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Paint, Dollar Flatten Valspar's Outlook

Wednesday, February 25, 2015

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Valspar Corp. increased its profits in the first quarter of 2015, with the coatings business offsetting setbacks in paints, but the company still reduced its sales outlook for the rest of the year.

First-quarter profit for the world's No. 6 paint and coatings company doubled to $103.97 million ($1.24 per share) from $53.55 million ($0.81 per share) in the prior-year quarter, the company reported Tuesday (Feb. 24).

Chairman and CEO Gary E. Hendrickson called the showing "a good start to the year."

Hendrickson himself enjoyed a good 2014, the Minneapolis / St. Paul Business Journal recently reported.

Photos: Valspar Corp.

Despite reduced expectations for 2015 sales, Valspar CEO Gary Hendrickson said the year was off to "a good start."

The CEO was paid 71 percent more in fiscal 2014 than in the previous year, primarily due to "larger stock awards and cash bonuses (incentive pay)" that brought his annual compensation to $9.1 million, the Business Journal reported.

Earnings Highlights

Overall, for the first quarter of fiscal 2015, the company reported:

  • A 4 percent year-over-year increase in net sales, to $992 million;
  • A 21 percent year-over-year increase in adjusted Earnings per Share (EPS) to $0.85; and
  • A 7 percent overall increase in sales volume, mainly from the Coatings business.

“These results were driven by improved sales and profitability in our Coatings segment, strong performance from China, new business wins in many of our product lines, and the benefits from productivity initiatives,” said Hendrickson.

Coatings: 'Continued Momentum'

“Both the Coatings and Paints segments increased volumes and grew sales in local currency," said Hendrickson.


First-quarter sales volume in the Coatings segment increased across all product lines, Valspar reported. First-quarter net sales were up 7 percent year over year.

“We saw continued momentum in Coatings, with all product lines growing volume and sales. In the Paints segment, volumes increased and sales were up modestly in local currency, driven by our international regions.”

Net sales in the Coatings segment increased 7 percent, to $586 million, in the fiscal first quarter of 2015, the company reported. Net sales in local currency increased 10 percent, and volumes were up 10 percent.

Volume increased in all product lines and geographic regions, Valspar reported. Coatings segment adjusted earnings before interest and taxes (EBIT) of $91 million (15.5 percent of net sales) increased 16 percent from increased volume and benefits from productivity initiatives.

Paints: Sales Dip

Net sales in the Paints segment decreased 1 percent to $359 million in the first quarter. Net sales in local currency increased 2 percent, and volumes increased 5 percent.

Volume growth was led by the Europe, Australia and Asia regions, partially offset by declines in North America.

Paints segment adjusted EBIT of $29 million (8.0 percent of net sales) was down 16 percent from the prior year, due mainly to a spike in EBIT in the first quarter of 2014 and what Valspar called "a product line adjustment by one of the company’s customers."


Valspar Paints were hit hard in the fall, when rival Sherwin-Williams announced a new house-paint deal with the Lowe's home-improvement stores.

The reference wasn't explained, but Valspar was the primary loser in December when rival Sherwin-Williams announced that it had inked a major deal with Lowe's home-improvement stores to produce a new HGTV-branded line of house paints. The HGTV Home line rolls out March 1.

Sherwin-Williams also said it would manufacture two independent paint brands to be sold through Lowe's.

Just before Sherwin made its announcement, Valspar announced that it had lost paint business generating $150 million to $180 million in annual revenue "at an unspecified North American retailer," Bloomberg reported. Analysts said the retailer was Lowe's, the report added.

Looking Ahead

Valspar reaffirmed its fiscal 2015 annual diluted EPS (as adjusted) guidance of $4.45 to $4.65.

It did, however, reduce its annual sales guidance to "approximately flat sales" overall, compared to FY 2014, from the previous forecast of growth in the low single digits.

The company cited "the expected impact of a stronger U.S. dollar" for the adjustment.



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

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