The Valspar Corporation ( VAL - Analyst Report ) reported second-quarter fiscal 2012 adjusted (excluding restructuring expenses) earnings of 84 cents per share, up from 64 cents recorded in the year-ago quarter. The results beat the Zacks Consensus Estimate of 81 cents. Including one-time items, earnings per share came in at 80 cents compared with 58 cents in the year-ago quarter.

Revenues

Sales in the quarter jumped 4% year over year to $1,032.6 million from $992.7 million in the year-ago quarter, missing the Zacks Consensus Estimate of $1,075 million. Sales in Valspar’s Coatings segment increased 6.2% to $540.8 million and sales in the Paints segment inched up 1.9% to $426.3 million.

Margins and expenses

Gross margin increased to 34.4% in the reported quarter from 31.8% in the comparable year-ago quarter. Margins benefited from carryover pricing actions, which help to offset raw material cost increases. Margins also increased due to productivity improvements, prior restructuring actions and strong incremental margins on new business.

Research and Development expenses inched down 2.1% year-over-year to $29.4 million in the quarter while Selling, General and Administrative expenses increased 5.1% to $185.9 million in the reported quarter.

Financial Review

Cash and cash equivalents, as of April 27, 2012, were $208.5 million compared with $120.1 million as of April 29, 2011. Long-term debt came in at $1,061.9 million as of April 27, 2012, compared with $903 million as of April 29, 2011.

Outlook

For fiscal 2012, the company raised its guidance for adjusted earnings to $3.20 to $3.30 per share from its previous expectation of $2.92 to $3.12. Valsparexpects increased volumes and its new initiatives to boost earnings.

Our Take

Valspar’s solid results and robust margin gains in the past few quarters stem from its cost reduction efforts, increasing product prices along with productivity gains. We are optimistic on Valspar’s long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories.

The company faces stiff competition from Sherwin Williams Company ( SHW - Analyst Report ) and PPG Industries Inc. ( PPG - Analyst Report ) . Currently, Valspar retains a Zacks #2 Rank, reflecting a short-term (1 to 3 months) Buy rating. Also, we have a long-term (more than 6 months) Outperform recommendation on the stock.