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RPM Reports Earnings Gain for Quarter

Thursday, January 7, 2010

RPM International Inc. reported net income of $55.9 million for the company’s second quarter ended Nov. 30, 2009, a 34% increase from the second quarter a year earlier. Sales for the quarter declined 3.5% from the year-earlier period, to $858.7 million.

Consolidated earnings before interest and taxes (EBIT) increased 19.4%, to $92.9 million, from the same period a year earlier.

Frank C. Sullivan, chairman and CEO, said net income “continued to benefit from cost-reduction programs initiated in the prior fiscal year. Modest consumer segment sales growth continued, while sales in our larger industrial segment remained under pressure in line with our previously stated expectations.”

Sales for the company’s industrial segment, representing 71.4% of total sales, declined 6.0%, to $613.5 million, from the same period a year earlier. Sales from ongoing businesses declined 9.5%, offset in part by sales growth of 1.0% from acquisitions and net foreign-exchange gains of 2.5%. Industrial segment EBIT for the second quarter improved 4.5%, to $74.2 million.

“Industrial sales in international markets, as well as certain product lines, including roofing and polymer flooring, held up reasonably well despite the troubled global economy,” Sullivan said. “Other industrial product lines, particularly those that serve domestic commercial construction markets, struggled as tight credit markets continued to dampen both new commercial construction and major renovation projects.”

Sales for the company’s consumer segment, which accounted for 28.6% of total sales, rose 3.3%, to $245.2 million, with the increase all from ongoing businesses, including 1.5% in net foreign-exchange gains. Consumer-segment EBIT improved to $31.8 million from $15.6 million a year earlier.

“Our consumer businesses are benefiting from gains in market share during the past fiscal year, new product introductions, and strength in our small-project, maintenance and repair, and redecoration products, despite consumers being cautious about spending on major home-renovation projects,” Sullivan said. “Increasing sales, coupled with cost-reduction efforts, produced outstanding EBIT growth for the consumer segment.”

For the company’s first half ended Nov. 30, net income was $128.9 million, a 15.9% increase from the first half a year earlier. Sales for the period declined 5.4%, to $1.77 billion. EBIT for the period rose 13.2%, to $213.5 million.  First-half sales for the company’s industrial segment declined 10.2%, to $1.24 billion. EBIT for the segment fell 3.6%, to $159.1 million. First-half sales for the consumer segment rose 7.9%, to $537.1 million, while EBIT increased 73.1%, to $82.1 million.

Upward revision in forecast

In comments on the outlook for the company’s current fiscal year that ends May 30, Sullivan said RPM is revising upward its forecast for earnings per share to a range of $1.30 to $1.45, compared to earnings per share of $1.05 for the previous year. The earnings improvement for the year as a whole is anticipated despite a projected loss for seasonally weak third quarter that ends Feb. 28.

“We are encouraged by the year-to-date improvements in our gross margin that have resulted from productivity gains, operating efficiencies, and cost-reduction actions undertaken during our last fiscal year,” Sullivan said. “Additionally, while still materially above historical norms, raw-material costs have declined from last year’s extraordinary levels.”

Strong cash flow

RPM said that for the first half of its current fiscal year, cash from operations rose 77.5%, to $184.7 million. Capital expenditures were $8.3 million, and debt at the end of the first half was $906.2 million, compared to $930.8 million at the end of the previous fiscal year. Sullivan said the company is “continuing to build on our existing strong cash and liquidity position in anticipation of a return to our normal level of acquisition growth.” He said that, on Nov. 30, liquidity—including cash and long-term committed available credit—stood at a record $853.7 million.

During the quarter ended Nov. 30, the company paid $18.9 million in pre-tax asbestos costs, compared to $16.4 million in the year-ago period. RPM's total asbestos reserve balance stood at $452.8 million at Nov. 30, 2009.