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Industrial Coatings Hold Back Valspar

Wednesday, November 20, 2013

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Struggling sales of general industrial coatings fueled a 14 percent fourth-quarter decline in profits at the Valspar Corp., the company reported Tuesday (Nov. 19).

Restructuring costs and weakness in other markets also dragged on the Minneapolis-based manufacturer, despite record fourth-quarter paint sales.

Valspar reported a fourth-quarter net paint sales increase of 13 percent to $449 million, driven largely by strong growth in the U.S. and new business, the company said in announcing its quarterly and full-year results.

Images: Valspar Corp.

The Valspar Corp. offered this snapshot of its 2012 business in a recent presentation to its investors.

General industrial coatings fared less well, giving the company an overall 2 percent increase in net sales for fiscal year 2013, the company said.

Overall, the company's quarterly profit declined by 14 percent. For the period that ended Oct. 25, Valspar reported a profit of $63.5 million, or 72 cents a share, down from $73.8 million, or 79 cents a share, a year earlier.

Quarterly, Yearly Overviews

Overall, the company reported these fourth-quarter highlights:

  • Net sales were $1.1 billion, up 8 percent over the prior year.
  • Adjusted net income and earnings per diluted share, excluding nonrecurring acquisition and restructuring items, were $86 million and $0.97, respectively. Fourth-quarter 2012 adjusted net income and earnings per diluted share were $80 million and $0.86, respectively.
  • Strong performance was reported in the U.S., where fourth-quarter net sales increased 12 percent, led by the consumer paints, coil and wood product lines.

Valspar sliced the $98 billion global coatings pie this way for its investors in a presentation in October.

For fiscal year 2013, the company reported:

  • Net sales were $4.1 billion, up 2 percent over the prior year.
  • Adjusted net income and earnings per diluted share, excluding nonrecurring items, were $320 million and $3.54, respectively. Fiscal year 2012 adjusted net income and earnings per diluted share were $310 million and $3.28, respectively.

On the liability side, the company noted, among other items, that it was carrying $441 million in short-term debt as of Oct. 25, compared to $94 million at the same point in the prior year.

'Good Finish'

Chairman and CEO Gary E. Hendrickson said the fourth quarter had brought "a good finish to the year, as growth in both sales and operating income improved from previous quarters."

He added: "Sales growth was led by strong performance in our U.S. Consumer, Wood and Coil product lines and by the acquisition of Inver," a European industrial coatings concern that Valspar acquired over the summer.

The cost of the Inver acquisition was not disclosed. The company specializes in liquid and powder coatings and resin products used in a variety of industrial applications.

“We saw the benefit of new business wins in all product lines," Hendrickson said. "These wins were partially offset by weakness in certain end markets and international regions, as has been the case throughout 2013.”

Paints Segment Results

In addition to the Valspar brand, the company's paint portfolio includes Cabot Stains, Plasti-Kote, and McCloskey Special Effects.

Along with the fourth-quarter double-digit net sales gains in the paints segment, adjusted earnings before interest and taxes (EBIT) increased by 10 percent to $49 million.

However, the paints segment adjusted EBIT margins decreased about 40 basis points (bps) to 11 percent, which Valspar said "reflects the continued investments in growth initiatives."


Fourth-quarter net paint sales increase by 13 percent to $449 million, driven largely by strong growth in the U.S. and new business, Valspar said.

For the year, paints segment net sales increased by 4 percent to $1.7 billion, again driven by growth in the U.S. and new business, which was partially offset by weakness in international markets. Adjusted EBIT for the year increased by 3 percent to $183 million; adjusted EBIT margins decreased by approximately 10 bps to 11 percent.

Coatings Segment Results

Net sales in the coatings segment increased by 5 percent to $602 million in the fourth quarter of 2013.

Weakness in the general industrial line offset sales growth from the Inver acquisition and from the coil and wood product lines, the company said.

Coatings segment adjusted EBIT for the fourth quarter decreased 2 percent to $93 million, and EBIT margins decreased by about 120 bps to 15.5 percent. For the year, coatings segment sales inched up 2 percent to $2.2 billion.


Weakness in industrial coatings contributed to a 2 percent decline in adjusted EBIT for the coatings segment in FY 2013. Segment sales increased 5 percent in Q4.

Coatings segment adjusted EBIT for the year decreased 2 percent to $352 million, and EBIT margins decreased by about 50 bps to 15.9 percent.

Growth Outlook

For the new fiscal year, Valspar forecast per-share earnings of $3.95 to $4.15 and total sales growth of 7 percent to 9 percent. Analysts polled by Thomson Reuters most recently expected per-share profit of $4.12 and revenue growth of 9 percent, Dow Jones reported.

“We expect stronger sales and earnings growth through continued new business, benefits from acquisitions, a stable U.S. market and through our productivity initiatives," said Henderson.

Valspar's most recent Investor Presentation is available here. The presentation reports, among other data, that Valspar's EBIT margin in 2012 was higher than AkzoNobel's, PPG's, RPM's and Sherwin-Williams'.


Tagged categories: AkzoNobel; Architectural coatings; Axalta; Earnings reports; Market; Paint and Coating Sales; PPG; Sherwin-Williams; Valspar

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