CEO Comment

“The results in the first quarter were in line with our expectations. The quarter was highlighted by new business wins in many of our product lines and strong EBIT growth in our Coatings segment,” said Gary E. Hendrickson, Valspar chairman and chief executive officer.

“Our Coatings segment is well positioned for growth, with a robust pipeline of new business and a strong product portfolio, enhanced by the recent acquisition of ISVA Vernici, a European coil coatings manufacturer. In our Paints segment, we have several key new business wins this year, including the introduction of Cabot® stain at Lowe’s. In addition, we expect to benefit from improved productivity and easing year over year comparisons in the balance of the fiscal year. Based on our outlook, we are reaffirming our fiscal 2016 guidance.” Hendrickson added.

Coatings Segment Results

Fiscal first quarter 2016 net sales in the Coatings segment decreased 10 percent to $544 million. This includes the effects of foreign currency translation that negatively impacted net sales by 6 percent. Volumes decreased 3 percent in the fiscal first quarter of 2016, compared to growth of 10 percent in fiscal first quarter of 2015. The Coatings segment adjusted earnings before interest and taxes (adjusted EBIT) of $97 million increased 6 percent, as the benefits from productivity initiatives and cost/price more than offset the decline in sales and the impact of currency translation. Adjusted EBIT as a percent of net sales increased to 17.8% from 15.1% in the prior year.

Paints Segment Results

Fiscal first quarter 2016 net sales in the Paints segment decreased 20 percent to $291 million. This includes the effects of foreign currency translation that negatively impacted net sales by 5 percent. Acquisitions added 9 percent to net sales in the quarter. Volumes were down 20 percent in the fiscal first quarter of 2016. Acquisitions added 4 percent to volume in the quarter. Volumes were negatively affected by (1) the expected impact from the change at Lowe’s; (2) temporary actions taken by customers to lower inventory; and (3) difficult comparisons to the strong volume growth from the International businesses in the prior year. Paints segment adjusted EBIT of $4.5 million declined 84 percent, driven by lower sales and the impact of currency translation, partially offset by positive benefits from productivity initiatives, cost/price and the Quest acquisition. Adjusted EBIT as a percent of net sales declined to 1.5% from 7.9% 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 repurchased 221 thousand shares of its stock, for $18 million, during the quarter.

Fiscal 2016 Guidance

The company reaffirmed its guidance for fiscal 2016. This guidance includes sales growth in the “mid-single digits” in constant currency (reported sales including the estimated impact of foreign currency translation is expected to be “up slightly” compared to fiscal 2015). Adjusted diluted EPS expected to be in the range of $4.80 to $5.00.