Despite sharp improvement in industrial segment sales, RPM International Inc. has reported slight declines in sales, net income and diluted earnings per share for the quarter ended Aug. 31.
RPM attributed the declines primarily to the deconsolidation of its bankrupt Specialty Products Holding Corp. (SPHC) subsidiaries, all of which reported through RPM's industrial segment, at the end of the company's 2010 fiscal year.
The deconsolidation eliminated nearly $300 million in annual revenues from RPM's results, beginning in fiscal 2011. On a pro-forma basis, excluding the effect of the deconsolidation, sales, net income and earnings per diluted share all improved, RPM said.
SPHC, the parent company of Bondex Inc., filed for Chapter 11 bankruptcy protection on May 31, 2010, in the face of more than 10,000 personal-injury asbestos-related lawsuits then pending against it. RPM is not a part of the bankruptcy declaration.
Although RPM still owns both SPHC and Bondex, they are operating independently and their results are no longer included in RPM's consolidated financial statements.
On an "as reported" basis, first-quarter net sales of $894.8 million were 2.3% below the $916 million reported a year ago, RPM said. Net income attributable to RPM stockholders of $69 million was off 5.5% from last year's record $73 million. First-quarter diluted earnings per share were $0.53, a 7.0% decrease from the $0.57 reported a year ago. Consolidated EBIT was $122.0 million, up 1.1% from the $120.7 million in the fiscal 2010 first quarter.
However, on a pro-forma basis, assuming the deconsolidation of SPHC subsidiaries had been in effect during the first quarter of fiscal 2010, RPM sales increased 6.1%, to $894.8 million from $843 million a year ago, the holding company reported.
Pro-forma net income attributable to RPM stockholders improved 8.3%, to $69 million from $63.7 million in the fiscal 2010 first quarter, while pro-forma diluted earnings per share were up 8.2%, to $0.53 from $0.49. Pro-forma consolidated EBIT grew 7.8%, to $122.0 million from $113.2 million a year ago.
"As announced last quarter, we will gauge our results going forward from the end of our last fiscal year on a pro-forma basis, taking into account the impact of the SPHC deconsolidation,” said chairman and CEO Frank C. Sullivan.
“On an apples-to-apples basis, we are pleased with our first-quarter results in this challenging economy. We were especially encouraged by a sharp improvement in sales by our industrial segment.”
Industrial Segment: ‘Improvement’
On a pro-forma basis, industrial segment sales improved 9.3%, to $602.3 million from $551 million a year ago. Pro-forma segment EBIT grew 7.5%, to $83.3 million from $77.6 million in the fiscal 2010 first quarter.
"The pro-forma improvements in our industrial segment results reflect growth in industrial capital spending from the depressed levels of the prior year,” said Sullivan.
“In addition to continuing strong performance by our polymer flooring and corrosion control coatings, we saw marked improvement in roofing and concrete additives, while sales were flat year-over-year in our domestic and international sealants businesses, which are linked to commercial new construction. Raw material costs were also a challenge across our industrial businesses.”
RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. RPM’s subsidiaries include Stonhard, Tremco, illbruck, Carboline, Euco, Flowcrete and Universal Sealants and other major industrial brands.
In addition, RPM announced Sept. 28 that its Building Solutions Group had acquired Park Dis Ticaret A.S., a leading supplier of sealants, tapes and membranes to the construction markets in Turkey, Russia and the Middle East. Park has annual sales of about $10 million and is currently a Tremco illbruck distributor.
Consumer Segment: ‘Tough Comparisons’
The company's consumer segment, which was not affected by the deconsolidation, reported a 0.2% increase in sales to $292.5 million from $292 million in the fiscal 2010 first quarter. Organic sales were off 0.4%, including 0.5% in foreign exchange translation losses offset by 0.2% in volume increases and 0.6% in acquisition growth. Consumer segment EBIT declined 2.4% to $49.0 million year over year.
The first quarter of FY2010 proved a tough act to follow, much less repeat, said Sullivan.
"Our consumer segment faced some very tough comparisons in the first quarter, as our year-earlier first quarter had strong double-digit growth in both sales and EBIT,” Sullivan said. Price hikes in raw materials costs and a slowdown in consumer spending over the summer also took their toll.
However, he added: "Businesses within the segment continued to hold or gain market share, which should serve RPM well as consumer spending picks up.”
RPM’s consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors.
Cash Flow and Financial Position
During the fiscal 2011 first quarter, cash from operations was $41.1 million, compared to $52.1 million a year ago. Capital expenditures were $3.3 million in the quarter, comparable to the year-ago period. Depreciation was $13.3 million during the first quarter of fiscal 2011. During the quarter, the company repurchased approximately 500,000 shares of its common stock at a cost of $8.6 million under RPM's stock repurchase program.
Total debt at Aug. 31, 2010, of $935.8 million compares to $928.6 million at May 31, 2010, and $906.7 million at the end of last year's first quarter. Net (of cash) debt-to-total capital was 38.6%, versus 34.7% at the end of last year's first quarter and 39.8% at the end of the prior fiscal year.
Liquidity, including cash, was $717.3 million, as compared to $635.1 million a year ago and $688.5 million at May 31, 2010.
"RPM continues to have a strong capital structure and liquidity position that will enable us to bolster our acquisition program, while funding ongoing operating needs and our dividend program," Sullivan stated.
Business Outlook: Sales Uptick
Sullivan expressed confidence about the rest of the fiscal year.
"Based on our first-quarter results, we are holding to our fiscal 2011 guidance issued with our fiscal 2010 year-end earnings release on July 26, 2010,” he said.
“We continue to anticipate sales growth of between 4% and 5% to approximately $3.25 billion, from a pro-forma base of $3.12 billion in fiscal 2010 and growth in earnings per diluted share to a range of $1.35 to $1.40, up from a pro-forma $1.26 in fiscal 2010."