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Sales Drive Standout Quarter at RPM

Thursday, January 9, 2014

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Carboline parent RPM International Inc. delivered a record second quarter and blockbuster first half of FY 2014, riding a wave of sales volume growth on both the industrial and consumer sides.

The world's 10th largest paint and coatings company, based in Medina, OH, also increased its full-year guidance in its earnings report released Wednesday (Jan. 7).

Kemrock Industries and Exports Ltd.

Increasing its minority stake in Kemrock Industries and Exports Ltd. saddled RPM International's second quarter with one-time charges in FY 2013. FY 2014 has not been so encumbered.

RPM reported record sales, net income and diluted earnings per share for the quarter ended Nov. 30, 2013, "driven by volume increases in both its industrial and consumer segments and improved operating margins at most of its business units," the company announced.

'Performance was Strong'

"Second-quarter operating performance was strong, with a vast majority of our operating units posting solid increases in sales and [Earnings Before Interest and Taxes, or EBIT]," said Chairman and CEO Frank C. Sullivan.

"Sales increases in both of our business segments were primarily driven by improved unit volume, with relatively minimal acquisition growth or pricing."

Rust-Oleum, DAP, Varathane and other brands make up RPM's consumer side, which accounts for 35 percent of the company's net sales. The consumer business includes paints, coatings, wallcovering products, caulks, sealants, primers and wood finishes.

Anchorage Pioneer Home
Photos unless indicated: RPM International

Sales of RPM's consumer products, like the Rust-Oleum enamel used on the Anchorage (AK) Pioneer Home, enjoyed a strong second quarter in FY 2014.

The larger industrial segment includes Carboline, Stonhard, Tremco, Flowcrete and other well-known brands of roofing and flooring systems; protective coatings; waterproofing and concrete repair; construction sealants and chemicals; and fiberglass-reinforced gratings.

Q2, First Half Results

Excluding a one-time charge that dragged at its second quarter in FY 2013, RPM reported a 16.1 percent increase in consolidated EBIT; a 21.1 increase in net income; and a 20.0 percent increase in earnings per diluted share from the prior-year period.

Overall, the company said, second-quarter net sales increased 5.3 percent to $1.07 billion from a year ago. Consolidated EBIT increased 30.0 percent, to $116.4 million; and second-quarter net income was up 52.5 percent, to $63.6 million, from the second quarter of FY 2013.

The first and second quarters produced a blockbuster six months for RPM. In the first half of fiscal 2014:

  • Net sales improved 8.3 percent, to $2.24 billion;
  • Consolidated EBIT increased 62.0 percent, to $280.4 million;
  • Net income was up 120.5 percent, to $166.7 million; and
  • Diluted earnings per share increased 119.3 percent to $1.25 from $0.57 a year ago. 

Segments: Industrial Marches On

Modest sales increases on the industrial side produced big gains, thanks to cost cutting and an overall improvement in the economy, the company said.

Carboline pipeline project

Industrial brands like Carboline reaped big revenues from modest sales.

Second-quarter industrial segment sales grew 2.6 percent, to $708.7 million, from the year-ago period. Organic sales improved 2.2 percent, while acquisition growth added 0.4 percent. Industrial segment EBIT increased 7.4 percent over the same period a year ago.

"Most of our industrial product lines are leveraging relatively modest sales increases into more significant gains in EBIT as a result of prior-year cost reductions in the face of a moderate economic recovery," said Sullivan.

"While we experienced slight declines in North American roofing, we continue to be encouraged by the improvement in most of our European industrial operating companies, as well as the continued gradual recovery in our businesses serving commercial construction markets."

For the first half of FY 2014, industrial segment sales improved by 3.3 percent (2.7 organic and the balance from acquisition growth). Segment EBIT increased 18.7 percent in the first half over the prior year.

Segments: Consumer Heats Up

Second-quarter sales in the consumer segment grew by 11.2 percent (9.5 percent organic and 1.7 percent acquisition growth), to $362.8 million, from a year ago. Consumer segment EBIT improved a whopping 34.0 percent from a year ago.

"Our consumer product lines continue to enjoy high levels of organic sales volume growth as a result of continued momentum in the U.S. housing market, combined with successful, high-growth consumer segment acquisitions made in the prior fiscal year and strong consumer take-away for higher-end new products," said Sullivan.

Frank C Sullivan

Chairman and CEO Frank C. Sullivan cited gains driven by "continued momentum in the U.S. housing market."

First-half sales for the consumer segment heated up by 18.9 percent (9.1 percent organic sales growth and 9.8 percent acquisition growth), to $796.2 million. Consumer segment EBIT increased by 38.0 percent over the first half of fiscal 2013.

Cash Reserves Shrink

For the first half of fiscal 2014, cash from operations plunged by more than $100 million from the year-ago period. The decline was due to an eight-figure settlement RPM's roofing division reached in 2013 with the U.S. General Services Administration.

Total debt on Nov. 30 was $1.37 billion—a decline from November 2012, but the same figure as of May 31, 2013. RPM's net (of cash) debt-to-total capitalization ratio was 46.4 percent, compared to 46.2 percent on May 31, 2013.

"RPM's solid cash and liquidity position continues to provide great flexibility in pursuing strategic acquisitions, while supporting our growing cash dividend and increased capital investments for organic growth," Sullivan said.

Bright Forecast

Buoyed by its 2014 performance to date, the improvement in the U.S. housing market, and other factors, RPM increased its full-year guidance:

  • Consumer segment sales growth is now estimated at 8 to 10 percent, up from the first quarter's guidance of 6 to 8 percent.
  • Industrial sales growth is expected to range from 4 percent to 6 percent, as previously predicted.
  • Full-year EPS guidance is now expected to be $2.05 to $2.10, or 13 percent to 15 percent year-over-year growth, as opposed to the previous estimate of $2.00 to $2.07.

RPM has about 10,500 employees in 93 sites across 23 countries. Its products are sold in 150 countries and territories.

The company's webcast and conference-call discussion on its second-quarter report are available here.


Tagged categories: Architectural coatings; Carboline; Coatings manufacturers; Earnings reports; Paint and Coating Sales; RPM; Rust-Oleum Corp.; Tremco

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