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Carboline Parent Notches Strong Q2

Wednesday, January 9, 2013

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Protective coatings giant RPM International Inc. reported strong sales and earnings in its second quarter but remained weighed down by continuing charges that dampened its first quarter.

The parent company of Carboline, Rust-Oleum, Stonhard and other well-known brands reported a double-digit dip in second-quarter income for fiscal 2013, despite a double-digit increase in sales.

A strongly rebounding consumer segment helped drive an 11.1 percent overall sales increase for the quarter ended Nov. 30, according RPM’s report released Tuesday (Jan. 8).


RPM's Industrial Segment makes up 67 percent of its sales. Industrial sales rose by 7.7 percent in the second quarter and 6.6 percent in the first half of FY2013.

Overall, second-quarter sales were $1.02 billion, up from $916.1 million in the same period a year earlier, the company said.

However, net income for the quarter declined 16.5 percent from the prior year, to $41.7 million, as the company incurred a $10.8 million charge related to its investment in India-based Kemrock Industries and Exports Ltd.

Similar charges, related to weak economic conditions in India, also dealt a blow to RPM's first quarter of fiscal 2013.

In the first quarter, RPM recorded $56.3 million in charges from the turmoil in India and weakness in the company's roofing division.

Improvements on Adjusted Basis

Despite the setbacks, RPM Chairman and CEO Frank C. Sullivan said the company’s recorded operating results, on an adjusted basis (which excludes Kemrock’s impact), “continue to meet our plan with sales, EBIT and net income posting strong double-digit increases.”

“We are also seeing benefits from our robust acquisition program, which has added businesses generating approximately $300 million in annual sales during the past 12 months,” he added.

Frank C Sullivan

RPM Chairman and CEO Frank C. Sullivan says sales, EBIT, and net income numbers, on an adjusted basis, continue to meet the company's plan.

For the first half of the fiscal year, sales were $2.06 billion, up 8.5 percent from the same period a year earlier. Net income for the first six months declined 40.4 percent, to $75.6 million, from the first half of FY2012.

Based in Medina, OH, RPM is the holding company for a group of businesses that manufacture and market specialty coatings, sealants, building materials and related services serving industrial and consumer markets.

Industrial Ups and Downs

RPM's Industrial Segment—home to Carboline, Tremco, Stonhard, Flowcrete and other brands—makes up 67 percent of the company's sales. The business produces roofing and flooring systems; construction sealants and chemicals; corrosion control coatings; waterproofing and concrete repair materials; and other products.

Second-quarter sales for the industrial segment grew 7.7 percent over the prior-year period, to $691.0 million. Acquisition growth added 6.5 percent, while “organic” growth accounted for 1.2 percent.


Industrial brands in RPM's portfolio include Stonhard, Tremco, Flowcrete and others.

Industrial-segment sales for the first six months of RPM’s fiscal year were $1.39 billion, up 6.6 percent from the prior-year period.

At the same time, however, industrial-segment EBIT decreased by 0.2 percent to $78.1 million in the second quarter. And for the first half of RPM’s fiscal year, industrial segment EBIT was $155.0 million—a 9.2 percent drop from a year ago.

On an as-adjusted basis, industrial segment EBIT grew 6.9 percent in the second quarter, to $78.1 million, from a year ago, the company reported.

"With the exception of our industrial businesses in Europe and our roofing division, most of our industrial product lines continued to perform well, including construction sealants, weatherproofing and admixtures, as well as many of our smaller, niche industrial products, such as edible coatings, fluorescent pigments and disaster restoration solutions," Sullivan said.

Consumer Segment Growth

Second-quarter sales for the company’s Consumer Segment—home of Zinsser, Rust-Oleum, DAP, Varathane, Testors and other brands—jumped 18.9 percent to $326.4 million from a year earlier. Acquisition growth added 12.7 percent to the sales total.

Sullivan said consumer-segment results benefited from “continued improvement in the U.S. residential housing market and strong demand for higher-end new products.”

"Our consumer product lines are performing to our expectations […] while partially recouping lost margin from the moderation in raw material costs compared to the prior year,” he said.

Earnings before interest and taxes (EBIT) for the consumer segment improved 44.1 percent, to $38.6 million from $26.8 million in the prior-year period.


Acquisitions by the Rust-Oleum Group have helped drive sales in the consumer segment. 

First-half sales for the consumer segment were $669.7 million, a 12.9 percent increase from a year ago. Consumer segment EBIT increased 24.4 percent in the first six months of the company’s fiscal year to $97.4 million from the first half of fiscal 2012. 

Second-Quarter Acquisition Activity

Acquisition activity also boosted the company. Sullivan said the purchase of Synta, Kirker and Australia-based HiChem had helped fuel the strong consumer segment sales and earnings growth in the quarter.

Synta Inc. is a $40 million producer of exterior wood deck and concrete restoration systems sold under the brands of Deck Restore and Concrete Restore at leading home centers and other retail outlets. Synta is based in Clarkston, GA.

Kirker Enterprises, of Paterson, NJ, manufactures nail-care enamels, coatings components and related products for the personal care industry and has sales of more than $100 million.

Looking Ahead

For fiscal 2013, RPM continues to expect adjusted earnings per share to grow in a range of 9 to 12 percent to $1.80 to $1.85, on projected sales growth between 8 and 10 percent.

Sullivan added, “As usual, we expect weaker results for the seasonally difficult fiscal third quarter ending Feb. 28, 2013, but anticipate a strong fiscal 2013 fourth quarter.”


Tagged categories: Acquisitions; Carboline; Coating Materials; Coatings manufacturers; Earnings reports; Economy; Finance; Market; RPM; Rust-Oleum Corp.; Stonhard

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