Withstanding the hit from a recent $65 million legal settlement over roofing problems, Carboline parent RPM International Inc. has racked up a record first quarter for 2014.
"Outstanding performance" in the consumer segment, including a good showing from new acquisitions, and "modest gains" on the industrial side delivered "significant increases in sales, net income and diluted earnings per share" for the fiscal 2014 first quarter ended Aug. 31, the Medina, OH-based holding company reported Wednesday (Oct. 9).
In addition to Tremco and Carboline, RPM's dozens of industrial brands include Stonhard, API, Tremco illbruck, Universal Sealants and Flowcrete. The company's industrial segment, which makes up 65 percent of its sales, produces protective and marine coatings, roofing and flooring systems, waterproofing and concrete repair products, and fiberglass-reinforced gratings.
Fiscal 2014 first-quarter net sales of $1.165 billion increased by 11.3 percent over the $1.047 billion reported for the first quarter of 2013, RPM said.
Consolidated earnings before interest and taxes (EBIT) grew by a whopping 96.4 percent to $164.0 million from the prior-year period, while first-quarter net income soared 204.0 percent to $103.1 million.
Diluted earnings per share improved by 196.2 percent to $0.77 from $0.26.
Last year's first quarter included a one-time, non-cash charge of $45.3 million for the partial write-down of RPM's investments in Kemrock Industries and Exports Limited in India and an $11.0 million charge in its roofing business.
CEO Frank C. Sullivan was cautiously optimistic about the rest of the year, despite uncertainty surrounding the current U.S. government shutdown.
Excluding the impact of these charges on that period, RPM's 2014 first-quarter:
Net sales increased 11.0 percent from an adjusted $1.050 billion;
Consolidated EBIT grew 17.3 percent over an adjusted $139.8 million;
Net income was up 21.6 percent from the adjusted $84.8 million last year; and
Diluted earnings per share improved 20.3 percent from the adjusted $0.64 earned a year ago.
Consumer Segment: Double-Digit Gains
RPM's consumer segment reported a 26.2 percent increase in sales to $433.4 million from the fiscal 2013 first quarter. Organic growth was 9.1 percent, principally driven by volume, with negative foreign exchange of 0.3 percent and acquisition growth of 17.4 percent.
Consumer segment EBIT improved 40.6 percent to $82.7 million in the fiscal 2014 first quarter from the year-ago period, driven by higher volume and strong performance from fiscal 2013 acquisitions.
"Our consumer segment continued trends set over the past several quarters, benefiting from higher sales that resulted from market share gains, innovative newer products at selling prices significantly above our norm, and the recovery in the U.S. housing market," said Frank C. Sullivan, chairman and chief executive officer.
RPM's dozens of companies include Dryvit Systems Inc. Dryvit EIFS were used on the Gordon E. Inman Center at Belmont University in Nashvillle, TN.
"Additionally, two consumer segment businesses acquired in fiscal 2013, Kirker and Synta, are both performing well above expectations."
Industrial Segment: Turnaround
The company's industrial segment net sales improved by 4.0 percent, to $731.2 million, with 3.5 percent in organic growth offset by 0.2 percent in foreign exchange losses, while acquisitions added 0.7 percent.
Industrial segment EBIT grew 30.2 percent to $100.1 million from the first quarter of 2013. First-quarter sales for the industrial segment increased by 3.5 percent over the adjusted $706.2 million last year, and EBIT growth was 2.5 percent over the adjusted $97.7 million in the year-ago period.
"In the industrial segment, sales increased modestly in both our European businesses and our North American roofing business, marking an earlier-than-anticipated turnaround from last year's performance," said Sullivan.
He added: "Both Europe and roofing are already showing bottom-line leverage as a result of restructuring actions taken in the last fiscal year.
Carboline, part of RPM's industrial segment, manufactures coatings and linings for pipelines and terminals projects around the world.
"We continue to see gradual improvement in RPM businesses serving North American commercial construction markets, while our unique industrial companies within the RPM2 Group are experiencing particularly robust sales growth."
Cash from operations in the quarter, however, was a negative $129.5 million, compared to $17.7 million a year ago, RPM said. The company cited "increased working capital needs associated with increased sales volumes" as well as the $61.9 million settlement with the U.S. General Services Administration, which was accrued just before the end of fiscal 2013.
Capital expenditures were $10.7 million in the quarter, compared to $12.7 million in the year-ago period.
Total debt as of Aug. 31 was $1.4 billion—the same as it was on May 31 and $200 million more than at the end of last year's first quarter.
Liquidity, including cash, was $896.2 million, compared to $870.8 million a year ago and $1.1 billion at May 31, 2013.
"RPM's strong cash and liquidity position enables us to continue to support a growing cash dividend, as well as our acquisition program," Sullivan said. "Our debt-to-total capital ratio remains within our traditional range, and we continue to pursue acquisitions that complement our core growth strategies."
Acquisitions and Outlook
RPM also noted its recently announced plan to purchase Expanko Inc., a $12 million-a-year producer of terrazzo, cork, rubber and rubber/cork tiles for the education, healthcare, hospitality and sports/entertainment commercial markets.
That acquisition, and other performance indicators, prompted a cautiously upbeat outlook by Sullivan.
"We are cautious with regards to the uncertainties surrounding the political gridlock in Washington, as well as U.S. Federal Reserve policy and its impact on global foreign exchange markets," he said.
"However, we are very encouraged by the earlier-than-expected improved performance in RPM's European and roofing businesses and the continued momentum in all aspects of our consumer segment."
Therefore, he said, the company was increasing its full-year outlook for EPS growth to a range of 10 percent to 14 percent, or $2.00 to $2.07 per diluted share.