Valspar Earnings Call Nuggets: Current Portfolio and Raw Material Costs
Robert Koort – Goldman Sachs: Gary, if we step away from a little bit of the short-term ebbs and flows, can you give us a sense of the portfolio you’ve got today, what you would see as sort of the sequence from a volume sort of an annualized run rate volume growth, secular volume growth revenue growth, EBIT growth, EPS growth, sort of how you see that flowing down the P&L statement on a longer-term basis?
Gary E. Hendrickson – Chairman and CEO: That’s a big question, Bob. The estimate to step away and talk about the long-term, but let me just give you little color on what happened in this quarter. So, as I mentioned, we achieved our net new business targets for the quarter. So, our net new business was up over 4% in the quarter. As Lori mentioned, some of that business came in at – some of that business has a lower price point than our core net business, so we had a little bit of a mix impact of 2%. And then what we saw is our core markets decline we think at about 3% and that’s how you get to the 1% decline in revenue; 4% net new, 2% mix, 3% core shrink. As we said, and I’ll answer your question about revenue, I think we are going to see some weakness in our core through the second quarter. The new business initiatives that I have talked about and others start to roll in in the second quarter and the third quarter and so we expect our revenue trends for the second half of the year to be substantially higher than the first half. And as you know from studying our company, we’ve worked pretty hard over the last three or four years to develop operating leverage in all of our businesses. So, as that revenue starts to roll-in the operating leverage that we have achieved should flow to substantial amount of that revenue or the margin on that revenue should flow to our bottom line. So, we are expecting the second half of our year to be pretty strong. That’s about what we can control. I don’t expect that our markets are going to be substantially stronger in the second half than in the first half. We’ve got in our U.S. paint business we talked about couple of the initiatives and there is one other one that we haven’t given any details on. So, I would expect the second half of our North America paint business to be really strong on a year-over-year basis. I would expect Australia to continue to be weak potentially throughout the remainder of the year because there is no signs of improvement in the residential housing market in Australia and with respect to the weakness that we saw in we’re in this quarter I think context is important. That’s a business that has grown at a compound annual rate of 15%, since 2009, on the revenue line. We’ve had some quarters that were a little bit weaker, as distributors buy and liquidate inventory that’s typically what creates strength and weakness in any individual quarter and we’ve had a couple of quarters like the one that we had, but I would expect our Huarun business as the year progresses to get a lot stronger than it was in Q1.
Robert Koort – Goldman Sachs: Then if I could just to clarify. I thought you said, the combination of these programs would add 10% to your revenue base. Is that what I heard?
Gary E. Hendrickson – Chairman and CEO: Yes, Rob, I said, in excess of $400 million.
Raw Material Costs
Jeffrey Zekauskas – JPMorgan: How much was Australia down in the quarter?
Gary E. Hendrickson – Chairman and CEO: They were down about 15% in volume.
Jeffrey Zekauskas – JPMorgan: It looks to me like your overall raw material costs are down 1% or 2% year-over-year. Is that correct and do you expect the raw material decrease to get a little bit better as the year goes or a little bit worse?
Gary E. Hendrickson – Chairman and CEO: Our raw material costs were actually flat on a year-over-year basis and flat sequentially, Jeff. As the year goes on, it’s obviously hard to predict. I would say that, there is a bias towards some inflation, but I wouldn’t expect significant inflation as the year goes forward and I don’t expect any declines.
Jeffrey Zekauskas – JPMorgan: Then lastly, your inventories were up quite a lot year-over-year. They went from roughly $380,000 to $425,000. So does that mean that in general the sales slowdown was a little bit more surprising than you thought and given that the Chinese New Year is in February this year, are you going to have to deal with higher inventories for a while?
Gary E. Hendrickson – Chairman and CEO: No we don’t think so. I mean the inventory that you saw was result of the Ace acquisition, so we bought all of the Ace inventory that was in their warehouses and distribution centers when we made the acquisition, and this retail program that I referenced, but I’m not at liberty to talk about is part of that as well. So, we’re building inventory for that program.
Jeffrey Zekauskas – JPMorgan: And China?
Gary E. Hendrickson – Chairman and CEO: Lori, China?
Lori A. Walker – SVP and CFO: China is fine from an inventory perspective.
Jeffrey Zekauskas – JPMorgan: What I mean is coming into the next quarter will the timing of the New Year make your volume comparisons little bit more difficult?
Gary E. Hendrickson – Chairman and CEO: I don’t think so. I think the – we have the Chinese New Year always fall in our second quarter Jeff, so it was in January last year and February this year shouldn’t matter through for the entire quarter.
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