Valspar Boasts Strong Sales in Second-Quarter 2011, but Costs Take Off the Shine

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading paint and coatings company Valspar Corporation (NYSE:VAL) (Minneapolis, Minnesota) saw mixed results in its fiscal second quarter of 2011, as increased expenses and sales costs somewhat diminished strong revenues. Net income for the quarter was reported to be $56.31 million, an 8.7% decrease from the unusually strong fiscal second quarter of 2010.

Total net sales stood at $992.73 million, a 23.54% increase from the same period last year. Stronger selling prices and improved volumes in the Coatings segment gave Valspar a big boost in revenue, but higher raw materials costs negatively affected the bottom line. Valspar officials cited a "normal" lag between the higher raw materials costs and the effect of pricing actions as a major reason for the slightly lower earnings.

"Our second-quarter results were quite good, given the exceptionally strong second quarter we had last year," said William L. Mansfield, the chairman and chief executive officer of Valspar, in a conference call. "In the second quarter of last year, our sales growth was 20%. ... At that time, government incentive programs for new homes and appliance purchases were in effect, and inventory replenishment, stemming from the overall improvement in global business conditions, contributed to the strong growth. And in addition, raw material costs were stable last year."

Although Valspar's segments all reported sales gains for the quarter, both of the major segments saw dips in earnings due to rising costs:

• The Coatings segment reported $509.14 million in sales, a 15.17% increase from second-quarter 2010, and $59.91 million in earnings before income and taxes, a 4.01% decrease.
• The Paint segment reported $418.38 million in sales, a 37.63% increase from the same period last year, and $38.96 million in earnings before income and taxes, a 25.3% decrease.
• All other segments reported a total of $65.21 million in sales, a 13.45% increase from second-quarter 2010, and $656,000 in earnings before income and taxes, compared with a $9.02 million loss in the same period last year.

Mansfield said that Valspar expects to continue to raise its selling prices and reduce its cost structure as the year goes on. The capital spending forecast for the full year is about $90 million; in the second quarter, capital spending totaled $15.3 million, up from $13.8 million in the same period last year.

Mansfield said that substantial raw material inflation is the major issue facing Valspar and its industry. "We now expect our raw material costs to be up by mid- to high-teens [percentages] for the year," he said in the conference call. "We are making progress with our pricing. ... However, raw material costs continue to rise, and we need to secure additional pricing. We are in the process of implementing these required additional increases."

Industrial Info is tracking more than $10 million in active Valspar projects in the U.S., including the $1.5 million closure of a coatings plant in Seattle, Washington. After operations cease at the facility in June this year, the company will decide whether to sell the plant or dismantle and demolish it. For more information, visit Industrial Info's North American Chemical Processing Project Database.

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