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RPM on a Roll: Company Says Sales Grow 10% in Quarter, 8.5% for Year

Monday, July 25, 2011

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RPM International Inc. reported a 10.9% increase in sales for the company’s fourth quarter ended May 31, and said sales for its fiscal year rose 8.5%, to $3.38 billion, driven by sales gains for the company’s industrial segment and its Rust-Oleum product portfolio.

The company said the strong results for the quarter and a year as a whole were achieved despite continued weakness in housing and commercial construction markets and escalating raw-materials costs.

Sales for the company’s fourth quarter were $981.8 million, compared to a pro-forma total of $885.6 million for the prior-year period. Net income rose 13.8%, to $70.2 million. For the year, net income rose 16.1%, to $189.1 million, from a pro-forma $162.9 million for the prior fiscal year.

Prior-year pro-forma results assume that the deconsolidation of RPM's Specialty Products Holding Corp. (SPHC) and subsidiaries occurred before fiscal 2010. The deconsolidation eliminated approximately $300 million in annual revenues from the company's industrial segment, beginning June 1, 2010.

The subsidiaries were deconsolidated from RPM’s financial results when SPHC and its Bondex subsidiary filed Chapter 11 reorganization proceedings on May 31, 2010. SPHC operating 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 the businesses, they are operating independently and their results are no longer included in RPM’s consolidated financial statements.

On an as-reported basis, fourth-quarter sales were up 1.1% from the prior-year period. For the year, as-reported sales declined 0.9% to $3.38 billion from the $3.41 billion a year earlier.

 Frank C. Sullivan, RPM chairman and CEO

Frank C. Sullivan
RPM chairman and CEO

“Our strong fourth-quarter performance reflects the resilience of our operating companies in the face of stiff headwinds generated by escalating raw material costs, continued weakness in the domestic housing market and a commercial construction market that is only gradually recovering from depressed levels,” said Frank C. Sullivan, chairman and CEO.

“Our deliberate strategic balance between industrial and consumer markets once again proved effective in addressing challenging market conditions,” he said.

Top Performers: Rust-Oleum Products, Industrial Segment

Sales for the company’s consumer segment, which was largely unaffected by the deconsolidation, rose 5.1%, to $355.9 million. Consumer-segment earnings before interest and taxes (EBIT) increased 1.8%, to $53.6 million.

“While the domestic housing market—both sales of existing homes and new construction—remains weak, our Rust-Oleum business benefited from continued market-share gains, along with penetration of entirely new markets,” Sullivan said. “Our caulks and patch and repair products, along with primer-sealers, were more heavily impacted by the weak retail consumer spending environment, and thus experienced flat to slightly down quarter-over-quarter sales.”

For the year, consumer segment sales increased 3.4%, to $1.12 billion. Consumer segment EBIT fell 0.9%, to $146.0 million.

Sullivan said Rust-Oleum branded products, including small project paints, automotive aftermarket products, and garage and basement floor coatings, posted solid sales gains for the year. Modest sales declines were reported in other consumer do-it-yourself lines.

On a pro-forma basis, sales for the company’s industrial segment rose 14.4%, to $625.9 million, for the quarter ended May 31. Segment EBIT increased 23.5%, to $70.3 million.

Sulliivan said industrial-segment results “benefited from global expansion in sales of high-performance industrial coatings, polymer flooring systems, and maintenance products, while the continuing gradual improvement in commercial construction had a positive impact on our domestic and European businesses serving that market.” He said sales gains of more than 10% were recorded for high-performance corrosion-control coatings, European sealants, polymer flooring systems, fiberglass-reinforced plastic grating, and North American roofing products.

For the year ended May 31, industrial segment sales increased 11.3%, to $2.26 billion. Industrial segment EBIT rose 15.4%, to $235.8 million.

Sullivan said nearly all of the company’s industrial businesses posted strong sales gains for the year, with double-digit increases for high-performance industrial coatings and North American roofing. High single-digit increases were posted in commercial polymer flooring, concrete admixtures and fiberglass reinforced plastic grating.

Strong Financial Prospects Going Forward; Acquisitions a Good Bet

Commenting on the outlook for the coming year, Sullivan said the company sees “continuing strength in our industrial businesses as we build on the market-share gains made in businesses that address the recovering commercial construction market and benefit from ongoing momentum in businesses serving our core industrial maintenance and repair markets.” The company anticipates industrial sales growth in the “upper single-digit to low double-digit” range while more modest growth rates are expected for the consumer segment.

The company is projecting overall sales growth of 8% to 10% for the current fiscal year, with a 10% to 15% increase in earnings per share.

Sullivan also said the company’s “acquisition pipeline is quite active, and we expect to close a number of attractive deals in fiscal 2012. Our strong cash and liquidity position enables us to aggressively pursue acquisitions, while funding internal investment and a growing cash dividend.

“Although we remain challenged by both price and availability of raw materials, along with unsettled economic conditions in both Europe and North America, we are confident that our strategically balanced portfolio of businesses will enable us to achieve these targets,” Sullivan said.


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

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