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RPM Skips Slow Season with Sizzling Q3

Thursday, April 5, 2012

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Somebody forgot to tell RPM International that third quarters tend to be weak periods for coatings companies.

The Ohio holding company that owns Carboline, Stonhard, Tremco, Zinsser, Rust-Oleum and other major brands rang up a five-fold increase in net income, double-digit increases in sales, two promising acquisitions, and a nearly 100 percent increase in earnings for the quarter ended Feb. 29, according to its financial report, released Thursday (April 5).

 Republic Powdered Metals founder, Frank C. Sullivan
Republic Powdered Metals founder Frank C. Sullivan used his license plate to let everyone know how many hours there were in a week. “The Value of 168” has become RPM’s corporate philosophy.

The blockbuster showing followed a strong second quarter and kept the company well on track to meet its full-year numbers for FY 2012.

‘Exceptional’ Quarter

“RPM’s operations delivered exceptional performance during our third quarter, with market share gains and improved demand, as nearly all of our business units generated solid sales increases and substantially stronger growth in earnings,” said chairman and CEO Frank C. Sullivan. 

Net sales, net income and earnings per share for the third quarter all recorded strong gains over prior-year results in what is typically considered a seasonally weak period.

Net sales grew 14%, to $773.6 million, while consolidated earnings before interest and taxes (EBIT) skyrocketed by 99.8%, to $27.1 million, from a year ago. Net income attributable to RPM stockholders increased a stunning 503.9% to $6.6 million, compared to $1.1 million in the year-ago period. Diluted earnings per share were $0.05, compared to $0.01 in the fiscal 2011 third quarter.

Construction Rebound Juices Industrial

Industrial segment sales grew 11.8% to $501.9 million in the fiscal 2012 third quarter. Organic sales accounted for 5.0%, including a 2.0% decline attributable to foreign exchange, while acquisition growth added 6.8%. Industrial segment EBIT increased 56.9%, to $21.3 million, from the year-ago quarter.

“Most of our industrial product lines, both domestically and in Europe, posted gains in sales and EBIT, with high-performance industrial coatings and maintenance products continuing to perform exceptionally well,” said Sullivan.

 Sales of Carboline and other industrial coatings brands grew 11.8% overall in the third quarter, RPM reported.
Sales of Carboline and other industrial coatings brands grew 11.8% overall in the third quarter, RPM reported.

Overall sales volume in the segment increased by more than 5%, with concrete admixtures, construction sealants and other units serving commercial construction showing even sharper improvement.

“We are heartened by the sales improvements by most of our businesses serving commercial construction, as depressed conditions in that market have challenged us for the past three years,” Sullivan stated. 

Consumer Comeback

RPM’s consumer segment recorded an 18.2% increase in net sales, to $271.7 million, over the third quarter of FY 2011. Most of that increase reflected gains in organic sales, not acquisitions. Consumer segment EBIT increased 34.4%, to $21.5 million, from a year ago.

Sullivan credited new products, growing market share, a mild winter and increased consumer spending for the turnaround.

Nine-Month Sales and Earnings

The quarter added more fuel to an already-strong FY 2012 for RPM.

Nine-month net sales, net income and diluted earnings per share all posted double-digit gains:

• Net sales increased 11.5%, to $2.68 billion, from the first nine months of fiscal 2011;

• Consolidated EBIT increased 14.1%, to $256.6 million;

• Net income attributable to stockholders grew 12.2%, to $133.4 million; and

• Diluted earnings per share attributable to stockholders improved 12.1%, to $1.02.

Nine-month sales for the industrial segment increased 10.8%, to $1.81 billion, while industrial EBIT grew 16.0% to $192.0 million over the year-ago period.
On the consumer side, nine-month sales increased 12.9%, to $865.2 million, with consumer EBIT climbing by 8% over the same period of FY 2011.

Acquisitions & Outlook

RPM’s recent surge of acquisitions activity continued in the third quarter with the closing of two deals. Since Jan. 1, the company has acquired both FEMA Farben + Putze GmbH (FEMA GmbH), a $40 million German supplier of External Insulating and Finishing Systems (EIFS), and Australia’s HiChem Paint Technologies Pty. Ltd., which manufactures automotive aftermarket coatings and specialty coatings for industrial applications and home maintenance. 

Although taking on slightly more debt in the quarter to fund the purchases, RPM’s net (of cash) debt-to-total capitalization ratio was 39.6% at the end of the nine-month period, which RPM called “the low end of the company’s historic norms.” The company’s liquidity (cash and long-term committed available credit) was $733.3 million at the end of February.

All in all, the report left Sullivan delivering a sunny outlook for the company his grandfather and namesake founded as Republic Powdered Metals in 1947.

“[W]e remain confident in our initial guidance for the 2012 fiscal year of diluted earnings per share growth of 10% to 15%, and that fiscal 2013 will be another year of solid sales and earnings growth for RPM,” Sullivan said.


Tagged categories: Business operations; Carboline; Earnings reports; Finance; High-performance coatings; Protective coatings; RPM; Rust-Oleum Corp.

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