On Tuesday, Valspar (VAL +0.00%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.
Valspar is a major paint producer, and with the big rebound in housing prices, the company's stock has risen toward all-time record highs. But can demand truly deliver on the promise the soaring share price reflects? Let's take an early look at what's been happening with Valspar over the past quarter and what we're likely to see in its quarterly report.
Stats on Valspar
|
Analyst EPS Estimate |
$0.90 |
|
Change From Year-Ago EPS |
7.1% |
|
Revenue Estimate |
$1.05 billion |
|
Change From Year-Ago Revenue |
1.8% |
|
Earnings Beats in Past 4 Quarters |
3 |
Source: Yahoo! Finance.
Can Valspar's earnings rebound this quarter?
In recent months, analysts have gotten less optimistic about Valspar's earnings prospects, cutting more than a dime per share from their earnings-per-share consensus on the just-ended quarter as well as the full 2013 fiscal year. But the share price hasn't gotten hurt a bit, having rebounded to recover all of its losses following its previous quarterly report and an extra gain of about 1% since early February.
Players throughout the paint industry have seen their prospects rise in light of the housing recovery. In its most recent report, Sherwin-Williams (SHW 2.67%) posted record profits and sales for its first quarter, as net income rose 17%. Sherwin projected that revenue growth would likely accelerate during the rest of the year. Fellow competitor PPG Industries (PPG 3.04%) also managed to top earnings estimates in its quarterly report last month, although its sales didn't produce the increase that analysts had expected to see.
Yet Valspar hasn't taken improvement in the housing industry for granted. Early last month, the company announced an expanded paint program with home-improvement retailer Lowe's (LOW 3.70%) targeted at professional painters, seeking to compete both on price and service in providing custom tinting, color matching, and other useful services. That adds on to the new strategic relationship it implemented in January with Ace Hardware, in which Valspar bought Ace's paint-manufacturing assets and agreed to supply Ace-branded paint as well as its own brands for the hardware chain.
The big challenge for Valspar lies in its overseas markets. In last quarter's report, Valspar said that it continued to see weakness in demand from its international business, citing it as one of the main reasons for its cutting a nickel off its earnings guidance for the year. Still, the company expects to introduce paint to more than 300 locations in the U.K. and Ireland this year and generally sees international markets as promising.
In Valspar's quarterly report, be sure to compare the company's results against Sherwin-Williams and PPG as well as Valspar's own previous quarter. After having disappointed investors last quarter, Valspar needs to demonstrate its ability to move forward and take advantage of improving conditions in the industry.
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