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RPM Remains Positive Despite Q1 Dip

Thursday, October 9, 2014

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RPM International says decreased profits in the first quarter of 2015 are due to an unusually strong performance in its prior year that took a toll on comparative results.

RPM, a Medina, OH-based holding company with brands including Carboline and Rust-Oleum, declared its growth on track despite a dip in profits for the period that ended Aug. 31, the company announced Oct. 8.

RPM brands
Photos: RPM International

RPM's subsidiaries manufacture and market high-performance coatings, sealants and specialty chemicals.

“During last year's first quarter, our Synta and Kirker subsidiaries had exceptionally strong performance due to highly successful new product introductions and distribution expansion since being acquired by RPM,” said Frank C. Sullivan, chairman and CEO.

However, the company expects to resume improved financial performance for the remainder of the year.

First-Quarter Results

Overall, the company’s net income declined 3.9 percent to $99.1 million from the year-ago period, and diluted earnings per share declined 5.2 percent to $0.73 from $0.77 in the fiscal 2014 first quarter.

Meanwhile, first quarter net sales reached $1.204 billion, a 3.4 percent increase, the company reported.

RPM's consolidated earnings before interest and taxes (EBIT) declined 0.2 percent to $163.7 million from figures reported in the fiscal 2014 first quarter.

The company also reported non-recurring costs totaling $5.6 million pre-tax, relating primarily to legal expenses incurred in conjunction with a Securities and Exchange Commission investigation of the timing of expense accruals in the 2013 fiscal year, which did not affect full-year earnings.

The costs were also associated with the proposed Specialty Products Holding Corp. (SPHC) asbestos settlement and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.

Consumer Segment Dips

The company’s consumer segment reported a 0.8 percent decrease in sales to $430 million from the same period a year ago.

Organic sales declined 2 percent, including favorable foreign exchange of 0.1 percent, while acquisition growth contributed 1.2 percent, the company said.

Rust-Oleum

Tough comparisons to last year signifcantly impacted the company's consumer segment's overall performance for the first quarter of 2015.

Consumer segment EBIT dropped 7.3 percent to $76.7 million, RPM reported.

The comparisons to last year had a significant impact on the segment’s overall performance, Sullivan noted.

Two players in the consumer segment had exceptionally strong performances in last year's first quarter: Synta, a producer and marketer of exterior wood deck and concrete restoration systems and Kirker, a maker of nail care enamels, coatings components and related products for personal care.

Both business units were acquired in 2013.

"While performance for both Kirker and Synta during the first quarter of fiscal 2015 was down significantly from the prior year, the balance of our consumer segment showed a sales increase in the mid-single digits, with EBIT growth in the mid-teens, which is consistent with continued market share gains, and the recovery in the U.S. housing market," stated Sullivan.

Industrial Segment Improves

The company’s industrial segment saw improvement for the first quarter. Net sales grew 5.8 percent over the first quarter of fiscal year 2014, to reach $773.9 million.

Organic sales improved 4.5 percent, including a 0.1 percent in favorable foreign exchange gains, while acquisitions added 1.3 percent.

RPM

Carboline and other brands in RPM's industrial segment make up two-thirds of RPM's $4.1 billion portfolio.

Industrial segment EBIT increased 5.0 percent to $105.1 million from the same period of 2014.

"We continue to see improvement in the U.S. commercial construction market, which is reflected in solid sales growth in concrete admixtures, commercial sealants and industrial and commercial polymer flooring,” said Sullivan. “In Europe, growth has been more modest in comparison to the rebound in performance last year, as anticipated.”

Asbestos Settlement, Reorganization Plan

Some non-recurring costs were associated with the company’s recent $797.5 million settlement reached with representatives of current and future asbestos claimants, the company said.

RPM's Bondex business manufactured a variety of asbestos-containing products and materials and inherited others in a 1966 acquisition. Bondex continued to make asbestos-containing joint compound until 1977.

The company reported that Bondex parent company Specialty Products Holding Corp. filed its plan of reorganization Sept. 26 in Delaware Bankruptcy Court, memorializing the settlement.

When the plan becomes effective, a trust will be established to resolve all current and future Bondex asbestos claims, an injunction will be issued by the court that will permanently protect SPHC, RPM International Inc., their affiliates, and other parties from current and future asbestos claims.

At that time, SPHC will also emerge from bankruptcy and will be reconsolidated with RPM, the company reported.

RPM Chairman and CEO Frank Sullivan

RPM's Chairman and CEO Frank C. Sullivan says the company looks forward to bringing closure to the Bondex asbestos liability.

RPM currently anticipates that the plan's effective date and the reconsolidation of SPHC's financial results will occur in RPM's fiscal 2015 third quarter, but notes that the actual timeline could change based on a variety of factors beyond the control of SPHC and RPM.

"The impact of the completion of this transaction on RPM's 2015 fiscal year will be dependent on specific timing and related transaction costs," according to the company.

On an annualized basis, SPHC has revenues of approximately $400 million.

“We look forward to plan confirmation for SPHC and its emergence from bankruptcy,” said Sullivan.

“While the amounts required to fund a 524(g) trust are substantial from a financial perspective, this transaction will be good for RPM shareholders, both in terms of our ongoing operations and as a process which will bring finality to the Bondex asbestos liability,” he said.

Business Outlook

For the fiscal year, the company still projects growth.

"Our full-year outlook for fiscal 2015 remains the same as previously announced, with industrial sales increasing 6 to 8 percent, consumer sales increasing 5 to 7 percent and consolidated sales increasing 6 to 8 percent, which is expected to translate into net income and diluted earnings per share growth over the prior year of 9 to 11 percent, or $2.38 to $2.42," said Sullivan.

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.

Editor's Note: This post was updated at 9:15 a.m. ET Oct. 13, 2014, to correct an error about RPM's sales. PaintSquare News regrets the error.

   

Tagged categories: Architectural coatings; Building envelope; Carboline; Earnings reports; Paint and Coating Sales; RPM; Rust-Oleum Corp.; Stonhard; Tremco

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