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RPM Industrial Delivers Strong Q2

Thursday, January 5, 2012

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Industrial coatings for corrosion control, bridge decks and similar applications are ringing up double-digit gains for the parent company of Carboline, Stonhard and other well-known brands in fiscal 2012, the company announced Thursday (Jan. 5).

Holding company RPM International Inc. reported a 10.1% increase in industrial segment sales, to $641.5 million, in the second quarter of 2012, compared to the same quarter of 2011. Industrial segment sales for the first half of the year increased by 10.4%, to $1.31 billion, from the same period a year ago.

 RPM International Inc.

 RPM International Inc.

Sales of RPM’s many well-known industrial coatings brands increased by more than 10% in the first half of fiscal 2012, the company reported.

“High-performance corrosion control coatings, commercial flooring, bridge deck products and edible shellac products all posted double-digit sales increases, with most other industrial products having solid sales improvements,” said chairman and CEO Frank C. Sullivan.

RPM subsidiaries supply some of the world’s best-known specialty coatings, sealants, building materials and related services. Industrial brands include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Universal Sealants, Fibergrate and Euco.  

The industrial segment also made a strong showing in the first quarter.

Q2 Overview: Sales Rise, Earnings Flatten

Overall, the Medina, OH-based multinational turned in a mixed report for the second quarter, ended Nov. 30, notching sharply improved net sales, a slight increase in net income, and flat earnings per diluted share, due to higher raw material and acquisition-related expenses.

Second-quarter net sales grew 10.9%, to $916.1 million, compared to a year ago. Consolidated Earnings Before Interest and Taxes (EBIT) increased by 4.0%, to $93.0 million, from Q2 of 2011.

Net income attributable to RPM stockholders inched up 2.3%, to $49.9 million for the quarter, while second-quarter earnings per diluted share was $0.38 in both years.

Consumer segment sales increased 12.6%, to $274.6 million, in the second quarter from the year-ago period, but consumer segment EBIT fell 2.0%, to $26.8 million.

First-Half Overview

Fiscal 2012 first-half net sales, net income and diluted earnings per share all improved.  Net sales increased 10.5%, to $1.90 billion, from the first six months of fiscal 2011; consolidated EBIT increased 8.6%, to $229.5 million. Diluted earnings per share attributable to RPM stockholders grew 6.6% to $0.97 from $0.91 a year ago. 

In the industrial segment, the organic sales increase was 7.5%, including net foreign exchange translation gains of 2.4%, while acquisition growth added 2.9%. Industrial segment EBIT grew 12.3% to $170.8 million from $152.0 million a year ago.

 Carboline

 Carboline

RPM’s many industrial coatings subsidiaries include Carboline, whose portfolio includes F&H Marine Coatings.

Also in the second quarter, RPM’s ownership position in Kemrock, India's leading producer of reinforced polymer composites, exceeded 20% for the first time. The industrial segment's EBIT thus included $5.2 million in equity in Kemrock earnings, including $4.6 million related to a one-time cumulative catch-up benefit.

Acquisition Impact

RPM’s earnings for the second quarters of fiscal 2011 and 2012 were both impacted by one-time items, the company said. In 2012, the culprit was steep acquisition costs.

During and after the second quarter, RPM announced acquisitions with sales totaling more than $130 million, all of which are expected to be accretive to earnings within one year.

On Sept. 30, the company’s RPM2 business unit acquired the Legend Brands group of companies, which provide equipment and services for water and fire damage restoration, professional cleaning and environmental control.  Based in Burlington, WA, the business has annual sales of more than $70 million. 

On Oct. 5, the RPM Performance Coatings Group announced the acquisition of the Grupo P&V group of companies, a supplier of passive fire protection and insulation products based in Barcelona, Spain. Annual sales are approximately $23 million. 

On Jan. 3, the RPM Building Solutions Group completed the acquisition of FEMA Farben + Putze GmbH, a $40+ million-a-year supplier of external insulating and finish systems and related products to the German and French construction markets. 

Raw Materials Pinch

Raw material costs also “continued to be a challenge,” especially for RPM’s consumer segment, “which faces longer lead times in adjusting prices than our industrial segment,” Sullivan said.

Excluding one-time items from both years, second-quarter diluted earnings per share fared better in FY 2012 than in FY 2011: $0.37, compared with $0.34 (an 8.8% increase) .

Cash Flow

RPM also noted a decline in its cash position for the first half of the year—from $183.1 million for the first half of 2011 to $110.0 million for the comparable 2012 period. It attributed the decline to “higher inventory attributable to higher raw material costs, a drop in accounts payable due to the timing of payments, and a decrease in other accrued liabilities.”

Company debt at the mid-point of FY2012 was $1.094 billion, compared to $925.1 million at the same point in FY2011 and $1.109 billion at the end of that fiscal year. RPM’s net (of cash) debt-to-total capitalization “continues to be at the low end of the company's historic norms,” the company reported.

Indeed, its cash and liquidity position “enables RPM to continue a more robust acquisition program,” said Sullivan.

Business Outlook

Overall, the Q2 showing was strong enough for RPM to reaffirm the FY 2012 full-year guidance it announced in July 2011: sales growth of 8% to 10% and growth in diluted earnings per share of 10% to 15%. 

A strong fourth quarter should offset the seasonally weak third quarter, Sullivan said, “with continued strength in top-line sales from both our industrial and consumer segments, combined with a moderating of raw material costs and improved gross margin contribution.”

   

Tagged categories: Carboline; Corrosion control coatings; Earnings reports; Economy; Protective coatings; RPM; Sealers; Stonhard

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