- Diluted EPS (as adjusted) increased
4 percent to $1.11
- Net sales decreased 2 percent in
local currency (down 7 percent as reported)
- Coatings segment net sales up 5
percent in local currency
- Paints segment net sales decreased
12 percent in local currency, driven by the expected volume decline
in North America
- Fiscal 2015 annual diluted EPS (as
adjusted) guidance reaffirmed at $4.45 to $4.65
The Valspar Corporation (NYSE:VAL) today reported fiscal second
quarter 2015 net sales of $1.08 billion, a decrease of 7 percent
over the prior year. Net sales in local currency decreased 2
percent. Total volumes decreased 3 percent, driven by the expected
decline in the Paints segment. Reported net income and earnings per
diluted share for the current fiscal year include nonrecurring
items, which are detailed in the “Reconciliation of Non-GAAP
Financial Measures” included in this release. Second quarter 2015
adjusted net income and earnings per diluted share, excluding these
nonrecurring items, were $92 million and $1.11, respectively.
Second quarter 2014 adjusted net income and earnings per diluted
share were $93 million and $1.07, respectively. The effects of
foreign currency translation negatively impacted net sales by
approximately $55 million and EPS (as adjusted) by $0.04 in the
second quarter of 2015.
“Our results for second quarter were in line with our
expectations. EPS (as adjusted) grew four percent, despite the
negative impact of currency translation and the expected volume
decline in our Paints segment in North America,” said Gary E.
Hendrickson, chairman and chief executive officer. “We saw
continued volume and profit growth from our Coatings segment,
driven by new business wins and benefits from productivity and cost
savings. In the Paints segment, volume and sales were up in local
currency in all of our international regions.”
“Based on our solid first half results and our outlook for the
rest of the year, we are reiterating our fiscal 2015 EPS (as
adjusted) guidance,” Hendrickson added.
Fiscal Second Quarter 2015 Segment
Results
Net sales in the Coatings segment decreased 1 percent to $615
million in the fiscal second quarter of 2015. Net sales in local
currency increased 5 percent, and volumes were up 3 percent. Volume
increased significantly in the General Industrial and the Coil
product lines and declined slightly in the Packaging and Wood
product lines. Coatings segment adjusted earnings before interest
and taxes (EBIT) of $110 million (or 17.8% of net sales) increased
9 percent as a result of benefits from productivity initiatives,
cost/price and increased volume.
Net sales in the Paints segment decreased 15 percent to $403
million in the fiscal second quarter of 2015. Net sales in local
currency and volumes both decreased 12 percent. Volume growth in
Europe, Asia and Australia regions was more than offset by a
decline in North America. The volume decline in North America was
driven by the previously disclosed product line adjustment at a
significant customer and from difficult prior year comparisons when
the company launched several significant new products in the home
improvement and hardware channels. Paints segment adjusted EBIT of
$47 million (or 11.7% of net sales) was down 17 percent from the
prior year driven by the volume decline in North America.
Fiscal 2015 Guidance
The company is reaffirming its fiscal 2015 annual diluted EPS
(as adjusted) guidance of $4.45 to $4.65. Based on the company’s
updated estimate of foreign currency translation for the year, the
company is updating its fiscal 2015 annual sales guidance to
reflect a sales decline in the “low single-digits” from fiscal
2014, compared to the previous guidance of “approximately flat
sales”. Excluding the expected impact of currency translation,
fiscal 2015 annual sales are expected to increase “low
single-digits”. The company’s fiscal 2015 guidance does not include
the impact of the pending acquisition of the businesses from Quest
Specialty Chemicals, as described below.
Dividends and Share Repurchases
During the quarter, the company paid a quarterly dividend of
$0.30 per common share outstanding, or $24.4 million. Valspar is a
member of the S&P High Yield Dividend Aristocrats®, which is
comprised of companies increasing dividends every year for at least
20 consecutive years. Also during the quarter, the company
repurchased 1.1 million shares of its stock, for $92.5 million.
Acquisition of the Performance Coating
Businesses from Quest Specialty Chemicals
The company announced today that it has reached a definitive
agreement to acquire the performance coatings businesses of Quest
Specialty Chemicals, which includes products serving the automotive
refinish and industrial end markets. The transaction, which is
expected to close in the company’s third fiscal quarter, is subject
to customary closing conditions. Financial terms were not
disclosed. Please refer to the separate press release issued today
for more details.
An earnings conference call is scheduled for 11:00 a.m. Eastern
Time (10:00 a.m. Central Time) today and will be webcast and
accessible from the Investor Relations section of Valspar’s website
at http://investors.valspar.com.
Valspar: If it matters, we’re on it.®Valspar is a global
leader in the coatings industry providing customers with
innovative, high-quality products and value-added services. Our
10,500 employees worldwide deliver advanced coatings solutions with
best-in-class appearance, performance, protection and
sustainability to customers in more than 100 countries. Valspar
offers a broad range of superior coatings products for the consumer
market, and highly-engineered solutions for the construction,
industrial, packaging and transportation markets. Founded in 1806,
Valspar is headquartered in Minneapolis. Valspar’s reported net
sales in fiscal 2014 were $4.5 billion and its shares are traded on
the New York Stock Exchange (symbol:VAL). For more information,
visit www.valspar.com and follow @valsparCo on Twitter.
FORWARD-LOOKING STATEMENTS
Certain statements contained in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and
elsewhere in this report constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.
Forward-looking statements are based on management’s current
expectations, estimates, assumptions and beliefs about future
events, conditions and financial performance. Forward-looking
statements are subject to risks, uncertainties and other factors,
many of which are outside our control and could cause actual
results to differ materially from such statements. Any statement
that is not historical in nature is a forward-looking statement. We
may identify forward-looking statements with words and phrases such
as “expects,” “projects,” “estimates,” “anticipates,” “believes,”
“could,” “may,” “will,” “plans to,” “intends,” “should” and similar
expressions. These risks, uncertainties and other factors include,
but are not limited to, deterioration in general economic
conditions, both domestic and international, that may adversely
affect our business; fluctuations in availability and prices of raw
materials, including raw material shortages and other supply chain
disruptions, and the inability to pass along or delays in passing
along raw material cost increases to our customers; dependence of
internal sales and earnings growth on business cycles affecting our
customers and growth in the domestic and international coatings
industry; market share loss to, and pricing or margin pressure
from, larger competitors with greater financial resources;
significant indebtedness that restricts the use of cash flow from
operations for acquisitions and other investments; dependence on
acquisitions for growth, and risks related to future acquisitions,
including adverse changes in the results of acquired businesses,
the assumption of unforeseen liabilities and disruptions resulting
from the integration of acquisitions; risks and uncertainties
associated with operating in foreign markets, including achievement
of profitable growth in developing markets; impact of fluctuations
in foreign currency exchange rates on our financial results; loss
of business with key customers; damage to our reputation and
business resulting from product claims or recalls, litigation,
customer perception and other matters; our ability to respond to
technology changes and to protect our technology; possible
interruption, failure or compromise of the information systems we
use to operate our business; changes in governmental regulation,
including more stringent environmental, health and safety
regulations; our reliance on the efforts of vendors, government
agencies, utilities and other third parties to achieve adequate
compliance and avoid disruption of our business; unusual weather
conditions adversely affecting sales; changes in accounting
policies and standards and taxation requirements such as new tax
laws or revised tax law interpretations; the nature, cost and
outcome of pending and future litigation and other legal
proceedings; and civil unrest and the outbreak of war and other
significant national and international events. We undertake no
obligation to subsequently revise any forward-looking statement to
reflect new information, events or circumstances after the date of
such statement, except as required by law.
THE VALSPAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Six Months Ended May 1, 2015 and April 25, 2014
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended May 1, April 25, May 1,
April 25, 2015 2014
2015 2014 Net Sales1 $ 1,079,289 $
1,155,826 $ 2,093,958 $ 2,134,943 Cost of Sales1 684,856 766,799
1,361,384 1,420,757 Restructuring Charges - Cost of Sales
1,230 8,269
6,079 14,375 Gross Profit
393,203 380,758 726,495
699,811 Research and Development 32,037 35,585
64,639 66,143 Selling, General and Administrative 204,237 201,512
393,878 388,747 Restructuring Charges 1,020
587 2,714
6,287 Operating Expenses 237,294
237,684 461,231
461,177 Gain on Sale of Certain Assets
— — 48,001
— Income From Operations 155,909
143,074 313,265
238,634 Interest Expense 20,241 15,756 36,556 31,688 Other
(Income) Expense, Net 1,694
318 729 689 Income
Before Income Taxes 133,974
127,000 275,980
206,257 Income Taxes 43,660
41,041 81,692
66,745 Net Income $ 90,314 $ 85,959
$ 194,288 $ 139,512
Average Number of Shares O/S - basic
80,826,518 84,161,922 81,275,572 84,654,825 Average Number of
Shares O/S - diluted 82,871,129
86,523,938 83,366,627
87,081,533
Net Income per
Common Share - basic $ 1.12 $ 1.02 $ 2.39 $ 1.65 Net Income per
Common Share - diluted $ 1.09 $ 0.99
$ 2.33 $ 1.60
1 Certain amounts in the 2014 financial
statements have been reclassified to conform to the 2015
presentation. In the first quarter of 2015, we changed our policy
and now classify freight costs on shipments to customers as cost of
sales. Previously these costs were recorded as a deduction from net
sales. Reclassifications had no effect on net income (loss), cash
flows or stockholders’ equity as previously reported.
THE VALSPAR CORPORATION SEGMENT INFORMATION
(UNAUDITED AND SUBJECT TO RECLASSIFICATION) For the Three and
Six Months Ended May 1, 2015 and April 25, 2014 (Dollars in
thousands) Three Months Ended Six Months Ended
May 1, April 25, May 1, April 25, 2015
2014 2015 2014
Coatings
Segment
Net Sales1 $ 614,821 $ 621,092 $ 1,217,878 $ 1,186,478 Earnings
Before Interest and Taxes (EBIT) 108,022 98,047 243,631 168,022
Key Metrics (GAAP): Sales Growth1
(1.0%
)
12.6%
2.6%
11.6%
EBIT, % of Net Sales1
17.6%
15.8%
20.0%
14.2%
Key Metrics (non-GAAP)2: Adjusted EBIT $ 109,578 $ 100,686 $
200,539 $ 179,281 Adjusted EBIT, % of Net Sales1
17.8%
16.2%
16.5%
15.1%
Paints
Segment
Net Sales1 $ 402,979 $ 476,594 $ 765,502 $ 842,381 Earnings Before
Interest and Taxes (EBIT) 46,571 50,423 71,900 81,420 Key
Metrics (GAAP): Sales Growth1
(15.4%
)
7.7%
(9.1%
)
8.5%
EBIT, % of Net Sales1
11.6%
10.6%
9.4%
9.7%
Key Metrics (non-GAAP)2: Adjusted EBIT $ 47,274 $ 56,759 $
75,793 $ 90,575 Adjusted EBIT, % of Net Sales1
11.7%
11.9%
9.9%
10.8%
Other and
Administrative
Net Sales1 $ 61,489 $ 58,140 $ 110,578 $ 106,084 Earnings Before
Interest and Taxes (EBIT) (378 ) (5,714 ) (2,995 ) (11,497 )
Key Metrics (GAAP): Sales Growth1
5.8%
(2.6%
)
4.2%
(3.5%
)
EBIT, % of Net Sales1
(0.6%
)
(9.8%
)
(2.7%
)
(10.8%
)
Key Metrics (non-GAAP)2: Adjusted EBIT $ (387 ) $ (5,833 ) $
(3,004 ) $ (11,249 ) Adjusted EBIT, % of Net Sales1
(0.6%
)
(10.0%
)
(2.7%
)
(10.6%
)
1 Certain amounts in the 2014 financial
statements have been reclassified to conform to the 2015
presentation. In the first quarter of 2015, we changed our policy
and now classify freight costs on shipments to customers as cost of
sales. Previously these costs were recorded as a deduction from net
sales. Reclassifications had no effect on net income (loss), cash
flows or stockholders’ equity as previously reported.
2 The information on this page includes
non-GAAP financial measures. Please refer to the "RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES" included in this release for detailed
information.
THE VALSPAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) As of May
1, 2015 and April 25, 2014 (Dollars in thousands)
May 1, April 25, 2015
2014
Assets
Current Assets: Cash and Cash Equivalents $ 146,279 $ 116,503
Restricted Cash 1,532 2,966 Accounts and Notes Receivable, Net
823,014 852,678 Inventories 494,355 497,579 Deferred Income Taxes
28,621 40,754 Prepaid Expenses and Other
105,333 112,018 Total Current Assets
1,599,134 1,622,498 Goodwill
1,081,255 1,144,042 Intangibles, Net 575,939 603,978 Other Assets
108,881 76,527 Long-Term Deferred Income Taxes 6,570 7,021
Property, Plant & Equipment, Net 607,081
638,096 Total Assets $ 3,978,860
$ 4,092,162
Liabilities and
Stockholders' Equity
Current Liabilities: Short-term Debt $ 273,840 $ 556,672 Current
Portion of Long-Term Debt 162,502 — Trade Accounts Payable 550,361
606,614 Income Taxes 47,829 33,810 Other Accrued Liabilities
367,475 382,000 Total Current
Liabilities 1,402,007
1,579,096 Long Term Debt, Net of Current Portion 1,350,005
1,092,419 Deferred Income Taxes 215,789 238,664 Other Long-Term
Liabilities 139,693
134,117 Total Liabilities 3,107,494
3,044,296 Stockholders' Equity
871,366 1,047,866 Total Liabilities and
Stockholders' Equity $ 3,978,860 $
4,092,162
THE VALSPAR CORPORATION SELECTED
INFORMATION (UNAUDITED AND SUBJECT TO RECLASSIFICATION) For the
Three and Six Months Ended May 1, 2015 and April 25, 2014 (Dollars
in thousands)
Three Months Ended Six Months Ended May
1, April 25, May 1, April 25, 2015
2014 2015 2014
Depreciation and Amortization $ 21,591 $ 24,492 $ 45,492 $ 52,634
Capital Expenditures 23,360 29,630 41,199 50,621
Dividends Paid 24,377 21,954 48,951 44,180
THE VALSPAR
CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED) For the Three Months Ended May 1, 2015 and April
25, 2014 (Dollars in thousands, except per share amounts)
The following information provides reconciliations of non-GAAP
financial measures from operations presented in the accompanying
news release to the most comparable financial measures calculated
and presented in accordance with accounting principles generally
accepted in the U.S. (“GAAP”). The company has provided non-GAAP
financial measures, which are not calculated or presented in
accordance with GAAP, as information supplemental and in addition
to the financial measures presented in the accompanying news
release that are calculated and presented in accordance with GAAP.
Such non-GAAP financial measures should not be considered superior
to, as a substitute for, or as an alternative to, and should be
considered in conjunction with, the GAAP financial measures
presented in the news release. The non-GAAP financial measures in
the accompanying news release may differ from similar measures used
by other companies. The following tables reconcile gross profit,
operating expense, earnings before interest and taxes (EBIT), net
income, net income per common share - diluted, and diluted earnings
per share (EPS) guidance for the periods presented (GAAP financial
measures) to adjusted gross profit, adjusted operating expense,
adjusted earnings before interest and taxes (EBIT), adjusted net
income, adjusted net income per common share - diluted, and
adjusted diluted earnings per share (EPS) guidance (non-GAAP
financial measures) for the periods presented. Three Months
Ended Three Months Ended May 1, 2015 April 25, 20141
Dollars % of Net Sales
Dollars % of Net Sales
Coatings
Segment
Earnings Before Interest and Taxes (EBIT) $ 108,022 17.6 % $ 98,047
15.8 % Restructuring Charges - Cost of Sales 561 0.1 % 2,468 0.4 %
Restructuring Charges - Operating Expense 995 0.2 %
171 0.0 % Adjusted EBIT $ 109,578 17.8 % $ 100,686
16.2 %
Paints
Segment
EBIT $ 46,571 11.6 % $ 50,423 10.6 % Restructuring Charges - Cost
of Sales 669 0.2 % 5,828 1.2 % Restructuring Charges - Operating
Expense 34 0.0 % 508 0.1 % Adjusted
EBIT $ 47,274 11.7 % $ 56,759 11.9 %
Other and
Administrative
EBIT $ (378 ) (0.6 %) $ (5,714 ) (9.8 %) Restructuring Charges -
Cost of Sales — 0.0 % (27 ) (0.0 %) Restructuring Charges -
Operating Expense (9 ) (0.0 %) (92 ) (0.2 %) Adjusted
EBIT $ (387 ) (0.6 %) $ (5,833 ) (10.0 %)
Total
Gross Profit $ 393,203 36.4 % $ 380,758 32.9 % Restructuring
Charges - Cost of Sales 1,230 0.1 % 8,269
0.7 % Adjusted Gross Profit $ 394,433 36.5 % $ 389,027 33.7
% Operating Expenses $ 237,294 22.0 % $ 237,684 20.6 %
Restructuring Charges - Operating Expense (1,020 ) (0.1 %)
(587 ) (0.1 %) Adjusted Operating Expenses $ 236,274 21.9 %
$ 237,097 20.5 % EBIT $ 154,215 14.3 % $ 142,756 12.4 %
Restructuring Charges - Total 2,250 0.2 %
8,856 0.8 % Adjusted EBIT $ 156,465 14.5 % $ 151,612 13.1 %
Net Income $ 90,314 $ 85,959 After Tax Restructuring Charges
- Total 1,849 6,661 Adjusted Net Income
$ 92,163 $ 92,620 Net Income per Common Share - diluted $
1.09 $ 0.99 After Tax Restructuring Charges - Total 0.02
0.08 Adjusted Net Income per Common Share -
diluted $ 1.11 $ 1.07
1 Certain amounts in the 2014 financial
statements have been reclassified to conform to the 2015
presentation. In the first quarter of 2015, we changed our policy
and now classify freight costs on shipments to customers as cost of
sales. Previously these costs were recorded as a deduction from net
sales. Reclassifications had no effect on net income (loss), cash
flows or stockholders’ equity as previously reported.
THE VALSPAR CORPORATION RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES (UNAUDITED) For the Six Months Ended May 1,
2015 and April 25, 2014 (Dollars in thousands, except per share
amounts) Six Months Ended Six Months Ended May
1, 2015 April 25, 20141 Dollars
% of Net Sales Dollars
% of Net Sales
Coatings
Segment
Earnings Before Interest and Taxes (EBIT) $ 243,631 20.0 % $
168,022 14.2 % Restructuring Charges - Cost of Sales 2,951 0.2 %
6,733 0.6 % Restructuring Charges - Operating Expense 1,958 0.2 %
4,526 0.4 % Gain on Sale of Certain Assets (48,001 ) (3.9 %)
— 0.0 % Adjusted EBIT $ 200,539 16.5 % $ 179,281 15.1
%
Paints
Segment
EBIT $ 71,900 9.4 % $ 81,420 9.7 % Restructuring Charges - Cost of
Sales 3,128 0.4 % 7,603 0.9 % Restructuring Charges - Operating
Expense 765 0.1 % 1,552 0.2 % Adjusted
EBIT $ 75,793 9.9 % $ 90,575 10.8 %
Other and
Administrative
EBIT $ (2,995 ) (2.7 %) $ (11,497 ) (10.8 %) Restructuring Charges
- Cost of Sales — 0.0 % 39 0.0 % Restructuring Charges - Operating
Expense (9 ) (0.0 %) 209 0.2 % Adjusted EBIT $
(3,004 ) (2.7 %) $ (11,249 ) (10.6 %)
Total
Gross Profit $ 726,495 34.7 % $ 699,811 32.8 % Restructuring
Charges - Cost of Sales 6,079 0.3 % 14,375
0.7 % Adjusted Gross Profit $ 732,574 35.0 % $ 714,186 33.5
% Operating Expenses $ 461,231 22.0 % $ 461,177 21.6 %
Restructuring Charges - Operating Expense (2,714 ) (0.1 %)
(6,287 ) (0.3 %) Adjusted Operating Expenses $ 458,517 21.9
% $ 454,890 21.3 % EBIT $ 312,536 14.9 % $ 237,945 11.1 %
Restructuring Charges - Total 8,793 0.4 % 20,662 1.0 % Gain on Sale
of Certain Assets (48,001 ) (2.3 %) — 0.0 %
Adjusted EBIT $ 273,328 13.1 % $ 258,607 12.1 % Net Income $
194,288 $ 139,512 After Tax Restructuring Charges - Total 5,967
14,242 After Tax Gain on Sale of Certain Assets (37,216 )
— Adjusted Net Income $ 163,039 $ 153,754 Net
Income per Common Share - diluted $ 2.33 $ 1.60 Restructuring
Charges - Total 0.07 0.17 After Tax Gain on Sale of Certain Assets
(0.44 ) — Adjusted Net Income per Common Share
- diluted $ 1.96 $ 1.77
Reconciliation of
Fiscal 2015 Annual Adjusted Diluted EPS Guidance
Diluted EPS Guidance $4.79 - $4.94 After Tax Restructuring Charges
0.10 - 0.15 After Tax Gain on Sale of Certain Assets (0.44)
Adjusted Diluted EPS Guidance $4.45 - $4.65
1 Certain amounts in the 2014 financial
statements have been reclassified to conform to the 2015
presentation. In the first quarter of 2015, we changed our policy
and now classify freight costs on shipments to customers as cost of
sales. Previously these costs were recorded as a deduction from net
sales. Reclassifications had no effect on net income (loss), cash
flows or stockholders’ equity as previously reported.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150527005354/en/
The Valspar CorporationInvestor Contact:Bill Seymour,
612-656-1328william.seymour@valspar.comorMedia Contact:Kimberly A.
Welch, 612-656-1347kim.welch@valspar.com
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