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RPM Reports Strong Upturn in Sales, Earnings

Tuesday, July 27, 2010

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RPM International Inc. has reported sharp increases in fourth-quarter sales and net income, as the company’s industrial and consumer segments both recorded double-digit sales increases.

Sales for the company's industrial segment rose 12.9% for the fourth quarter ended May 31 from the prior-year period, and the segment’s EBIT rose 28%. Chairman and CEO Frank C. Sullivan said the company was seeing stronger demand in most of its industrial product lines.

For the company as a whole, sales for the quarter were $971.5 million, a13.3% increase from $857.3 million a year earlier; net income of $60.5 million marked a 54% jump from the $39.3 million recorded in the same quarter a year ago. Fourth-quarter earnings before interest and taxes (EBIT) of $103.3 million were up 23.7% over $83.4 million for the prior-year period. 

Excluding one-time charges in both years, adjusted net income for the company’s fourth quarter was $68.5 million, a 25.4% increase over the $54.6 million recorded for the same period a year ago.

For the year ended May 31, the company reported sales of $3.41 billion, a 1.3% increase from $3.37 billion for the previous year. Net income rose 50.5%, to $180 million from $119.6 million a year earlier. Industrial-segment sales declined 1.7% from the prior year, although EBIT rose 15.7%.

 “Virtually all of our industrial and consumer businesses posted higher sales in the fourth quarter,” while earnings  benefited from “favorable product mix attributable to our diversified portfolio of companies and better plant utilization due to higher sales volume, despite the negative impact of raw material pricing and availability,” Sullivan said.

Business Segment Results

Industrial segment sales increased 12.9%, to $633.0 million, for the company’s fourth quarter, compared to $560.5 million in the year-ago fourth quarter. Segment EBIT was $66.1 million, up 28% from $51.7 million for the same period a year earlier. 

For the year as a whole, industrial segment sales declined 1.7%, to $2.33 billion from $2.37 billion a year earlier. Industrial segment EBIT increased 15.7% to $227.2 million from $196.4 million for the prior-year period.

“We continued to experience growing demand for most of our industrial product lines and believe that our businesses exposed to U.S. commercial construction markets are nearing the bottom of the economic slump and will begin to generate increased sales volumes in the back half of fiscal 2011,” Sullivan said.

“Our industrial and commercial polymer flooring, high-performance corrosion-control coatings, and commercial roofing businesses all posted double-digit sales gains for the quarter.”

Consumer segment sales rose 14% in the fourth quarter, to $338.5 million from $296.9 million for the fourth quarter a year ago. Consumer segment EBIT rose 2.4%, to $52.7 million from $51.4 million for the same period a year earlier. For the year, consumer-segment sales rose 8.4%, to $1.08 billion from $1.0 billion for the previous year. Consumer-segment EBIT was up 44.2%, to $147.0 million from $101.9 million for the prior-year period.

Although North American consumer spending remains cautious, “the maintenance and repair nature of our comparatively modest price-point consumer products, coupled with market share gains and new product introductions, resulted in higher sales,” Sullivan said. Our plan to significantly increase advertising during the fourth quarter slowed the year-over-year EBIT growth, but positions us well for continuing growth in fiscal 2011,” he said. 

Sullivan said that although industrial-segment sales declined 1.7% for the year, “positive momentum during the fourth quarter is expected to carry over into fiscal 2011, including the expectation that those businesses in the U.S. commercial construction markets will resume sustainable growth within the next couple of quarters.”

Acquisition and Reorganization

Shortly after the fiscal year closed May 31, RPM announced that its Performance Coatings Group had acquired Hummervoll Industribelegg AS, an $11 million Norwegian supplier and installer of industrial flooring systems. Terms were not disclosed. 

The company also announced a reorganization of Specialty Products Holding Corp. (SPHC) and its wholly owned subsidiaries, and took a loss of 6 cents per share in the company’s fourth quarter related to the action. The deconsolidation occurred when SPHC and Bondex International Inc., a non-operating subsidiary of SPHC, filed Chapter 11 proceedings in Delaware on May 31. This action was taken under the U.S. Bankruptcy Code to permanently resolve current and future asbestos claims associated with Bondex.

Due to the filing, the results of SPHC’s operating subsidiaries will no longer be consolidated as part of RPM’s financial reports as of June 1, which was the start of the company’s 2011 fiscal year.

These deconsolidated subsidiaries include Chemical Specialties Manufacturing Corp.; Day-Glo Color Corp.; Dryvit Systems Inc.; Guardian Protection Products Inc.; Kop-Coat Inc; RPM Wood Finishes Group Inc., and TCI Inc.  While RPM continues to own these businesses, their results will no longer be included in RPM’s consolidated financial statements. The businesses are operating independently and will be accounted for in the company's financial statements going forward under the cost method.

Sullivan said the actions “allow RPM to enter fiscal 2011 without the Bondex asbestos liabilities and their related cash costs, but also without the sales and earnings contributions of the deconsolidated subsidiaries.” The deconsolidated subsidiaries had sales of $319.6 million, or 9.4% of RPM’s total sales, and net income of $11.1 million, or 5.9% of the company's total net income, for the year ended May 31.

Business Outlook

Because of the deconsolidation, “our starting point entering fiscal 2011 will be a base of $3.12 billion in sales and $162.9 million in net income,” Sullivan said. He said the company was anticipating sales to expand 4% to 5% for the current fiscal year, to approximately $3.25 billion, “despite the continuing uncertainty in the global economy, stubbornly high unemployment, continued weakness in the North American housing and commercial construction markets, and current raw-material cost and availability issues.”

   

Tagged categories: Coatings manufacturers; Earnings reports; Economy; Finance; Protective coatings; RPM

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