Valspar Reports Fiscal Second Quarter 2016 Results

MINNEAPOLIS--(BUSINESS WIRE)--Valspar (NYSE:VAL):

Summary Financials

$ millions except EPS

Notes on Net Sales and Volume: Acquisitions added 5% to net sales and 3% to volume for fiscal Q2 2016 (0% and 0% respectively for fiscal Q2 2015). Foreign currency translation negatively impacted net sales by 3% for fiscal Q2 2016 (5% for fiscal Q2 2015).

* Adjusted Results exclude certain items, which are detailed in the “Reconciliation of Non-GAAP Financial Measures” included in this release. In addition to restructuring and other charges, the excluded items include $18 million of costs incurred in connection with the proposed merger with The Sherwin-Williams Company.

CEO Comment

“Our results in the second quarter were highlighted by new business wins, growth in adjusted EBIT in both Paints and Coatings and 10 percent growth in adjusted EPS. Coatings segment performance continues to show the strength of our diversified portfolio, with solid volume growth in the Coil, Wood and Packaging product lines. In the Paints segment, sales and adjusted EBIT increased led by the impact of the Quest acquisition,” said Gary E. Hendrickson, chairman and chief executive officer.

“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.

Valspar: If it matters, we’re on it.®

Valspar is a global leader in the coatings industry providing customers with innovative, high-quality products and value-added services. Our 11,100 employees worldwide deliver advanced coatings solutions with best-in-class appearance, performance, protection and sustainability to customers in more than 100 countries. Valspar offers a broad range of superior coatings products for the consumer market, and highly-engineered solutions for the construction, industrial, packaging and transportation markets. Founded in 1806, Valspar is headquartered in Minneapolis. Valspar’s reported net sales in fiscal 2015 were $4.4 billion and its shares are traded on the New York Stock Exchange (symbol: VAL). For more information, visit www.valspar.com and follow @valspar on Twitter.

Additional Information and Where to Find it

Valspar has filed with the SEC a preliminary proxy statement, and amendment thereto, in connection with the contemplated transactions. The definitive proxy statement will be sent or given to Valspar stockholders and will contain important information about the contemplated transactions. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE PROXY STATEMENT (INCLUDING THE DEFINITIVE PROXY STATEMENT WHEN IT BECOMES AVAILABLE) AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE. Investors and security holders may obtain a free copy of the preliminary proxy statement and the definitive proxy statement (when it is available) and other documents filed with the SEC.

Certain Information Concerning Participants

Valspar and Sherwin-Williams and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Valspar investors and security holders in connection with the contemplated transactions. Information about Valspar’s directors and executive officers is set forth in its proxy statement for its 2016 Annual Meeting of Stockholders and its most recent annual report on Form 10-K.

Information about Sherwin-Williams’ directors and executive officers is set forth in its proxy statement for its 2016 Annual Meeting of Stockholders and its most recent annual report on Form 10-K. These documents may be obtained for free at the SEC’s website at www.sec.gov. Additional information regarding the interests of participants in the solicitation of proxies in connection with the contemplated transactions is included in the preliminary proxy statement and will be included in the proxy statement that Valspar intends to file with the SEC.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). The PSLRA provides a safe harbor for forward-looking statements. Forward-looking statements are based on management’s current expectations, estimates, assumptions and beliefs about future events, conditions and financial performance. Forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from such statements. Any statement that is not historical in nature is a forward-looking statement. We may identify forward-looking statements with words and phrases such as “expect,” “project,” “forecast,” “outlook,” “estimate,” “anticipate,” “believe,” “could,” “may,” “will,” “plan to,” “intend,” “should” and similar words or expressions. These risks, uncertainties and other factors include, but are not limited to, deterioration in general economic conditions, both domestic and international, that may adversely affect our business; fluctuations in availability and prices of raw materials, including raw material shortages and other supply chain disruptions, and the inability to pass along or delays in passing along raw material cost increases to our customers; dependence of internal sales and earnings growth on business cycles affecting our customers and growth in the domestic and international coatings industry; market share loss to, and pricing or margin pressure from, larger competitors with greater financial resources; significant indebtedness that restricts the use of cash flow from operations for acquisitions and other investments; dependence on acquisitions for growth, and risks related to future acquisitions, including adverse changes in the results of acquired businesses, the assumption of unforeseen liabilities and disruptions resulting from the integration of acquisitions; risks and uncertainties associated with operating in foreign markets, including achievement of profitable growth in developing markets; impact of fluctuations in foreign currency exchange rates on our financial results; loss of business with key customers; damage to our reputation and business resulting from product claims or recalls, litigation, customer perception and other matters; our ability to respond to technology changes and to protect our technology; possible interruption, failure or compromise of the information systems we use to operate our business; changes in governmental regulation, including more stringent environmental, health and safety regulations; our reliance on the efforts of vendors, government agencies, utilities and other third parties to achieve adequate compliance and avoid disruption of our business; unusual weather conditions adversely affecting sales; changes in accounting policies and standards and taxation requirements such as new tax laws or revised tax law interpretations; the nature, cost and outcome of pending and future litigation and other legal proceedings; civil unrest and the outbreak of war and other significant national and international events; risks relating to our merger with Sherwin-Williams including, the failure to obtain Valspar stockholder approval of the proposed transaction, the possibility that the closing conditions to the contemplated transactions may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval; delay in closing the transaction or the possibility of non-consummation of the transaction; the potential for regulatory authorities to require divestitures in connection with the proposed transaction and the possibility that Valspar stockholders consequently receive $105 per share instead of $113 per share; the occurrence of any event that could give rise to termination of the merger agreement; the risk that stockholder litigation in connection with the contemplated transactions may affect the timing or occurrence of the contemplated transactions or result in significant costs of defense, indemnification and liability; risks inherent in the achievement of cost synergies and the timing thereof; risks related to the disruption of the transaction to Valspar and its management; the effect of announcement of the transaction on Valspar’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties; and other factors set forth in the risk factors section of our Annual Report on Form 10-K for the fiscal year ended October 30, 2015, as well as Valspar’s Quarterly Reports on Form 10-Q and other documents filed by Valspar with the Securities and Exchange Commission. We caution investors not to place undue reliance on any such forward-looking statements, which speak only as of the date on which such statements were made. We undertake no obligation to subsequently revise any forward-looking statement to reflect new information, events or circumstances after the date of such statement, except as required by law.