The Valspar Corporation has reported fiscal third quarter 2015 net sales of $1.15 billion, a decrease of 7 percent over the prior year. Total volume was flat as growth in the Coatings segment was offset by the expected decline in the Paints segment. The effects of foreign currency translation negatively impacted net sales by 5 percent; and acquisitions added 2 percent to net sales in the quarter. Reported net income of $103 million and earnings per diluted share of $1.25 for the current fiscal year include nonrecurring items, which are detailed in the “Reconciliation of Non-GAAP Financial Measures” included in this release. Third quarter 2015 adjusted net income and earnings per diluted share, excluding these nonrecurring items, were $109 million and $1.33, respectively. Third quarter 2014 adjusted net income and earnings per diluted share were $103 million and $1.21, respectively.
“We delivered solid performance in the quarter, with a 6 percent increase in adjusted EBIT and a 10 percent increase in EPS. These results were driven by our strong commercial execution and significant productivity initiatives, despite the impact of unfavorable currency and the change in our North American Paint business,” said Gary E. Hendrickson, chairman and chief executive officer. “Against the backdrop of strong performance in the prior year, Coatings segment volumes grew driven by new business wins in the General Industrial and Coil product lines. In the Paints segment, volumes were up in each of the international regions. North America Paints volumes also increased, excluding the product line adjustment at a significant customer.”
“Based on our year-to-date results and outlook for the fourth quarter, we are updating our fiscal 2015 EPS (as adjusted) guidance to $4.55 to $4.65,” Hendrickson added.
Fiscal Third Quarter 2015 Segment Results
Net sales in the Coatings segment decreased 6 percent to $640 million from $685 million in the fiscal third quarter of 2015. Net sales in local currency were flat, and volumes were up 1 percent. The increase in volume was led by the General Industrial product line and continued growth in the Coil product line. Coatings segment adjusted earnings before interest and taxes (EBIT) of $120 million declined 2 percent from $122 million, driven by the impact of currency translation and a slight decline in sales, partially offset by benefits from productivity initiatives and improvements in cost/price. Adjusted EBIT as a percent of net sales increased to 18.7% from 17.8% in the prior year.
Net sales in the Paints segment decreased 7 percent to $444 million from $480 million in the fiscal third quarter of 2015. Net sales in local currency declined 3 percent, and volumes were down 4 percent. The acquisition of Quest Specialty Chemicals added 3 percent to segment volume and 6 percent to segment net sales. Volume growth in international regions was more than offset by a decline in North America. The volume decline in North America was driven by the previously disclosed product line adjustment at a significant customer and by difficult prior year comparisons when the company launched new products in the home improvement channel. Paints segment adjusted EBIT of $52 million was up 18 percent from $44 million in the prior year. The decline in volume was more than offset by benefits from productivity initiatives, lower operating expenses, improved cost/price and the Quest acquisition. Adjusted EBIT as a percent of net sales increased to 11.7% from 9.1% in the prior year.
Fiscal 2015 Guidance
The company is updating its fiscal 2015 annual diluted EPS (as adjusted) guidance range to $4.55 to $4.65 from the previous range of $4.45 to $4.65. The company expects total fiscal 2015 annual sales to decline in the “mid single-digits” from fiscal 2014, compared to the previous expectation of a “low single-digits” sales decline. Excluding the negative impact of currency translation, fiscal 2015 annual sales are expected to be approximately “flat” compared to fiscal 2014.
New Debt Offering
During the quarter, the company completed a previously disclosed debt offering of $350 million of secured notes that mature on January 15, 2026, with a coupon rate of 3.95%. The proceeds were primarily utilized for the acquisition of the performance coatings businesses of Quest Specialty Chemicals and for general corporate purposes.
Dividends and Share Repurchases
During the quarter, the company paid a quarterly dividend of $0.30 per common share outstanding, or $24.1 million. Valspar is a member of the S&P High Yield Dividend Aristocrats®, which is comprised of companies increasing dividends every year for at least 20 consecutive years. Also during the quarter, the company repurchased 900 thousand shares of its stock, for $75 million.
