Zacks_Analysts' Blog : Valspar Beats Estimate - Analyst Blog

The Valspar Corporation’s (VAL) net earnings rose 50% to 84 cents in the fourth quarter of 2011 from last year’s 56 cents, exceeding the Zacks Consensus Estimate of 70 cents. Adjusted net earnings excluded non-cash impairment charge of $3.82 per share for goodwill and intangibles associated with the company’s wood coatings and gelcoat product lines and a $0.13 per share restructuring charge.

Including the after-tax non-cash impairment charge of $363.4 million, the reported net loss for the fourth quarter of 2011 was $295.7 million or $3.18 per share.

Revenues

Quarterly sales jumped 19.4% year over year to $1.05 billion, driven by new business efforts, pricing and productivity, offsetting rising raw material costs and a challenging market conditions.

Sales in Valspar’s Coatings segment increased 13.9% year over year to $566.2 million and sales in the Paints segment shot up $416.3 million, up 24.0% from the prior-year quarter. Sales from intersegment business inched up 2.61% year over year to $64.8 million.

Gross margin decreased to 31.8% in the reported quarter versus 33.1% in the comparable year-ago quarter.

Financial Review

Cash and cash equivalents at the end of October 28, 2011 increased 6.3% year over year to $178.2 million. Long-term debt came in at $679.8 million, down 27.9% from $943.2 million in the prior year.

Outlook

Though the global economy outlook is unclear, Valspar expects its sales to benefit from the diverse mix of businesses and growth in fast-growing coatings markets in Asia and Latin America. The company has a strong pipeline of new products and significant opportunities for share gains in both its Paint and Coatings segments globally.

The company expects to benefit from its restructuring actions while maintaining its operational and pricing discipline. Valspar currently forecasts fiscal 2012 adjusted net income per share in the range of $2.87 to $3.07, which will be its fourth consecutive year of double-digit earnings growth.

Our Take

Valspar’s solid results and robust margin gains in the past few quarters stem from its cost reduction efforts, increasing product prices and productivity gains. We are more optimistic on Valspar’s long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories.

Valspar competes with the likes of Sherwin Williams Company (SHW) and PPG Industries Inc. (PPG).

We maintain our Neutral recommendation on Valspar with a short-term Zacks #3 Rank (Hold) on the stock.