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Why Valspar Missed Analysts’ 4Q16 Revenue Estimates

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Valspar’s 4Q16 revenues

Valspar (VAL) not only missed analysts’ 4Q16 earnings estimates, but it also missed analysts’ revenue estimates. Analysts had estimated that Valspar’s revenue would be $1.18 billion, but the company reported total revenue of $1.10 billion. Reported revenue was ~3.8% lower than 4Q15 revenue of $1.15 billion.

Valspar’s peers Sherwin-Williams (SHW), RPM International (RPM), and PPG Industries (PPG) haven’t announced their 4Q16 earnings yet. Valspar’s financial reporting year runs from November 1 through October 31.

Valspar’s fall in total sales can be attributed to the following factors:

  • Foreign exchange negatively impacted total sales 1.0%.
  • Total sales volume accounted for the rest and fell more than 2.0%.

From August 1–October 31, 2016, the dollar index rose 2.8%, indicating a strong upward movement in the dollar. Companies with businesses outside the United States will see a negative impact on their revenues and net income.

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Net profit margins

Valspar reported a net profit margin of 9.4% in 4Q16 compared to 8.9% in 4Q15. That’s an increase of 0.50 percentage points. The increase was mainly due to lower income taxes and lower cost of sales.

In 4Q16, Valspar paid income tax of ~$5.7 million compared to ~$42.4 million in 4Q15, a fall of ~86.0% on a year-over-year basis. The company’s cost of sales was $712.5 million compared to $735.9 million in 4Q15. That’s a fall of ~3.2% year-over-year.

During the quarter, Valspar incurred charges related to restructuring and expenses related to its proposed merger with Sherwin-Williams. Those costs totaled $8.0 million, which negatively impacted earnings per share by ~$0.10.

ETF investment

You can hold Valspar indirectly by investing in the ProShares S&P MidCap 400 Dividend Aristocrats (REGL). As of December 20, 2016, 2.0% of REGL’s holdings were in Valspar.

Let’s move on to the next part, where we’ll look in detail at the earnings for Valspar’s segments.

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