Paint and coatings maker Valspar Corporation (VAL) recently reported a 38% y-o-y increase in net earnings to 61 cents per share in the third quarter of fiscal 2009, helped by cost-cutting efforts. Excluding one-time costs for restructuring and other items, Valspar earned 67 cents per share in the quarter — far better than the Zacks Consensus Estimate of 53 cents.

The Minneapolis-based company was able to trim down costs by 26% year over year through restructuring actions. Lower costs resulted in higher operating margin, which increased to 36.7% in the third quarter of fiscal 2009 from 28.7% in the year-ago period.

 In fiscal 2008, Valspar had closed four manufacturing plants in North America. In the first quarter of fiscal 2009, the company had closed two additional plants. In the same quarter, global headcount went down by more than 10%.

The company’s discretionary spending on items other than employment costs was down 10% year over year. The company is also reducing the costs of its global wood business, which delivered a modest profit in 2008.

Valspar is moving aggressively to increase prices in all its business segments. The company’s prices are moving up at an annual rate of 3–4%. However, we fear these price increases are weighing on demand.

Revenues slipped 17% year over year to $794.6 million due to decline in volume and unfavorable currency effects. Sales in the Coatings business were down 24% to $318.6 million, while that in the Paints segment dropped 5% to $415.2 million year over year. The decrease in volume reflects lower demand for wood coatings from U.S. furniture manufacturers as well as contracting demand for coil coatings and general industrial coatings.

In the Other business segment, which includes resins, colorants, gel coats, composite materials for shower and tub manufacturing, furniture protection plans and corporate expenses, the company reported a sales decline of 23% to $60.8 million due to the impact of a weak housing market in the U.S.


Management expects earnings per share in the range of $1.67 to $1.72, excluding restructuring charges, in fiscal 2009 — higher than the initial forecast of $1.55 to $1.65. The company expects net earnings to benefit from restructuring actions, which is likely to add about 19-22 cents per share. However, the company expects raw material and other input expenses to rise moderately going forward.
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