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RPM Posts Record First Quarter

Thursday, October 6, 2016

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North American commercial construction markets were said to have bolstered results for RPM International Inc.'s first quarter of 2017, which ended Aug. 31.

However, the company also faced a reportedly soft market in the energy and heavy equipment industries.

The Medina, OH-based company, which owns subsidiaries that supply specialty coatings, sealants, building materials and related services, announced its Q1 earnings Wednesday (Oct. 5).

Continued challenges related to currency exchange rates and an overall sluggish economy also proved difficult, but the company reported record sales, net income and earnings per diluted share for the period, it said.

Overall Q1 Results

First quarter net sales increased 0.8 percent to $1.25 billion, while net income jumped 13 percent to $112.8 million from the same period a year ago, the company said.

Carboline Carbotherm 551
Carboline

Carboline parent company RPM International reported record sales, net income and earnings per diluted share in its fiscal 2017 first quarter, despite challenging conditions.

Diluted earnings per share of $0.83 showed a 12.2 percent increase from the fiscal 2016 first quarter.

Consolidated earnings before interest and taxes (EBIT) improved 4.2 percent to $167.4 million from the start of the previous fiscal year.

Additionally, the company noted that its early adoption of accounting standard ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” during the quarter allowed it to recognize a tax benefit, which helped lower its quarterly effective tax rate to 23.6 percent.

"We were very pleased with the balanced EBIT leverage across all three of our segments during the first quarter, especially in light of the challenging revenue growth environment globally," said RPM Chairman and Chief Executive Officer Frank C. Sullivan.

Additionally, the company highlighted the following cash flow and financial positioning figures for the fiscal Q1:

  • $6.5 million in cash from operations, compared to $6.6 million a year ago;
  • $17 million in capital expenditures, compared to $12 million a year ago; and
  • $1.66 billion in total debt as of Aug. 31, compared to $1.64 billion as of the May 31 end of fiscal 2016 and $1.72 billion at the end of Q1 2016.

RPM’s reported net (of cash) debt-to-total capital was 50.5 percent, compared to 54.5 percent at the end of Q1 2016 and 50 percent at the end of fiscal 2016.

Liquidity, including cash, grew to $976 million versus $882.2 million at this time last year and $1.1 billion as of May 31.

"RPM continues to be in a strong financial position to fund a growing cash dividend, acquisitions and internal growth investments," Sullivan said.

Industrial Segment Mixed

In its fiscal Q1, RPM saw its industrial segment’s net sales dip 0.2 percent to $675.8 million from the same period last year. Foreign currency translation negatively impacted the segment, reducing sales by 2.4 percent, it said.

RPM, Tremco buy commercial waterproofing firm
Photos: RPM International unless otherwise noted

According to Chairman and Chief Executive Officer Frank C. Sullivan, RPM companies serving North American commercial construction markets continued to post strong results, while those serving the energy and heavy equipment industries worldwide faced continued dampened demand.

EBIT for the segment grew 5.9 percent to $91.1 million from the fiscal 2016 first quarter.

"RPM's industrial businesses continued a recent trend of mixed results, depending on the markets they serve, both geographically and by industry,” Sullivan said.

“Our companies serving North American commercial construction markets continued to post strong results, while those serving the energy and heavy equipment industries worldwide faced continued dampened demand,” he explained.

Currency headwinds also continued to affect the company’s industrial businesses outside the U.S., Sullivan noted; however its Brazilian business reportedly delivered mid-single-digit growth at actual exchange rates and high-single-digit growth in local currencies.

Specialty Segment Solid

The company recognized modest growth of 3.8 percent in its specialty segment’s sales, reaching $176.3 million from the same quarter the previous year. Organic growth contributed 2.6 percent, and acquisition growth 2.9 percent.

The segment saw a negative impact of 1.7 percent from foreign currency translation. First quarter EBIT for the segment, however, jumped 15.5 percent to $30.4 million.

"Many of our specialty business units had solid performance in the quarter, led by our Legend Brands restoration equipment unit and recent acquisitions that added incrementally, all of which contributed to great EBIT conversion," Sullivan noted.

Consumer Segment Steady

RPM’s consumer segment reported a 1.1 percent increase in sales, reaching $399.9 million from the fiscal 2016 Q1. Organic sales also grew 1.8 percent, while acquisition growth added 1 percent.

Sales were reduced 1.7 percent by foreign currency translation, but the segment’s EBIT recognized a 6.1 percent increase to $70.1 million over the same time last year.

RPM Q1 2017 Segment Info

"RPM's industrial businesses continued a recent trend of mixed results, depending on the markets they serve, both geographically and by industry,” Sullivan said.

"Our core consumer businesses of small project paints, primers and patch and repair products met our expectations, while our nail enamel product line results were below the prior-year first quarter, as expected,” Sullivan explained.

He added that the company “struggled a bit” in its core caulks and sealants category. A very strong spring sell-in season depleted safety stocks, Sullivan noted, leaving the company unable to meet the continued strong demand during the quarter.

“Additional capacity is being installed, which should alleviate this issue by the end of our fiscal second quarter," Sullivan said.

The Big Picture

Based on its first quarter earnings, Sullivan noted that the company continues to generate growth across most of its businesses in spite of market and economic challenges.

Moreover, its operating units were able to leverage modest sales growth into very strong EBIT growth, he added.

“This leverage, combined with the quarter's tax benefit, generated very good improvement in net income and earnings per diluted share,” he said.

Although the company achieved a lower tax rate in its first quarter through to the adoption of the new accounting standard, it estimates the full-year effective tax rate will remain in the 26 percent range as previously disclosed.

“As a result, we are maintaining our guidance for diluted earnings per share in fiscal 2017 of between $2.68 and $2.78," Sullivan said.

   

Tagged categories: AkzoNobel; Business matters; Business operations; Carboline; Coatings manufacturers; Earnings reports; Finance; PPG; RPM; Sherwin-Williams

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