Valspar patiently awaits profits from Ace deal

Paint giant Valspar has every intention of profiting from its move to acquire the Ace Hardware private-label paint business, it just hasn't happened yet.

Valspar executives walked analysts through the plan during the company's third-quarter conference call. The analysts seemed highly interested in Valspar's seven-month-old relationship with Ace. 

"The rollout of our new private label and branded programs with Ace Hardware are on plan," CEO Gary Hendrickson said. "We will start shipping Valspar-branded paints to Ace during the fourth quarter, and we are currently tracking ahead of our internal placement targets for this initiative." 

Late last year, Ace and Minneapolis-based Valspar worked out a long-term deal, under which Valspar will manufacture and supply Ace-branded paint products to Ace dealers. The companies also announced that Valspar had acquired Ace Hardware’s paint manufacturing assets, including two manufacturing facilities located near Chicago. 

During this week's conference call, Hendrickson said the deal is not making money yet on the private label side of the Ace deal, as Valspar works to retool the facilities and infrastructure that deliver the paint. But regardless of the branded Valspar business side of the transaction, the private-label Ace deal will eventually result in positive metrics for the paint company, he said. 

"We didn't sell our souls to the devil on the private-label business to win a contract on the branded business," Hendrickson told investors.

Hendrickson was asked to update exactly how many Ace stores had the Valspar brand, but he declined to talk about it and will continue to remain silent on the question "probably for a couple of quarters," he said. 

CFO James L. Muehlbauer said Valspar remained "very confident" in the model for its Ace business. "When we get that work done this year, we'll have a cost structure that allows us to make a nice margin on the private-label business," he said.