- Diluted EPS (as adjusted) increased
10 percent to $1.33
- Net sales decreased 1 percent in
local currency (down 7 percent as reported), and volumes were
flat
- Coatings segment net sales flat in
local currency
- Paints segment net sales decreased 3
percent in local currency, driven by the expected volume decline in
North America
- Fiscal 2015 annual diluted EPS (as
adjusted) guidance updated to $4.55 to $4.65
The Valspar Corporation today reported fiscal third quarter 2015
net sales of $1.15 billion, a decrease of 7 percent over the prior
year. Total volume was flat as growth in the Coatings segment was
offset by the expected decline in the Paints segment. The effects
of foreign currency translation negatively impacted net sales by 5
percent; and acquisitions added 2 percent to net sales in the
quarter. Reported net income of $103 million and earnings per
diluted share of $1.25 for the current fiscal year include
nonrecurring items, which are detailed in the “Reconciliation of
Non-GAAP Financial Measures” included in this release. Third
quarter 2015 adjusted net income and earnings per diluted share,
excluding these nonrecurring items, were $109 million and $1.33,
respectively. Third quarter 2014 adjusted net income and earnings
per diluted share were $103 million and $1.21, respectively.
“We delivered solid performance in the quarter, with a 6 percent
increase in adjusted EBIT and a 10 percent increase in EPS. These
results were driven by our strong commercial execution and
significant productivity initiatives, despite the impact of
unfavorable currency and the change in our North American Paint
business,” said Gary E. Hendrickson, chairman and chief executive
officer. “Against the backdrop of strong performance in the prior
year, Coatings segment volumes grew driven by new business wins in
the General Industrial and Coil product lines. In the Paints
segment, volumes were up in each of the international regions.
North America Paints volumes also increased, excluding the product
line adjustment at a significant customer.”
“Based on our year-to-date results and outlook for the fourth
quarter, we are updating our fiscal 2015 EPS (as adjusted) guidance
to $4.55 to $4.65,” Hendrickson added.
Fiscal Third Quarter 2015 Segment
Results
Net sales in the Coatings segment decreased 6 percent to $640
million from $685 million in the fiscal third quarter of 2015. Net
sales in local currency were flat, and volumes were up 1 percent.
The increase in volume was led by the General Industrial product
line and continued growth in the Coil product line. Coatings
segment adjusted earnings before interest and taxes (EBIT) of $120
million declined 2 percent from $122 million, driven by the impact
of currency translation and a slight decline in sales, partially
offset by benefits from productivity initiatives and improvements
in cost/price. Adjusted EBIT as a percent of net sales increased to
18.7% from 17.8% in the prior year.
Net sales in the Paints segment decreased 7 percent to $444
million from $480 million in the fiscal third quarter of 2015. Net
sales in local currency declined 3 percent, and volumes were down 4
percent. The acquisition of Quest Specialty Chemicals added 3
percent to segment volume and 6 percent to segment net sales.
Volume growth in international 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 by difficult prior year comparisons when
the company launched new products in the home improvement channel.
Paints segment adjusted EBIT of $52 million was up 18 percent from
$44 million in the prior year. The decline in volume was more than
offset by benefits from productivity initiatives, lower operating
expenses, improved cost/price and the Quest acquisition. Adjusted
EBIT as a percent of net sales increased to 11.7% from 9.1% in the
prior year.
Fiscal 2015 Guidance
The company is updating its fiscal 2015 annual diluted EPS (as
adjusted) guidance range to $4.55 to $4.65 from the previous range
of $4.45 to $4.65. The company expects total fiscal 2015 annual
sales to decline in the “mid single-digits” from fiscal 2014,
compared to the previous expectation of a “low single-digits” sales
decline. Excluding the negative impact of currency translation,
fiscal 2015 annual sales are expected to be approximately “flat”
compared to fiscal 2014.
New Debt Offering
During the quarter, the company completed a previously disclosed
debt offering of $350 million of secured notes that mature on
January 15, 2026, with a coupon rate of 3.95%. The proceeds were
primarily utilized for the acquisition of the performance coatings
businesses of Quest Specialty Chemicals and for general corporate
purposes.
Dividends and Share Repurchases
During the quarter, the company paid a quarterly dividend of
$0.30 per common share outstanding, or $24.1 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 900 thousand shares of its stock, for $75 million.
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 10,800 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 @valspar 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 Nine
Months Ended July 31, 2015 and July 25, 2014
(Dollars in thousands, except per share
amounts)
Three Months Ended Nine Months
Ended July 31, July 25, July 31, July 25,
2015 2014 2015 2014 Net Sales1 $
1,149,126 $ 1,229,304 $ 3,243,084 $ 3,364,247 Cost of Sales1
733,572 809,310 2,094,956 2,230,067 Restructuring Charges - Cost of
Sales 1,319 3,302 7,398 17,677 Acquisition-related Charges - Cost
of Sales 2,952 — 2,952
— Gross Profit 411,283
416,692 1,137,778 1,116,503 Research
and Development 34,951 34,285 99,590 100,428 Selling, General and
Administrative 206,432 219,527 600,310 608,274 Restructuring
Charges 3,280 4,351 5,994 10,638 Acquisition-related Charges
892 — 892 —
Operating Expenses 245,555 258,163
706,786 719,340 Gain on Sale of Certain
Assets — — 48,001
— Income From Operations 165,728
158,529 478,993 397,163 Interest
Expense 22,622 16,137 59,178 47,825 Other (Income) Expense, Net
70 1,812 799
2,501 Income Before Income Taxes 143,036
140,580 419,016 346,837
Income Taxes 40,174 42,747
121,866 109,492 Net Income $ 102,862
$ 97,833 $ 297,150 $ 237,345
Average
Number of Shares O/S - basic 80,020,089 83,194,913 80,857,078
84,168,188 Average Number of Shares O/S - diluted
81,999,701 85,477,072 82,910,996
86,547,612
Net Income per Common Share - basic $ 1.29 $
1.18 $ 3.68 $ 2.82 Net Income per Common Share - diluted $
1.25 $ 1.14 $ 3.58 $ 2.74
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
Nine Months Ended July 31, 2015 and July 25, 2014 (Dollars in
thousands) Three Months Ended
Nine Months Ended July 31, July 25, July 31, July 25,
2015 2014 2015 2014
Coatings
Segment
Net Sales1 $ 640,225 $ 684,647 $ 1,858,103 $ 1,871,125 Earnings
Before Interest and Taxes (EBIT) 117,311 114,874 360,942 282,896
Key Metrics (GAAP): Sales Growth1 (6.5 %) 16.2 % (0.7 %)
13.2 % EBIT, % of Net Sales1 18.3 % 16.8 % 19.4 % 15.1 % Key
Metrics (non-GAAP)2: Adjusted EBIT $ 119,911 $ 122,019 $ 320,450 $
301,300 Adjusted EBIT, % of Net Sales1 18.7 % 17.8 % 17.2 % 16.1 %
Paints
Segment
Net Sales1 $ 443,844 $ 479,575 $ 1,209,346 $ 1,321,956 Earnings
Before Interest and Taxes (EBIT) 45,897 43,224 117,797 124,644
Key Metrics (GAAP): Sales Growth1 (7.5 %) 4.5 % (8.5 %) 7.0
% EBIT, % of Net Sales1 10.3 % 9.0 % 9.7 % 9.4 % Key Metrics
(non-GAAP)2: Adjusted EBIT $ 51,740 $ 43,704 $ 127,533 $ 134,279
Adjusted EBIT, % of Net Sales1 11.7 % 9.1 % 10.5 % 10.2 %
Other and
Administrative
Net Sales1 $ 65,057 $ 65,082 $ 175,635 $ 171,166 Earnings Before
Interest and Taxes (EBIT) 2,450 (1,381 ) (545 ) (12,878 )
Key Metrics (GAAP): Sales Growth1 (0.0 %) 2.2 % 2.6 % (1.4 %) EBIT,
% of Net Sales1 3.8 % (2.1 %) (0.3 %) (7.5 %) Key Metrics
(non-GAAP)2: Adjusted EBIT $ 2,450 $ (1,353 ) $ (554 ) $ (12,602 )
Adjusted EBIT, % of Net Sales1 3.8 % (2.1 %) (0.3 %) (7.4 %)
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 July 31, 2015 and
July 25, 2014 (Dollars in thousands)
July 31, July 25, 2015 2014
Assets
Current Assets: Cash and Cash Equivalents $ 342,647 $ 146,505
Restricted Cash 1,628 3,121 Accounts and Notes Receivable, Net
876,800 870,954 Inventories 512,609 526,438 Deferred Income Taxes
28,120 40,057 Prepaid Expenses and Other 103,241
101,275 Total Current Assets 1,865,045
1,688,350 Goodwill 1,304,831 1,145,730 Intangibles,
Net 653,020 602,516 Other Assets 117,415 93,035 Long-Term Deferred
Income Taxes 6,893 7,098 Property, Plant & Equipment, Net
630,814 643,069 Total Assets $
4,578,018 $ 4,179,798
Liabilities and
Stockholders' Equity
Current Liabilities: Short-term Debt $ 474,169 $ 553,557 Current
Portion of Long-Term Debt 158,091 4,500 Trade Accounts Payable
554,493 655,933 Income Taxes 43,530 32,026 Other Accrued
Liabilities 390,590 424,408 Total
Current Liabilities 1,620,873 1,670,424
Long Term Debt, Net of Current Portion 1,706,950 1,077,921 Deferred
Income Taxes 226,798 241,037 Other Long-Term Liabilities
139,188 134,568 Total Liabilities
3,693,809 3,123,950 Stockholders' Equity
884,209 1,055,848 Total Liabilities and
Stockholders' Equity $ 4,578,018 $ 4,179,798
THE VALSPAR CORPORATION SELECTED INFORMATION
(UNAUDITED AND SUBJECT TO RECLASSIFICATION) For the Three and
Nine Months Ended July 31, 2015 and July 25, 2014 (Dollars in
thousands) Three Months Ended
Nine Months Ended July 31, July 25, July 31, July 25,
2015 2014 2015 2014
Depreciation and Amortization $ 22,566 $ 21,618 $ 68,058 $ 74,252
Capital Expenditures 19,647 25,259 60,846 75,880
Dividends Paid 24,105 21,706 73,056 65,886
THE
VALSPAR CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES (UNAUDITED) For the Three Months Ended July 31, 2015
and July 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 July 31, 2015
July 25, 20141 Dollars % of Net Sales
Dollars % of Net Sales
Coatings
Segment
Earnings Before Interest and Taxes (EBIT) $ 117,311 18.3 % $
114,874 16.8 % Restructuring Charges - Cost of Sales 825 0.1 %
2,776 0.4 % Restructuring Charges - Operating Expense 1,775
0.3 % 4,369 0.6 % Adjusted EBIT $ 119,911 18.7
% $ 122,019 17.8 %
Paints
Segment
EBIT $ 45,897 10.3 % $ 43,224 9.0 % Restructuring Charges - Cost of
Sales 494 0.1 % 499 0.1 % Acquisition-related Charges - Cost of
Sales 2,952 0.7 % — 0.0 % Restructuring Charges - Operating Expense
1,505 0.3 % (19 ) (0.0 %) Acquisition-related Charges - Operating
Expense 892 0.2 % — 0.0 % Adjusted EBIT
$ 51,740 11.7 % $ 43,704 9.1 %
Other and
Administrative
EBIT $ 2,450 3.8 % $ (1,381 ) (2.1 %) Restructuring Charges - Cost
of Sales — 0.0 % 27 0.0 % Restructuring Charges - Operating Expense
— 0.0 % 1 0.0 % Adjusted EBIT $ 2,450
3.8 % $ (1,353 ) (2.1 %)
Total
Gross Profit $ 411,283 35.8 % $ 416,692 33.9 % Restructuring
Charges - Cost of Sales 1,319 0.1 % 3,302 0.3 % Acquisition-related
Charges - Cost of Sales 2,952 0.3 % —
0.0 % Adjusted Gross Profit $ 415,554 36.2 % $ 419,994 34.2 %
Operating Expenses $ 245,555 21.4 % $ 258,163 21.0 %
Restructuring Charges - Operating Expense (3,280 ) (0.3 %) (4,351 )
(0.4 %) Acquisition-related Charges - Operating Expense (892
) (0.1 %) — 0.0 % Adjusted Operating Expenses $
241,383 21.0 % $ 253,812 20.6 % EBIT $ 165,658 14.4 % $
156,717 12.7 % Restructuring Charges - Total 4,599 0.4 % 7,653 0.6
% Acquisition-related Charges - Total 3,844 0.3 %
— 0.0 % Adjusted EBIT $ 174,101 15.2 % $ 164,370 13.4
% Net Income $ 102,862 $ 97,833 After Tax Restructuring
Charges - Total 3,202 5,616 After Tax Acquisition-related Charges -
Total 2,712 — Adjusted Net Income $
108,776 $ 103,449 Net Income per Common Share - diluted $
1.25 $ 1.14 After Tax Restructuring Charges - Total 0.04 0.07 After
Tax Acquisition-related Charges - Total 0.03 —
Adjusted Net Income per Common Share - diluted 2 $ 1.33 $
1.21
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 data in this schedule has been
intentionally rounded to the nearest $0.01 and, therefore, may not
sum.
THE VALSPAR CORPORATION RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES (UNAUDITED) For the Nine Months
Ended July 31, 2015 and July 25, 2014 (Dollars in thousands, except
per share amounts) Nine Months Ended
Nine Months Ended July 31, 2015 July 25, 20141
Dollars % of Net Sales Dollars % of Net Sales
Coatings
Segment
Earnings Before Interest and Taxes (EBIT) $ 360,942 19.4 % $
282,896 15.1 % Restructuring Charges - Cost of Sales 3,776 0.2 %
9,509 0.5 % Restructuring Charges - Operating Expense 3,733 0.2 %
8,895 0.5 % Gain on Sale of Certain Assets (48,001 ) (2.6 %)
— 0.0 % Adjusted EBIT $ 320,450 17.2 % $ 301,300 16.1
%
Paints
Segment
EBIT $ 117,797 9.7 % $ 124,644 9.4 % Restructuring Charges - Cost
of Sales 3,622 0.3 % 8,102 0.6 % Acquisition-related Charges - Cost
of Sales 2,952 0.2 % — 0.0 % Restructuring Charges - Operating
Expense 2,270 0.2 % 1,533 0.1 %
Acquisition-related Charges - Operating
Expense
892 0.1 % — 0.0 % Adjusted EBIT $
127,533 10.5 % $ 134,279 10.2 %
Other and
Administrative
EBIT $ (545 ) (0.3 %) $ (12,878 ) (7.5 %) Restructuring Charges -
Cost of Sales — 0.0 % 66 0.0 % Restructuring Charges - Operating
Expense (9 ) (0.0 %) 210 0.1 % Adjusted EBIT $
(554 ) (0.3 %) $ (12,602 ) (7.4 %)
Total
Gross Profit $ 1,137,778 35.1 % $ 1,116,503 33.2 % Restructuring
Charges - Cost of Sales 7,398 0.2 % 17,677 0.5 %
Acquisition-related Charges - Cost of Sales 2,952 0.1
% — 0.0 % Adjusted Gross Profit $ 1,148,128 35.4 % $
1,134,180 33.7 % Operating Expenses $ 706,786 21.8 % $
719,340 21.4 % Restructuring Charges - Operating Expense (5,994 )
(0.2 %) (10,638 ) (0.3 %) Acquisition-related Charges - Operating
Expense (892 ) (0.0 %) - 0.0 % Adjusted
Operating Expenses $ 699,900 21.6 % $ 708,702 21.1 % EBIT $
478,194 14.7 % $ 394,662 11.7 % Restructuring Charges - Total
13,392 0.4 % 28,315 0.8 % Acquisition-related Charges - Total 3,844
0.1 % — 0.0 % Gain on Sale of Certain Assets (48,001 ) (1.5
%) — 0.0 % Adjusted EBIT $ 447,429 13.8 % $ 422,977
12.6 % Net Income $ 297,150 $ 237,345 After Tax
Restructuring Charges - Total 9,169 19,858 After Tax
Acquisition-related Charges 2,712 — After Tax Gain on Sale of
Certain Assets (37,216 ) — Adjusted Net Income
$ 271,815 $ 257,203 Net Income per Common Share - diluted $
3.58 $ 2.74 After Tax Restructuring Charges - Total 0.11 0.23 After
Tax Acquisition-related Charges - Total 0.03 — After Tax Gain on
Sale of Certain Assets (0.45 ) — Adjusted Net
Income per Common Share - diluted 2 3.28 $ 2.97
Reconciliation of
Fiscal 2015 Annual Adjusted Diluted EPS Guidance
Diluted EPS Guidance $4.76 - $4.81 After Tax Restructuring and
Acquisition-related Charges 0.23 - 0.28 After Tax Gain on Sale of
Certain Assets (0.45) Adjusted Diluted EPS Guidance 2 $4.55 - $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.
2
The data in this schedule has been
intentionally rounded to the nearest $0.01 and, therefore, may not
sum.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150825005467/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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