Valspar beats Wall Street's 2Q earnings expectations

Valspar Corp. beat Wall Street's second-quarter earnings expectations Monday, and said its paint and coating products were gaining momentum in U.S., European and Asian markets.

Paint sales rose 8 percent to $472 million in the quarter, while sales of coatings rose 12 percent to $603 million.

In a conference call with analysts, CEO Gary Hendrickson said the second-quarter results "reflect continued momentum in our business, and are consistent with the growth plans that we set for the fiscal year."

The market took it in stride. The stock closed Monday at 74.38, up $1.05 per share, or 1.4 percent.

Valspar, based in Minneapolis, reported adjusted earnings of $1.07 per share, compared with analysts' expectations of $1.04. Revenue of $1.1 billion met analysts' predictions.

Hendrickson said the second-quarter results were the result of integrating acquisitions, winning new business and improving productivity.

"Sales for the first half of the fiscal year increased 9 percent and adjusted diluted earnings per share are up 17 percent," Hendrickson said in a statement.

In the coatings business, slight declines in the U.S. were offset by market growth and new sales in China and Europe, Hendrickson said. It was the other way around in the paint business, where "performance was primarily driven by double-digit volume growth in the U.S.," Hendrickson said.

Because Valspar's paint and coating sales are affected by the health of housing markets, analyst Ghansham Panjabi of Robert W. Baird in Milwaukee asked what Hendrickson foresaw in the U.S. housing market – and in particular if there were any warning signs.

Hendrickson was optimistic.

"The trend line in both existing home sales and new construction is a positive one," Hendrickson said. "It's not a sharp line up to the right, but I think the market overall is improving. We see the results of that in our wood coatings business as an example, which is having another good year on the back of a good year last year."

Asked by analyst Dan Juster of Citigroup in New York why Valspar had been able to grow in China when the real estate market there is slowing, Hendrickson said the company had such a small market share in China that it should be able to grow even if the Chinese real estate market is contracting slightly.