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Revenue Drops in RPM’s Q4

Tuesday, July 23, 2013

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Slight sales increases for RPM International were overshadowed by a 21 percent drop in income for the fourth quarter, the parent company of Carboline and Rust-Oleum reported on Monday (July 22).

Industrial and commercial coating giant RPM International Inc., headquartered in Medina, OH, reported both its fourth quarter and fiscal year 2013 results, which ended May 31.

Net sales for Q4 increased 6.3 percent to $1.17 billion from $1.10 billion. Consolidated earnings before interest and taxes (EBIT) declined 9.6 percent to $126.1 million, from $139.5 million for the same period in 2012. Net income was down 20.8 percent to $65.4 million in the fourth quarter.

RPM Q4 2013

RPM International reported a 21 percent drop in income for Q4; FY 2013 income decreased by 54 percent. The company's fiscal year closed on May 31.

For fiscal year 2013, net sales increased 8 percent to $4.08 billion; however, income fell by 54.3 percent to $98.6 million from $215.9 million in 2012. Consolidated EBIT declined by 36.8 percent to $250.6 million.

"Our overall operating results for both the quarter and year were strong, especially given the headwinds in Europe and previously reported difficulties in our roofing division," said Frank C. Sullivan, chairman and CEO.

"Net sales, net income and diluted earnings per share experienced significant growth, on an as-adjusted basis, as our consumer segment continued its robust performance and many industrial segment businesses posted gains."

One-Time Charges

One-time, pre-tax adjustments totaled $42.7 million during the quarter, including a $22.5 million write down of RPM's remaining financial investments in Kemrock Industries and Exports Limited in India, which the company says "continues to struggle in the face of a difficult Indian economy."

A write-down is a reduction in the value of an asset carried on a firm's financial statements.

At the close of fiscal year 2013, RPM has no remaining investment on its books in Kemrock.

An adjustment related to an agreement in principle between RPM's Building Solutions Group roofing division and the U.S. General Services Administration resulted in a $3.7 million reversal of the third quarter estimated accrual of $68.8 million and a related $4.5 million restructuring charge.

A $19.4 million adjustment was for restructuring related write-offs from two plant closings within the Rust-Oleum Group to align production cpacity with demand and eliminate overhead in its hobby and European businesses. 

Including adjustments, EBIT grew 11.3 percent to $155.2 million and net income increased by 15.5 percent to $95.4 million over the 2012 fourth quarter period.

RPM CEO Frank Sullivan

"Our overall operating results for both the quarter and year were strong," said Frank C. Sullivan, RPM's CEO.

Additional adjustments for the year included an $11 million charge related to closing an unprofitable overseas effort in the roofing division and a $6.1 million charge in the Performance Coatings Group related to the strategic repositioning of RPM's existing flooring business in Brazil with the Viapol Ltda. acquisition, which also resulted in a $7.7 million tax benefit.

For the year, the adjusted EBIT grew 7.9 percent to $421.7 million, and net income increased 14.5 percent to $241.3 million.

Industrial Segment

In the industrial segment, fourth quarter sales fell 2.1 percent to $709.2 million and organic sales decreased 5 percent. An unfavorable foreign exchange translation of 1 percent added to the decline, while acquisitions growth added 3.9 percent. EBIT was down 4.7 percent to $86.1 million.

After adjustments, the industrial segment EBIT for Q4 was up 0.6 percent to $91 million.

Sullivan noted that most North American businesses performed well for the quarter, especially those serving commercial construction markets, with growth seen in the flooring, waterproofing, admixture and restoration product lines.

He said that modest sales declines in Europe were still pleasing given the recession.

"Our North American roofing business struggled, as a result of exiting unprofitable projects during the year, combined with a steep drop in demand from the public sector due to spending constraints attributable to cutbacks by federal, state and local governments," Sullivan added.

For FY 2013, RPM's industrial segment sales increased by 4 percent to $2.64 billion with a decline of 0.2 percent in organic sales. The foreign exchange translation was an unfavorable 1.5 percent and acquisition growth contributed 5.8 percent. EBIT fell 38.1 percent to $174.9 million. After adjustments, EBIT decreased by 0.7 percent to $275.4 million.

Consumer Segment

Sales for RPM's consumer segment grew 22.4 percent to $461.6 million and organic sales were up 9.6 percent. EBIT decreased 3 percent in the fiscal year, which the company says reflected the impact of Rust-Oleum Group facilities closing, including a factory in Rockford, IL, and one in Roosendaal, The Netherlands.

Acquisition growth for the consumer segment added 13.3 percent, partially offset by an unfavorable 0.5 percent foreign exchange translation.

With adjustments, the consumer segment EBIT rose 29.2 percent to $78 million in the fourth quarter. The segment benefited from the acquisitions of Kirker Enterprises Inc. and Synta Inc. in FY 2013 and Hi-Chem in FY 2012, which are performing strongly, according to Sullivan.

"Our traditional consumer product lines are benefiting from continued gains in market share, along with the ongoing recovery in the North American housing market," Sullivan noted.

"Further, our newer consumer products, many of which are sold at price points beyond our traditional lines for both our retail partners and us, continue to enjoy brisk retail take away."

RPM FY 2013
RPM International

RPM's consumer segment saw strong growth in the fourth quarter, while the industrial segment saw a slight decrease. Both segments had sales gains for the year.

Consumer segment sales for FY 2013 increased 16.1 percent to $1.44 billion, and organic sales increased by 6.6 percent. Acquisition growth added 10 percent, which unfavorable foreign currency translation partially offset by 0.5 percent. EBIT was up 19.1 percent to $190.6 million; after adjustments, EBIT grew 31.2 percent to $210.1 million.

Cash Flow, 2014 Outlook

Cash from operations increased 25 percent in FY 2013. Capital expenditures were $91.4 million, while depreciation was $55.7 million. At the end of the year, debt totaled $1.37 billion, compared to $1.12 billion at the end of FY 2012. Free cash flow increased 43.5 percent to $159.4 million.

"At May 31, 2013, RPM had $1.1 billion in liquidity, including cash and long-term committed available credit, which we believe easily covers financing requirements for any of the acquisition candidates that are on our horizon," Sullivan said.

The company anticipates 5 to 7 percent growth in net sales and 9 to 13 percent growth in net income for 2014.

"This expectation is predicated on continued robust growth within our consumer segment, as a result of continued recovery in the North American housing market, market share gains and market acceptance of new products at higher price points than our traditional consumer product lines," said Sullivan.

For the industrial segment, Sullivan stated that the company expects "modest overall growth, with stronger performances by our businesses serving the North American commercial construction market."

However, the roofing division and European businesses are expected to continue to decline in the first half of FY 2014, and improved performance in the second half.

RPM, a holding company, owns many of the world's best-known brands of coatings, sealants and building products. Industrial brands include Stonhard, Tremco illbruck, Carboline, Flowcrete, Universal Sealants and Euco. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors.


Tagged categories: Carboline; Coatings manufacturers; Earnings reports; Finance; Roofing materials; RPM; Rust-Oleum Corp.; Stonhard

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