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RPM Eyes Solid Growth after ‘Tepid’ Q1

Thursday, October 8, 2015

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Carboline parent company RPM International Inc. acknowledged unfavorable weather conditions and exchange rates contributed to “tepid results” in the first quarter of its 2016 fiscal year, which ended Aug. 31.

However, the company maintains an optimistic outlook for the year ahead.

"With the tepid results of the first quarter behind us, principally weather-related, the underlying economic fundamentals of our consumer businesses remain strong in the U.S.,” Frank C. Sullivan, chairman and chief executive officer, said in a release issued Wednesday (Oct. 7).

“We expect to gain market share in various categories as the year progresses and believe the weather-related consumer sales shortfall in the first quarter will be picked up in future quarters this year," he added.

Frank Sullivan, RPM
RPM International Inc.

In an Oct. 7 announcement, RPM International Chairman and CEO Frank C. Sullivan reported the company's 1st quarter performance in its 2016 fiscal year.

Additionally, a realignment of certain business lines and management structure resulted in the addition of a third reportable business segment in Q1 2016.

The Big Picture

While the company saw Q1 net sales of $1.24 billion, a 3.2 percent net increase over the previous year, its consolidated earnings before interest and taxes (EBIT) declined to $160.6 million, a 1.9 percent drop from its Q1 2015 report.

Net income for the quarter was $99.7 million, a modest 0.7 percent increase from the same quarter in 2015.

Diluted earnings per share rose to $0.74, up 1.4 percent from this time last year. The combination of translational and transactional foreign exchange reduced earnings per diluted share by $0.08.

In local currencies, the company noted, RPM grew at double-digit rates in almost every global region.

Additionally, the following cash flow and financial positioning figures were highlighted:

  • $6.6 million in cash from operations, compared to a negative $125.2 million in Q1 2015;
  • $12.0 million in capital expenditures, compared to $12.1 million in Q1 2015; and
  • $16.8 million in depreciation, compared to $15 million in Q1 2015.

RPM also reported total debt of $1.73 billion as of Aug. 31, up from $1.66 billion at the end of FY 2015 on May 31 and the $1.5 billion reported in Q1 2015.

The company’s net debt-to-total capital was 54.7 percent, up from 46.6 percent in Q1 2015 and 53.4 percent at the end of FY2015.

RPM International Inc.

The company saw a net sales increase of 3 percent, reaching $1.24 billion by the end of Q1 2016.

Liquidity, including cash, was reported at $882.2 million, compared to $892.7 million at Q1 2015 and $963.8 reported at the close of FY 2015.

"RPM continues to have a strong cash and liquidity position, which will enable us to keep funding a growing cash dividend, new product innovation and our acquisition program," Sullivan said.

New Business Segment

In August, RPM created a new Specialty Products Group by combining its former RPM2 industrial operating segment with the former SPHC operating segment.

This plan, approved by RPM’s board of directors in July, was originally disclosed in the company’s annual report for its year ended May 31. It approached the realignment and restructuring of some business segments and management roles with an eye to resource allocation and operating performance.

According to RPM, these business lines hold leading positions in niche markets that are not among RPM’s traditional competitors. They operate in various industries including, but not limited to fluorescent pigments, fire and water damage restoration equipment, specialty OEM coatings, and edible coatings for food and pharmaceutical uses.

As of the end of Q1 2016, the industrial segment composed 53 percent of consolidated RPM sales, the consumer segment represented 32 percent, and the specialty segment made up 15 percent.

Industrial Segment Mixed

Results in the industrial segment for Q1 were a mixed bag.

“Our U.S.-based industrial companies, excluding those with sales into the energy sector, enjoyed mid- single-digit growth, driven by continuing growth in businesses serving the commercial construction market,” Sullivan noted.

© / Acerebel

Overall, sales for the company’s industrial segment fell to $663.3 million, down 4.5 percent from Q1 2015; sales were affected negatively by foreign currency translation.

He indicated that industrial businesses in Europe—RPM’s second largest marketplace—showed a sales decline of 12.9 percent, but a 3.3 percent increase in constant dollars.

“The comparison in Brazil is even more extreme, where sales were down nearly 21 percent, but were up nearly 16 percent in constant dollars," Sullivan added. 

Overall, sales for the company’s industrial segment fell to $663.3 million, down 4.5 percent from the $694.3 million reported in Q1 2015. It reported 3.7 percent in organic growth and an added 0.6 percent from acquisitions.

Sales were affected by foreign currency translation, which contributed an 8.8 percent hit.

EBIT in this segment declined to $84.3 million, a 4.4 percent drop from last year’s report.

Consumer Segment Dampened

RPM pointed to an unusually wet June and July in North America as affecting performance in its consumer segment.

Sales in this area dipped to $395.6 million, an 8 percent decrease from Q1 2015. Organic sales declined 5.4 percent, and acquisition growth contributed 0.4 percent.

Foreign currency translation negatively impacted sales by 3 percent.

The EBIT in this area fell to $66.1 million, a 13.8 percent drop from $76.7 million this time last year.

Specialty Segment Launched

"Excluding acquisitions, sales in the specialty segment were down 11 percent, principally due to the weakening of the Euro versus the U.S. dollar, but sales in constant dollars were fairly flat," stated Sullivan.

This section, which showed a 130.7 percent jump to $183.6 million in sales, primarily felt the effects of the 141.7 percent acquisition growth from the reconsolidation of SPHC subsidiaries. Organic growth contributed 0.6 percent.

Foreign currency translation delivered a negative 11.6 percent impact.

EBIT in the division showed a 64.7 percent increase to $28 million from Q1 2015.

RPM International Inc.

Based in Medina, OH, RPM is a holding company that owns dozens of subsidiaries that produce sealants, coatings and building materials for industrial and consumer markets.

"We are excited to begin our new fiscal year with the reconsolidated SPHC entrepreneurial companies contributing to a full year of RPM sales and earnings, and benefiting from greater access to capital for expansion or acquisitions," Sullivan said.

Looking Ahead

Sullivan noted that the company expects sales to increase “in the low-single-digits” in its industrial segment—RPM’s largest international exposure. Most of its organic growth will be offset by negative foreign currency translation, he said.

For the consumer segment, he said the group expects the Q1 sales shortfall to be made up for over the next three quarters and that sales will grow 5 percent to 7 percent over the rest of its FY 2016.

With the exception of acquisitions, Sullivan expects specialty segment sales will increase in the low-to-mid-single-digits in local currencies, all of which will be offset by negative currency translation.

“Our full-year diluted earnings per share guidance is now $2.50, which reflects the poor weather-driven first-quarter results in the consumer segment, along with continuing negative foreign currency issues," Sullivan stated.

"When you factor out the noise created by the strong U.S. dollar, our great entrepreneurial businesses are competing and winning with solid growth in constant dollars in every region of the world," he said.


Tagged categories: Asia Pacific; Business management; Business operations; Carboline; Coatings manufacturers; Earnings reports; EMEA (Europe, Middle East and Africa); Finance; Latin America; North America; Program/Project Management; RPM; Specialty Coatings

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