http://www.morningstar.com/earnings/45475771-valspar-corp-val-q4-2012.aspx

Valspar Corp VAL
Q4 2012 Earnings Call Transcript

Transcript Call Date 11/20/2012

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Valspar Fourth Quarter and Fiscal Year-End Conference Call. At this time, all participants are in a listen-only mode and later, we will conduct the question-and-answer instructions will be given at that time. As a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host Senior Vice President and Chief Financial Officer, Lori Walker. Please go ahead.

Lori A. Walker - SVP and CFO: Good morning, and welcome to our fiscal 2012 first quarter and full year earnings conference call. Gary Hendrickson, our Chairman and Chief Executive Officer, is with me on our call this morning.

Before we begin, I'll direct your attention to the press release we issued this morning which contains much of the information that we'll be covering during the call. This call is subject to forward-looking statements language contained in our press release and our comments may include forward-looking statements as that term is defined by securities law. This morning, I'll start with a summary of our fourth quarter and full year results. Details are provided in the press release we issued this morning, which is available in the Investor Relations section of our corporate website at valsparcorporate.com. Gary will follow with his comments, including our outlook for 2013 and then we'll respond to your questions.

Fourth quarter sales totaled $1.02 billion, compared to $1.05 billion in 2011. Excluding the negative impact of currency sales were flat. Adjusted net income per share for the quarter increased to $0.86 in 2012, a 2% increase from $0.84 in 2011. However, last year's net income per share includes non-recurring benefits from favorable tax rulings totaling $0.09.

Excluding this benefit, our net income per share increased $0.11 or 15% and our EBIT margin for the quarter increased to 12.6% from 10.8% last year, a 180 basis point improvement. Our press release includes details showing the reconciliation of our reported to adjusted results.

For fiscal year 2012, sales totaled $4.02 billion. When adjusted for currency, sales increased roughly 3% from fiscal year 2011. Adjusted net income per share increased 24% to $3.28 in 2012 from $2.65 in 2011. Again, please refer to our press release for the reconciliation to our reported results.

As I just mentioned, our sales growth for the year was 3% driven by new business and pricing. However, due to weak international markets and our decision to exit about 2% of our volume from unprofitable customers and product lines. Volumes were down 1% for the year. As we begin to anniversary some of these decisions, our volume trends have improved. So in the third and the fourth quarter, volumes were up about 1% and 3% respectively, driven by our new business wins.

As I comment on our fourth quarter gross margin and operating expense performance, note that restructuring is excluded in both years. Also excluded is last year's non-cash impairment charge for goodwill and intangibles associated with our wood coatings and gelcoat product lines. For the fourth quarter, our gross margin was 34%, up 110 basis points from 32.9% in 2011. Margins benefited from productivity improvements and higher margin new business particularly in our Coatings segment. Operating expenses as relates to revenue were 21.5%, down from 22.1% in the fourth quarter of 2011. Quarter-over-quarter operating expense dollars decreased $10.8 million due to benefits from prior restructuring actions, productivity improvements and currency impact.

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