Valspar's business is growing; cash available for share repurchases

By Lisa Kerner

Charlotte, N.C., Sept. 15 - Valspar Corp.'s consumer paint business has grown about 5% at a time when the industry is down about the same percentage, said company president and chief executive officer Gary Hendrickson during a presentation at the Credit Suisse Chemical Conference in New York on Thursday.

He attributed the growth in the consumer paint business to strong brands, innovation and excellent distribution.

The business continues to grow in China where it "throws off a lot of cash and has negative working capital," according to Hendrickson.

In Australia, Valspar has a one-third market share valued at about $1.2 billion.

Hendrickson said the consumer paint business grew through the recession and Valspar's "capacity to innovate" helps to ensure that growth. One example of Valspar's innovation is the development of paint for people with allergies, noted Hendrickson.

Coatings business a leader

Valspar's can coating or packaging coatings business has twice the market share of its nearest competitor, said Hendrickson, and provides "strong and stable operating margins."

The business remains steady and performs well in all economic cycles due to the relatively stable sale of beer and soft drinks, which use the packaging Valspar coats.

Significant barriers to entry, including approvals from can makers and brand owners, make it more difficult for new competitors to enter the market, Hendrickson noted.

Valspar has had consistent growth in the coatings market every year for the last 10 years.

Hendrickson also reviewed Valspar's industrial businesses including coil coating for the appliance market, water-based coating for marine shipping containers and wood coating for the furniture and building products industries.

There are six key factors that put Valspar in position to continue to produce positive results, said Hendrickson. They are Valspar's robust business mix; global presence, especially in high-growth markets; consistency of investments; operational discipline; strong cash flow and capital allocation.

Use of cash

Over the past five years, Valspar has generated cash flow from operations of $1.4 billion. Of that, about 40%, or $600 million, was used for share repurchases and dividends. The remaining was invested in capital expenditures and used for acquisitions.

Hendrickson believes Valspar will generate $1.2 billion of cash from operations to use for internal growth initiatives including branding and research and development, as well as for capital to grow the business.

Dividends remain a priority and have been increased over 33 years. Valspar's targeted dividend range is 25% to 30% of prior-year income.

Priorities for free cash flow are strategic acquisitions and share repurchases, while continuing to maintain an investment-grade rating, said Hendrickson.

Valspar is a coating and paint manufacturer based in Minneapolis.

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