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Industrial Coatings Boost Valspar Q3 Performance

Wednesday, August 18, 2010

Strong performance by its industrial coatings segment propelled the Valspar Corp. to an overall 10% sales increase and 22% net income increase in the third quarter, compared to the same period in 2009, the company reported.

Q3 sales totaled $873.9 million, compared to $794.6 million for the same quarter a year earlier, while net income was $75.1 million, up from $65 million for the prior-year period.

Through the first three quarters of the company’s fiscal year, sales totaled $2.349 billion, up from $2.101 billion for the same period a year earlier. Net income for the first nine months of the year was $170.8 million, compared to $110.2 million a year earlier.

Segment Results

Segment data showed strong performance by Valspar’s industrial coatings products, which include coil coatings, composite coatings, electrocoat technologies, extrusion coatings, powder coatings and industrial liquid coatings.

Coatings sales for the quarter ended July 30 were $484.2 million, up from $415.2 million for the prior-year period. Segment earnings before interest and taxes (EBIT) were $80.5 million, compared to $61.6 million a year earlier.

Coatings-segment sales for the first three quarters were $1.318 billion, compared to $1.148 billion for the same period a year earlier. EBIT for the nine-month period was $185.9 million, up from $116.3 million in the prior year.

Paint-segment sales for the quarter ended July 30 were $323.2 million, up from $318.6 million a year earlier. EBIT for the quarter declined to $38.6 million from $48.8 million a year earlier.

Paint-segment sales for the first three quarters were $860.6 million, up from $788.4 million a year earlier. EBIT for the nine-month period rose to $118.6 million from $100.1 million for the prior-year period.

The company managed to post higher earnings “despite the impact of significant raw material inflation,” said chairman and CEO William L. Mansfield.

Analysts React

The softened paint segment performance drew analysts’ attention. Adjusting for certain special items that affect comparability, net income per share for the recent quarter rose to $0.70 from $0.67 in the same quarter a year ago, but missed a $0.71 per share estimate of analysts polled by Thomson Reuters, RTT News reported.

Goldman Sachs downgraded Valspar Corp. (NYSE: VAL) from Buy to Neutral. “Besides the earnings miss, the firm is more cautious on VAL due to the fact that the homebuyer tax credit distorted the Paint volume recovery more than previously thought,” reported StreetInsider.com. “The firm also notes the gap between raw material price growth and VAL pricing gains widened significantly, and management comments on sequential slowing at industrial end markets concern are concerning.”

Citi maintained a Buy on Valspar. "VAL posted a small earnings beat in 3Q vs. our estimates, but the company’s performance was strongly bifurcated,” a Citi analyst said. “Strength in the Coatings segment carried the load as Paints were disappointingly soft.”

However, the analyst noted, “weakness in DIY was not just confined to VAL, as other paint producers reported similar slowing after the expiration of the Federal Homebuyer Tax Credit in the spring. While the weak housing market remains an overhang, we feel that VAL will benefit from DIY taking additional market share from contractors this year."

During the quarter, Valspar also completed the acquisition of metal packaging coatings assets from DIC Corporation, a Japan-based specialty chemical manufacturer. Valspar also sold metal-decorating inks assets to DIC. The transactions included sales and DIC’s manufacturing site in Bangalore, India. Terms were not disclosed.

Mansfield sounded an optimistic note for the company. “The success of our new business efforts drove our double-digit top line growth,” he said. “Looking ahead, our results will continue to benefit from new business and operational discipline.”

The company is forecasting fiscal-year 2010 adjusted net income per share in the range of $2.15 to $2.25, Mansfield said.

More information: www.valspar.com.