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RPM Reports Record Third Quarter

Thursday, April 7, 2016

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Rust-Oleum parent company RPM International Inc. reported record sales and income increases for its fiscal 2016 third quarter.

The Medina, OH-based company, which has subsidiaries that manufacture and market high-performance specialty coatings, sealants and building materials, said it was able to post record sales and earnings before interest and tax (EBIT) in spite of a strong U.S. dollar and overall weakness in many global markets outside the U.S.

Frank Sullivan, RPM
Images: RPM International

In an April 6 announcement, RPM International Chairman and CEO Frank C. Sullivan reported the company's third-quarter performance results for its 2016 fiscal year.

“We were pleased with RPM’s performance during our seasonally slow third quarter, considering the headwinds posed by foreign currency translation, which reduced sales by 4.2 percent in the quarter, along with declining economies in a number of the international markets we serve,” Frank C. Sullivan, RPM chairman and chief executive officer, said in the company's April 6 announcement.

He added that the company was able to leverage good sales growth into EBIT growth of 23 percent in Q3 2016.

Q3, Nine-Month Reporting

According to the company, its net sales grew 4.5 percent to $988.6 million in its fiscal third quarter, compared to the same period in 2015, while consolidated EBIT was up 23.1 percent from last year’s Q3, reaching $42.1 million.

Net income for the quarter was $18.6 million, an area in which the company reported a loss of $57.3 million a year ago. Diluted earnings per share were $0.14 for the quarter, compared to the previous period’s loss of $0.44.

The company explained that the Q3 2015 loss resulted from a tax accrual related to possible repatriation of overseas earnings to fund future obligations for the company's Specialty Products Holding Corp. (SPHC) bankruptcy settlement. In the previous year’s third quarter, on an as-adjusted basis, earnings per diluted share were $0.20 and included a $13 million (or $0.10 per share) tax benefit, the company added.

During the past nine months, net sales were reported to have increased 5.1 percent to $3.39 billion from the same period last year. Consolidated EBIT was up 8.3 percent to $344.4 million. Reported net income grew 81 percent to $201.8 million (or $1.50 per diluted share).

RPM brand pyramid

Net income for the fiscal third quarter was $18.6 million, an area in which the company reported a loss of $57.3 million a year ago.

Excluding fiscal 2015's third-quarter non-cash, net tax charge, fiscal 2016’s nine-month net income showed a 3.5 percent improvement over $195.0 million a year ago, or $1.44 per diluted share.

Cash flow and financial positioning figures were also highlighted, with the company reporting $223.8 million in cash from operations, compared to $24.1 million in the first three quarters of fiscal 2015, and $54.8 million in capital expenditures, compared to $47.3 million for the same period in 2015.

RPM also reported total debt of $1.75 billion, down from the $1.87 billion posted a year ago but up from the $1.66 billion reported at the end of its FY2015. Its net debt-to-total capital was 55.3 percent, down from 57.2 percent reported at the close of FY2015.

The company also indicated it had repurchased 800,000 shares of its stock in the open market at a cost of $35.1 million in the past nine months.

Industrial Segment: Mixed Results

In its FYQ3, RPM saw sales in its industrial segment fall 3.1 percent to $484 million, compared to the third quarter of FY2015.

While organic sales grew 2.6 percent and acquisitions added 0.7 percent, foreign currency translation brought sales down by 6.4 percent in the division, the company reported.

The industrial area saw $6.9 million in higher product warranty expenses and severance-related charges in businesses operating in weaker end markets during the quarter, the group noted. Within these expenses, EBIT for the industrial segment would have been up slightly compared to this time last year, it added.

RPM income statements

“We were pleased with RPM’s performance during our seasonally slow third quarter, considering the headwinds posed by foreign currency translation, which reduced sales by 4.2 percent in the quarter, along with declining economies in a number of the international markets we serve,” Sullivan said.

“Results from our industrial segment continue to be mixed by both end markets and geography,” Sullivan said.

“Our U.S. based industrial companies serving the commercial construction markets enjoyed high single-digit growth. However, our businesses with exposure to the global energy sector continue to be down by about 10 percent,” he added.

Sullivan added that, geographically, the company’s Latin American industrial businesses showed strong organic growth in local currencies, while performance by businesses in Europe was somewhat “choppy.”

Over the past nine-month period, sales for the industrial segment fell 4.6 percent to $1.76 billion, the company noted, while organic sales grew 2.8 percent and acquisitions added 0.6 percent.

For the three quarters of the fiscal year, foreign currency translation had an 8.0 percent negative impact, and EBIT fell 6.7 percent to $161.7 million compared to the same period in fiscal 2015.

RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and other construction chemicals. Industrial companies include Stonhard, Tremco, illbruck, Carboline, Flowcrete and Euclid Chemical.

Specialty Segment: Growing Market Share

The company recognized sales in its specialty segment grow 37.5 percent to $165.6 million compared to the same period in 2015.

It also saw a 7.5 percent increase in organic sales and a 31.5 percent addition from acquisitions, which the company credited to the inclusion of December's results from SPHC companies that had been reconsolidated with RPM at the beginning of the 2015 calendar year, as well as the acquisition of Morrells in March 2015.

Although foreign currency translation had a negative impact of 1.5 percent, EBIT in this category rose 128.4 percent to $21.4 million compared to the previous year’s Q3.

"Excluding the additional month of SPHC sales for December, our specialty businesses are gaining market share in a broad base of niche markets and performed well in Europe," Sullivan said.

RPM segment information

For the industrial segment in the coming quarter, Sullivan said the company anticipates solid growth for businesses serving the U.S. commercial construction markets will be offset by results from businesses serving the global energy sector.

During the first nine months of the 2016 fiscal year, sales in this segment ballooned 98.1 percent to $535.9 million compared to the same period last year. Organic sales saw a 3.4 percent boost, and acquisitions—again primarily from the SPHC reconsolidation—jumped 99.4 percent.

Foreign currency translation had a 4.7 percent negative impact on sales, but the division’s EBIT grew 93.5 percent to $78.5 million compared to the same nine months last year.

RPM's specialty products include industrial cleaners, colorants, exterior finishes, specialty OEM coatings, edible coatings, restoration services equipment and specialty glazes for the pharmaceutical and food industries. Specialty segment companies include Day-Glo, Dryvit, RPM Wood Finishes, Mantrose-Haeuser, RPM Belgium, Legend Brands, Kop-Coat, and TCI.

Consumer Segment: Little Change

Consumer segment sales for the company increased 3.9 percent to $339 million from Q3 2015.

The company also saw a 4.6 percent increase in organic sales in the quarter, with an additional 1.2 percent from acquisitions.

Foreign currency translation delivered a 1.9 percent negative impact in this segment for the quarter, but the division’s EBIT increased 10.3 percent to $38.8 million compared to this time in 2015.

"In our consumer segment, excluding the soft nail polish enamels business, organic growth was approximately 6 percent, fueled by recent market share gains and new product placements," Sullivan noted. 

For the first nine months of fiscal 2016, sales decreased 1.4 percent to $1.10 billion compared to the three quarters of fiscal 2015. Organic sales showed a 0.4 percent improvement, with an additional 0.7 percent coming from acquisitions in that timeframe.

As foreign currency translation negatively impacted sales by 2.5 percent in the first three quarters, EBIT for the segment also declined 1.8 percent to $170.2 million compared to the first nine months a year ago.

RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists; brands include Rust-Oleum, DAP, Zinsser, Varathane and Testors.

What’s Ahead?

According to Sullivan, RPM expects consumer segment sales to grow in the mid-single-digit range during the fourth quarter of the fiscal year.

“Benefits from recent market share gains and new product placements that just began impacting sales in the third quarter this year are expected to continue adding incremental sales into fiscal 2017,” he said.

For the industrial segment, Sullivan said the company anticipates solid growth for businesses serving the U.S. commercial construction markets will be offset by results from businesses serving the global energy sector.

In its specialty segment businesses, sales growth in the mid- to upper-single-digit range is expected to be largely organically driven.

"While the negative impact of currency translation is diminishing slightly on a sequential basis, it will continue to challenge us,” Sullivan said.

   

Tagged categories: Business management; Business matters; Business operations; Carboline; Coatings manufacturers; Earnings reports; Finance; RPM; Rust-Oleum Corp.; Specialty Coatings; Zinsser

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