Valspar Corporation (NYSE:VAL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Paint Industry Trends
Ivan Marcuse – KeyBanc Capital Markets: First for a lot of companies (March is pretty sore) because of weather at least in the paint industry. Did you see an acceleration going into April and is there any trends in the paint industry, at least in North America, with the new businesses that you’ve gathered over the past year or two that are making more or less optimistic looking out the next couple of years?
Gary E. Hendrickson – Chairman and CEO: It is Gary. Obviously, our second quarter was a great quarter in terms of volume growth. In North America, particularly North America, our paint volumes in North America were up almost 30% in the quarter, part of that was Ace, but excluding Ace our volumes were up in the low teens and obviously with the new professional program that we launched at Lowe, we had some load-end. But even excluding the load-end the business in North America volumes were up mid-single-digits. To your first question about whether we saw any trends developing in the quarter, I would say that we did the second half of the quarter was much stronger materially stronger for us at sell through, at retail sell through than the first half of the quarter. Looks like clearly there is a late start to the painting season, but I think the season will develop into a pretty strong one relative to those that we’ve seen. In the past I think that speaks to the improving trend in the housing market. For us, we’ve got to focus also on growing our market share and I think some of the good results that we saw in the quarter are result of the marketing programs that we’ve been working on with our retail partners over the last couple of years. I mentioned Love Your Color Guarantee in my opening remarks. We feel like we’re really well positioned in our North America business to continue to capture growth both through market share gains as a consequence of great marketing and great retail partners and as the housing market continues to recover.
Ivan Marcuse – KeyBanc Capital Markets: Then just as a quick follow-up, how of the contribution to EBIT was from new business? And going over to the B&Q business where do you stand on the rollout in the business, we understand I think you should be somewhere in like 30 stores or something at this point, is that where you’re at? And what’s your expectation as you go through the year?
Gary E. Hendrickson – Chairman and CEO: I don’t know the exact answer, how much of the contribution to EBIT was new business and we talked about Ace as being dilutive in the first few quarters of the year and the load in involved a lift. So, you are going to have to get back with Tyler on that. As Jim pointed out, the increase in our EBIT – in our Paint segment was volume related, but I can’t break it out for you. With respect to B&Q, that program is right on track. We have got the Valspar program set in 14 B&Q stores. I was with executives in London last week and they couldn’t be more pleased with the performance of the Valspar program and the stores. We start the mass store roll out in about four to six weeks time and we expect to have all 350 stores set in early ’14. So, all systems goal on the B&Q launch and we are all really excited at both the Valspar and B&Q.
Ivan Marcuse – KeyBanc Capital Markets: Sort of last question. In your general industrials I was little surprised to see pipe was down. Is that associated with just more macro demand or is there something specific in the quarter and do you expect that business just sort of get back on the growth rate trajectory that’s been on?
Gary E. Hendrickson – Chairman and CEO: This is a relatively new business for us, Ivan. I think as we’ve talked about it in the past we are very pleased with the progress that we have made as relatively new entrant into the market. The business has been growing at a compound rate over the last three years of 25% even including the decline that we experienced in this quarter. Pipe Coating is a project business. If pipe projects are not being done then the pipe is not being coated because it would just be put into inventory if it were. So, what we think happened in the quarter is that, particularly in North America where the majority of our business still is, the very long cold winter delayed some projects from getting started and you can’t — in some cases, you can’t put pipelines up, if the ground is frozen and covered with snow. So, we do expect to see some recovery in the second half of the business. The great news for us is that the macro trends in energy transmission and water transmission and the need to move those BTUs around the world is a great long-term trend and we are well positioned for the — to keep growing in the future.
Australia Business Plan
PJ Juvekar – Citi Research: You’re restructuring in Australia again. Seems like Dulux is gaining share there based on their comments. So, can you provide some color, is it loss of buntings, is it slow rollout of Master’s expansion plans. Can you just talk about that?
Gary E. Hendrickson – Chairman and CEO: PJ we are right on our plan in the Australia business. The only thing that we didn’t anticipate when we acquired the business in 2010 and made our commitment that we would get the business to the Company’s average margins in five years’ time is the weak housing market. But despite the weak housing market, we are on our plan to get that business to Company average margins. EBIT margins were up about 200 basis points in the first year, that we owned it; it will be up about 200 basis points this year. And integral to that plan was the closing of an additional factory, which is the one that we announced this morning. So, we couldn’t do it all at once. We had to phase-in the improvements that we were making over time. We did a lot early. We took a little pause and now we are going into while there is substantially (indiscernible) of the restructuring. But as I said in my opening comments, this was our plan right from the beginning. So, with respect to the comments that our competitor made, I didn’t read them in detail, but I’ll respond to what you just said. Somebody took share from us in the Australian market and that was planned. When we bought the business, we had way too many stores and we were doing business with way too many independent paint stores. We’ve been pretty clear that we’ve been restructuring our distribution footprint in our stores business over the last two years. As part of that, we walked away from unprofitable stores that were doing business and someone got that business, so I will agree 100% that somebody is taking share from us – was taking share from us in the Australian market. Again, that was planned. We felt that we needed to pretty fundamentally restructure the business to get it into a model and get the cost structure to the point where we could be profitable as we grew it. Now I will say this. We are in growth mode again. Masters is continuing to build out their stores. We’ve ended up with 75% or more of the shelf space in the Masters stores with our Wattyl brands and so we’ll grow with that. We will be anniversaring most of the restructuring action that we took in our store footprint in Q3 and it will be all anniversaried in Q4, and in fact even in this quarter we saw an improving negative trend, the numbers are still negative, but it was an improvement over the first quarter. The third quarter gets substantially better and in the fourth quarter we’ll finish with the anniversary of those stores. So, we’re almost at the inflection point now where we expect to see that the negative volumes that we’ve experienced over the last year or so turned positive. That will happen in Q4 and into Q1 of next year. So that’s a kind of a long winded answer to your question, but I thought some context was important.
PJ Juvekar – Citi Research: Then second question is on Ace. Are you shutting down all Ace Paint plants? And then on the store side, how many stores are you rolling out your program in?
Gary E. Hendrickson – Chairman and CEO: We acquired two of the Ace plants, PJ. We will not be closing both of them. We have an opportunity to restructure our manufacturing footprint in North America. We have our plans, but we are not ready to say publicly what the specifics of the plans are. And with respect to rolling into the Ace stores, we won’t be launching the Valspar program until late in the year and we are in the process now of working with individual Ace store owners and the Ace corporate office to sign-up dealers for that launch and we are not prepared at this point to say exactly how many we will have that launched.