keybanc

Steven Schwartz - First Analysis Corp

Amy Zang - Goldman Sach

Dmitry Silversteyn - Longbow Research

Michael Hamilton - RBC Capital Markets



Ladies and gentlemen, thank you for standing by and welcome to the Valspar Corporation year end 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)

I would now like to turn the conference over to your Chief Financial Officer Ms. Lori Walker. Please go ahead.

Lori Walker

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 in 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 a few comments particularly about our 2010 outlook. Then we’ll get to your questions.

We were quite pleased with our strong earnings performance for the quarter. The improvement from our third quarter guidance was driven by better than expected sales primarily in the coating segment and the benefit of a lower than expected tax rate. Fourth quarter sales totaled $776.6 million, a 15.9% decline from last year driven by a decline in volume one less week of sales and unfavorable currency.

As a reminder, our fourth quarter this year includes 13 weeks versus 14 weeks in 2008. This extra week only impact our domestic business which accounts for about 60% of total company revenues. So adjusting for currency and the fourteenth week, sales for the quarter declined 9.9%.

For the full year, sales totaled $2.879 billion a decline of 17.3% from last year. Adjusting for currency and the extra week, sales declined 13.2% from fiscal 2008. Fourth quarter adjusted net income per share increased to $0.53 in 2009 from $0.42 in 2008. Fourth quarter adjusted net income per share in 2009 excludes a $0.04 per share charge related to restructuring actions.

Fourth quarter adjusted net income per share in 2008 excludes a $0.13 per share charge related to restructuring actions, a non-cash charge of $0.03 per share for Huarun minority interest share and a $0.09 per share after tax gain from the sale of assets.

Net income from the fourth quarter of 2009 was $49.9 million and reported earnings per share were $0.49. Net income for the fourth quarter of 2008 was $38.9 million and reported earnings per share were $0.35. Again the underlying earnings per share comparison for the fourth quarter is $0.53 in 2009 and $0.42 in 2008, a 26.2% quarter-over-quarter increase.

On a full year basis, again adjusted restructuring and the non-cash charge per Huarun in both 2008 and 2009 and a one time gain in 2008. The underlying earnings per share comparison is a $1.77 in fiscal 2009 and a $1.57 in fiscal 2008, a 12.7% year-over-year improvement.

For the fourth quarter our gross margin was 36.4%, up from 28.3% in the fourth quarter of 2008. Both years exclude charges related to our restructuring actions. Margins benefited from a combination of better raw material cost comparisons, productivity gains resulting from completed restructuring actions and an improved product mix.

Adjusting for restructuring charges in 2008 and 2009 and the gain from the sale of assets in 2008, operating expenses were 24.1% of sales up from 19.6% in 2008 with the increase primarily due to expense de-leveraging on the decline in sales. On this adjusted basis, as I just mentioned, operating expense dollars for the quarter increased $6 million versus last year due to higher incentive compensation which was partially offset by favorable currency and the benefits from our previously completed restructuring actions.

The tax rate for the fourth quarter was 34% down from 34.7% in the fourth quarter of last year. For the full year our tax rate was 32.8% compared with 34.1% in 2008. The full year tax rate was lower than anticipated due to a combination of a favorable geographic mix in earnings and favorable adjustments related to prior years. For fiscal 2010, we expect the effective tax rate to be approximately 33% to 33.5%. Average shares outstanding were up around $1.6 million from last year due to option dilution.

In the quarter, we repurchased 2 million shares for $54.4 million. Average shares outstanding for the fourth quarter were approximately 102 million and are projected to be 101.5 million for the first quarter of 2010. Recaping our sales performance for the quarter, our core growth defined as volume price mix was down 14% driven by a decline in volume and an extra week in the fourth quarter of 2008.

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