Cheaper feeds to boost Valspar margins in 2007

21 November 2006 21:02  [Source: ICIS news]

HOUSTON (ICIS news)--Analysts on Tuesday raised earnings forecasts for Valspar, the world’s seventh-largest coatings maker, due in part to the likely softening of raw materials.

Valspar was likely to hold on to price gains for its paint products while prices fell for raw materials, Citigroup said in a research note to clients.

Citigroup raised the company’s 2007 earnings per share estimate from $1.70 to $1.84. JPMorgan set its earnings estimate at $1.85/share from $1.65. The company’s fiscal year 2007 began 28 October.

JPMorgan said TiO2, acrylics and polyethylene prices have stabilised, and prices for other raw materials could fall on the recent sharp decline in propylene and loosening supply/demand fundamentals in several markets.

TiO2 makes up 10-15% of Valspar’s raw materials budget, said Citigroup. Resins, such as acrylics and epoxies, make up another 40-50%.

Improved margins could be offset by lower sales caused by a slower US housing market, Citigroup said. The slowdown, however, was not expected to be severe and home remodelling was expected to provide a steady driver for architectural coatings sales.

Architectural coatings compose 25% of Valspar’s nearly $3bn (€2.3bn) in sales.

Valspar’s largest customer, home improvement retailer Lowe’s, said on Monday that the slowing housing market contributed to a 4% decline in its third-quarter same-store sales.

By: David Barry
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