Paint and coatings maker Valspar Corp. saw sales drop 7 percent during the second quarter after an expected decline in Lowe's paint orders and continued pressure from negative currency translations, officials announced Wednesday.
Excluding one-time items, the Minneapolis-based company reported adjusted profits that fell 1 percent to $92 million, or $1.11 a share, which beat Wall Street's average estimates by a penny. Revenue was $1.08 billion, which was lower than the $1.11 billion expected by analysts.
Including the one-time items, profits rose only $5 million for the quarter.
"Our results for second quarter were in line with our expectations," said CEO Gary Hendrickson.
U.S. paint sales were dinged by product line changes at Lowe's, a "significant" customer, the company said. While one particular paint segment was hurt by Lowe's supplier change, Valspar noted that its other product sales within the big-box hardware retailer grew thanks to 400 Valspar employees being placed in the stores. Still, that wasn't enough to erase the quarter's paint sale decline.
Besides the Lowe's hit, Valspar suffered a $55 million bite from negative currency translation rates, officials said.
Excluding negative currency effects, however, volume and sales were up in the worldwide paint segment, especially in Australia and China, Hendrickson said. The company also saw continued growth in its coatings business. The coatings surge was "driven by new business wins and benefits from productivity and cost savings," he said.
Hendrickson reiterated Valspar's profit guidance for the rest of the year, saying that earnings should reach $4.45 to $4.65 per share.
On the revenue side, however, the company said it now expects 2015 sales to dip in the "low single digits" from 2014 because of the negative effects of the strong U.S. dollar. Valspar previously forecast that 2015 sales would be flat.
But Hendrickson and Chief Financial Officer James L. Muehlbauer told analysts on Wednesday that the high U.S. dollar was particularly hurting translated sales from Australia, where Valspar has a large presence in retail hardware outlets.
Investors reacted to the news, sending the stock down nearly 3 percent, or $2.34, to $83.59 on Wednesday.
Valspar also announced Wednesday that it will buy two coatings businesses belonging to Quest Specialty Chemicals. The purchases are expected to close in the third quarter and will give Valspar an additional $190 million a year in combined revenue from operations in North America and Europe.
Both businesses combined will cost Valspar less than $400 million and are expected to add to earnings in 2016, officials said. Exact terms were not disclosed.
Hendrickson told analysts that Valspar may consider additional small acquisitions.