Valspar profits up, sales growth lukewarm

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: August 14, 2012 - 8:32 PM

Minneapolis-based paint company's earnings are slightly above forecast.


Valspar CEO Gary Hendrickson said Tuesday that the company expects “a challenging fourth quarter.”

Photo: Glen Stubbe, Star Tribune

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Valspar Corp. on Tuesday posted a double-digit increase in third-quarter profits, beating Wall Street expectations by a tad.

But Valspar shares fell more than 4 percent on lackluster sales and a cautious outlook amid the weak global economy.

The Minneapolis-based paint and coating company recorded net income of $86.4 million, or 92 cents per share. Adjusted for restructuring charges of 5 cents per share, the company had earnings of 97 cents per share, up 21 percent over a year ago. Wall Street analysts were expecting 96 cents.

Valspar reported third-quarter sales of $1.08 billion, up 1 percent over a year ago, but below analysts' estimates of $1.13 billion. The company noted in a news release that, excluding negative currency swings affecting international business, sales were up 3 percent during the quarter.

Valspar's North American business, particularly paint for the consumer market, performed well during the quarter, with sales volume increasing in the mid-single digits.

"As the quarter progressed, the market began to soften somewhat," Valspar CEO Gary Hendrickson told stock analysts in a conference call. Meanwhile, quarterly sales volume was off slightly in China, and down in the mid-single-digits in Europe.

The sales picture remains murky. "Looking forward at the macro business environment, our outlook is somewhat cautious given the challenges of a weak global economy and sluggish growth in the United States," Hendrickson said. "We're anticipating a challenging fourth quarter."

Still, Valspar reaffirmed its earnings guidance for the remainder of the year. Valspar's stock fell $2.20 or 4.2 percent Tuesday, closing at $50.74.

With Valspar's stock near a 52-week high and its earnings multiple relatively "rich," the company's weak top-line growth -- especially in paints -- will help put "near-term" pressure on its shares, Credit Suisse analyst John McNulty wrote in research note Tuesday.

Still, McNulty noted that, during the quarter, Valspar's profit margins improved as the company benefited from pricing power and more moderate raw material costs.

Steven Schwartz, an analyst with First Analysis, wrote in a research note that despite a "demand environment that remains lackluster," Valspar reported share gains in several significant markets, notably in China.

Mike Hughlett • 612-673-7003

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