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Why Valspar’s Paints Segment Sales Fell in 4Q16

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Valspar’s Paints segment

In fiscal 4Q16, Valspar’s Paints segment reported revenue of $421.1 million, or 38.0% of the company’s total revenue. Revenue for the segment was ~7.0% lower than fiscal 4Q15.

The fall in the segment’s sales is mainly due to the negative impact of foreign currency translation of ~1.0%. Sales volumes fell 7.0% on a year-over-year basis. The fall in volumes can be attributed to lower new home sales from August to October. In the past eight quarters, the segment’s revenue has risen at a compound growth rate of 2.2%.

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EBIT and margins for the Paints segment

Valspar’s Paints segment reported EBIT (earnings before interest and tax) of $44.0 million in fiscal 4Q16 compared to $55.6 million in fiscal 4Q15. That’s a ~21.0% fall on a year-over-year basis. The segment’s EBIT margin in 4Q16 was 10.5% compared to 19.2% in 4Q15. That’s a fall of 180 bps (basis points) on a year-over-year basis.

The falls in EBIT and EBIT margin were mainly driven by higher employee costs related to severance, employee benefits, and exits, as well as lower sales. However, those factors were partially offset by productivity gains.

You can hold Valspar indirectly by investing in the ProShares S&P MidCap 400 Dividend Aristocrats (REGL). As of December 20, 2016, the ETF had 2.0% of its total holdings in Valspar. The top holdings of the fund include Clarcor (CLC), WGL Holdings (WGL), and Prosperity Bancshares (PB), with weights of 2.8%, 2.7%, and 2.6%, respectively.

In the next part, let’s see what Wall Street thinks about Valspar.

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