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Coatings, Markets Dim Valspar’s Outlook

Wednesday, August 14, 2013

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Sluggishness in industrial coatings and international markets led the Valspar Corp. to reduce its annual earnings guidance Tuesday (Aug. 13) in the wake of a disappointing third quarter.

Declining third-quarter demand for shipping container, equipment and other industrial coatings combined with continued economic uncertainty to drag at the company's bottom line, offset somewhat by strong growth in new consumer paint, packaging and wood product lines.

Overall, the Minneapolis-based paint and coatings company squeezed out a 1 percent increase in its third-quarter 2013 net sales, to $1.1 billion, over the prior year, Valspar reported.

Valspar wood coatings
Photos: Valspar Corp.

Valspar's wood product lines, including Cabot (pictured), grew in the third quarter.

Volumes increased by 7 percent in the third quarter (4 percent, excluding volumes from the company's January manufacturing deal with Ace Paint), the company said.

'Slightly Below Our Expectations'

Third-quarter 2013 adjusted net income and earnings per diluted share, excluding nonrecurring items, were $96 million and $1.07, respectively. Third-quarter 2012 adjusted net income and earnings per diluted share were $91 million and $0.97, respectively.

The bottom line was buoyed by gains on the consumer side but dampened by overall economic sluggishness, said chairman and CEO Gary E. Hendrickson.

"We continue to drive strong volume growth from our new business initiatives in the consumer paint, packaging and wood product lines," Hendrickson said.

Gary Hendrickson

Chairman and CEO Gary E. Hendrickson cited "macro-economic headwinds" in the industrial market and international markets for the sluggish quarter.

"However, sales and earnings finished slightly below our expectations for the quarter due to continued macro-economic headwinds in key general industrial market segments and certain international regions."

Share Projections Reduced

Based on the third-quarter results "and the anticipated impact of these trends," Hendrickson said, Valspar reduced its annual adjusted EPS guidance to $3.45 to $3.55. The company had projected 2013 EPS of $3.60 to $3.80, even after a relatively flat second quarter.

"We continue to expect improved sales and earnings growth in the fourth quarter, but not at the level we had anticipated earlier in the year," Hendrickson said.

Segment Results

Net sales in the Paints segment increased by 3 percent to $455 million in the quarter, driven by strength in U.S. and China. Paints segment adjusted earnings before interest and taxes (EBIT) dipped by 0.5 percent to $52 million, "due to increased investments in long-term growth initiatives," Valspar reported.

Paints segment adjusted EBIT margins decreased by about 40 basis points (bps) to 11.5 percent.

Valspar container coatings

Demand for shipping container coatings dropped in the third quarter, Valspar said.

Net sales in the Coatings segment inched up 1 percent to $573 million. Sales growth in packaging, coil and wood product lines was offset by lower demand in the general industrial product line, primarily in coatings for off-road equipment and shipping containers. The company's Industrial Coatings segment includes coil coatings, extrusion coatings and general industrial coatings.

Coatings segment adjusted EBIT increased 3 percent to $101 million driven by leverage on increased volumes. Coatings segment adjusted EBIT margins increased in the quarter by approximately 40 bps to 17.6 percent.

Valspar's webcast of its third-quarter earnings conference call is available here.

   

Tagged categories: Ace Paint; Architectural coatings; Business operations; Coating Business; Earnings reports; Finance; Valspar; Wood coatings

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