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Charges End Valspar’s Year with a Loss

Wednesday, November 23, 2011

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Double-digit sales growth could not save the Valspar Corp. from a net loss of nearly $300 million in the fourth quarter, due to major impairment charges from over-valuation of two housing-related product lines.

The company saw a net loss of $295.72 million ($3.18 per share) for the fourth quarter, compared to net income of $51.3 million ($0.51 per share) for the fourth quarter of 2010, Valspar reported Tuesday (Nov. 22) in releasing its fourth-quarter and full-year figures for 2011

 Valspar Corp.

 Photos: Valspar Corp.

Valspar’s coatings segment sales increased 7.9% in the quarter and 10.6% for the full fiscal year.

Valspar reported a loss of $138.6 million, or $1.47 per share, for the full fiscal year, which ended Oct. 28. The company’s stock closed down 2.2 percent for the fiscal year.

The impairment charges obscured what would have been a blockbuster showing for the Minneapolis-based company, as both adjusted earnings per share and revenues topped analysts’ expectations.

‘A Good Quarter’

“We had a good quarter,” President and CEO Gary E. Hendrickson said in a conference call. “We delivered double-digit growth in both sales and earnings, and we continued to perform well in all regions.”

New business and acquisitions helped offset soft markets in North America and Europe, Hendrickson said.

Excluding the impairment charges, fourth-quarter sales totaled $1.05 billion, a 19.4 percent increase from the fourth quarter of 2010, the company reported. Fourth-quarter adjusted net income per share increased by 50 percent to $0.84 in 2011.

Impairment Charges

Impairment charges stem from overvaluation of a company’s goodwill (intangible assets like brand that provide a competitive advantage). Accounting rules require companies to test the value of its goodwill; if it is overvalued, the company must issue an impairment charge.

 Valspar CEO Gary E. Hendrickson
CEO Gary E. Hendrickson called the numbers “a significant accomplishment,” given market conditions and raw material costs.

In Valspar’s case, the company’s annual impairment analysis found that the wood coatings and gelcoat product lines acquired from Lilly Industries Inc. in 2000 were overvalued, because the housing-related end markets served by the lines “is not likely to change in the foreseeable future.”

Therefore, Valspar concluded, “the carrying amount of these businesses exceeded their fair value.”

Full-Year Results

Even with the hit, however, Valspar reported a strong fiscal year:

• FY 2011 sales totaled $3.95 billion, a 22.5 percent increase from fiscal year 2010.

• Adjusted earnings per share increased 18.8 percent, to $2.65.

• The company increased its dividend for the 33rd consecutive year.

Those results helped buffer the impairment charge, resulting in a full-year loss of $138.6 million, or $1.47 per share.

“Delivering strong sales and double-digit earnings growth for the year was a significant accomplishment, given challenging market conditions and substantially higher raw material costs,” said Hendrickson.

Like other paint and coatings companies, Valspar also completed some buyback activity, repurchasing 6.75 million shares this year.

Coating Segment Grows

Valspar’s coating segment sales increased 7.9% in the quarter and were up 10.6% for the full year, boosted by pricing and new business, reported Chief Financial Officer Lori A. Walker.

Added Hendrickson: “Throughout the year, we were successful at securing significant new business in our coatings product lines, particularly those serving industrial markets.”

New business in all coatings products, especially general industrial and coil, helped offset losses and declines elsewhere, officials said.

“We continued to deliver new technology, and we achieved our target for net new business,” said Hendrickson. “We also completed the acquisition of Isocoat, a Brazilian-based manufacturer of powder coatings that further strengthens our presence in Latin America and broadens our range of technologies for the general industrial markets.”

Meanwhile, the company’s paint segment sales continued to struggle, increasing 1.4% for the quarter and 3.7% for the year.

FY 2012 Outlook

Despite continuing global economic uncertainty, Hendrickson said Valspar would benefit in its next fiscal year from its “diverse mix of businesses and growth in fast-growing coatings markets in Asia and Latin America.”

In addition, he said, “We have a strong pipeline of new products and significant opportunities for share gains in both our Paint and Coatings segments globally. We will benefit from our restructuring actions and maintain our operational and pricing discipline.”

He said the company anticipated FY 2012 adjusted net income per share in the range of $2.87 to $3.07.


Tagged categories: Earnings reports; Finance; High-performance coatings; Valspar; Wood coatings

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