05.25.16
Valspar Corp. has released its second quarter results for 2016. Highlights of the report include:
“The previously announced combination of Sherwin-Williams and Valspar will create significant value for our customers, employees and other stakeholders. We are confident this transaction will accelerate many of the operating initiatives already underway at Valspar. We look forward to positioning Valspar to enter its next phase of growth and to continue to work closely with Sherwin-Williams to obtain the necessary approvals to seamlessly close this transaction,” Hendrickson added.
Coatings Segment Results
Fiscal second quarter 2016 net sales in the Coatings segment decreased 4 percent to $587 million. This includes the effects of foreign currency translation that negatively impacted net sales by 4 percent. Acquisitions added 1 percent to net sales in the quarter. Volumes increased 2 percent in the fiscal second quarter of 2016. Volume growth from the Coil, Wood and Packaging product lines was partially offset by lower volume in the General Industrial product line. Acquisitions added 1 percent to volume in the quarter. The Coatings segment adjusted earnings before interest and taxes (adjusted EBIT) of $113 million increased 4 percent, as the benefits from productivity initiatives and cost/price were partially offset by the impact of currency translation. Adjusted EBIT as a percent of net sales increased to 19.3% from 17.8% in the prior year.
Paints Segment Results
Fiscal second quarter 2016 net sales in the Paints segment increased 1 percent to $407 million. This includes the effects of foreign currency translation that negatively impacted net sales by 2 percent. Acquisitions added 11 percent to net sales in the quarter. Volume declined 6 percent in the fiscal second quarter of 2016, as lower volume in Asia and North America were partially offset by acquisitions which added 6 percent to volume in the quarter. Paints segment adjusted EBIT of $53 million increased 12 percent, driven by the impact of the Quest acquisition and the benefits from productivity initiatives and cost/price. Adjusted EBIT as a percent of net sales increased to 13.0% from 11.7% in the prior year.
Dividends and Share Repurchases
During the quarter, the company paid a quarterly dividend of $0.33 per common share outstanding, or $26 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. The company suspended share repurchases in the fiscal second quarter of 2016 and for the balance of the fiscal year.
Proposed Merger with The Sherwin-Williams Company
On March 20, 2016, Sherwin-Williams and Valspar announced that they had entered into a definitive agreement pursuant to which Sherwin-Williams will acquire Valspar for $113 per share in an all-cash transaction, or an enterprise value of approximately $11.3 billion. The transaction is expected to close by the end of Q1 calendar year 2017, and is subject to the approval of Valspar shareholders and customary closing conditions, including regulatory approvals.
Given the complementary nature of the businesses and the benefits this transaction will provide to customers, Sherwin-Williams and Valspar believe that no or minimal divestitures should be required to complete the transaction. Under the terms of the merger agreement, in what both companies believe to be the unlikely event that divestitures are required of businesses totaling more than $650 million of Valspar’s 2015 revenues, the transaction price would be adjusted to $105 in cash per Valspar share. Sherwin-Williams would have the right to terminate the transaction in the event that required divestitures exceed $1.5 billion of Valspar’s 2015 revenues. These provisions provide Sherwin-Williams and Valspar with greater closing certainty.
Fiscal 2016 Guidance and Earnings Conference Call
In light of the proposed merger transaction, the company is withdrawing its financial and earnings guidance for fiscal 2016. In addition, the company will not hold a conference call to discuss quarterly financial results. Valspar will continue to post its supplemental quarterly slide presentation on http://investors.valspar.com and the company’s investor relations team is available to answer questions.
- Reported diluted EPS of $0.99 (includes merger related costs of $18 million)
- Adjusted diluted EPS increased 10% to $1.22
- Net sales declined 2% (includes a negative 3% impact from F/X translation)
- Total volumes declined 1%, Coatings segment volume increased 2%, Paints segment volume declined 6%
- Adjusted EBIT increased 2% (Adjusted EBIT margin rate up 60 bps), driven by growth in both the Paints and Coatings segments
- On March 20, 2016, Sherwin-Williams and Valspar announced that they entered into a definitive agreement pursuant to which Sherwin-Williams will acquire Valspar for $113 per share in an all-cash transaction, or an enterprise value of approximately $11.3 billion.
“The previously announced combination of Sherwin-Williams and Valspar will create significant value for our customers, employees and other stakeholders. We are confident this transaction will accelerate many of the operating initiatives already underway at Valspar. We look forward to positioning Valspar to enter its next phase of growth and to continue to work closely with Sherwin-Williams to obtain the necessary approvals to seamlessly close this transaction,” Hendrickson added.
Coatings Segment Results
Fiscal second quarter 2016 net sales in the Coatings segment decreased 4 percent to $587 million. This includes the effects of foreign currency translation that negatively impacted net sales by 4 percent. Acquisitions added 1 percent to net sales in the quarter. Volumes increased 2 percent in the fiscal second quarter of 2016. Volume growth from the Coil, Wood and Packaging product lines was partially offset by lower volume in the General Industrial product line. Acquisitions added 1 percent to volume in the quarter. The Coatings segment adjusted earnings before interest and taxes (adjusted EBIT) of $113 million increased 4 percent, as the benefits from productivity initiatives and cost/price were partially offset by the impact of currency translation. Adjusted EBIT as a percent of net sales increased to 19.3% from 17.8% in the prior year.
Paints Segment Results
Fiscal second quarter 2016 net sales in the Paints segment increased 1 percent to $407 million. This includes the effects of foreign currency translation that negatively impacted net sales by 2 percent. Acquisitions added 11 percent to net sales in the quarter. Volume declined 6 percent in the fiscal second quarter of 2016, as lower volume in Asia and North America were partially offset by acquisitions which added 6 percent to volume in the quarter. Paints segment adjusted EBIT of $53 million increased 12 percent, driven by the impact of the Quest acquisition and the benefits from productivity initiatives and cost/price. Adjusted EBIT as a percent of net sales increased to 13.0% from 11.7% in the prior year.
Dividends and Share Repurchases
During the quarter, the company paid a quarterly dividend of $0.33 per common share outstanding, or $26 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. The company suspended share repurchases in the fiscal second quarter of 2016 and for the balance of the fiscal year.
Proposed Merger with The Sherwin-Williams Company
On March 20, 2016, Sherwin-Williams and Valspar announced that they had entered into a definitive agreement pursuant to which Sherwin-Williams will acquire Valspar for $113 per share in an all-cash transaction, or an enterprise value of approximately $11.3 billion. The transaction is expected to close by the end of Q1 calendar year 2017, and is subject to the approval of Valspar shareholders and customary closing conditions, including regulatory approvals.
Given the complementary nature of the businesses and the benefits this transaction will provide to customers, Sherwin-Williams and Valspar believe that no or minimal divestitures should be required to complete the transaction. Under the terms of the merger agreement, in what both companies believe to be the unlikely event that divestitures are required of businesses totaling more than $650 million of Valspar’s 2015 revenues, the transaction price would be adjusted to $105 in cash per Valspar share. Sherwin-Williams would have the right to terminate the transaction in the event that required divestitures exceed $1.5 billion of Valspar’s 2015 revenues. These provisions provide Sherwin-Williams and Valspar with greater closing certainty.
Fiscal 2016 Guidance and Earnings Conference Call
In light of the proposed merger transaction, the company is withdrawing its financial and earnings guidance for fiscal 2016. In addition, the company will not hold a conference call to discuss quarterly financial results. Valspar will continue to post its supplemental quarterly slide presentation on http://investors.valspar.com and the company’s investor relations team is available to answer questions.