Valspar Corporation’s (VAL) net earnings moved up 3 cents to 39 cents from last year’s 36 cents and beat Zacks Consensus Estimate of 37 cents. Adjusted net earnings excluded charges relating to its Wattyl acquisition and restructuring actions of 5 cents and 2 cents per share respectively. Including these charges earnings per share was 34 cents — flat year over year.

Revenues

Quarterly sales jumped about 25.3% year over year to $842.4 million driven by stronger volumes on the back of new business efforts and Valspar’s new Australian paints acquisition, and surpassing the Zacks Consensus Estimate of $795 million.

Sales in Valspar’s Coatings segment increased 16.6% year over year to $456.4 million and sales in the Paints segment shot $336 million up 43.9% from the prior year quarter. Sales from intersegment business increased 5.1% year over year to $50.1 million.

Operating expense as a percentage of net sales slightly decreased to 23.2% from last year’s 23.4%. Gross margin decreased to 30.7% versus 32.3% in the prior year quarter.

Financial Review

Cash and cash equivalents at the end of the first quarter of 2011 increased 30.3% year over year to $168.3 million. Long-term debt of $949.8 million increased 8.8% from $873.3 million in the prior year.

Outlook

Valspar expects to continue to benefit from new businesses. Valspar expects adjusted net income per share to be in the range of $2.45 to $2.65 per share in fiscal 2011. However, the company expects raw material costs to increase in 2011 due to pricing and productivity.

Our Take

Valspar’s solid results and robust margin gains in the past few quarters stem from dramatic cost reduction, increasing product prices and productivity gains. We are more optimistic on Valspar’s long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories.

Valspar competes with the likes of Sherwin Williams Company (SHW) and PPG Industries Inc. (PPG).

Currently, Valspar has a short-term (1 to 3 months) Zacks #3 Rank and a long-term (6 months and longer) Neutral recommendation.

 
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