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RPM Q3: Sales Up, Income Dips

Friday, April 7, 2017

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RPM International Inc., the parent company of well-known consumer coatings brands like Rust-Oleum and Zinsser, slightly increased sales in its 2017 third quarter, but posted a drop in net income.

The Medina, Ohio-based company reported Thursday (April 6) that pre-tax charges for an intangible impairment on its Rust-Oleum Restore product line and the closing of a European manufacturing facility took a toll on net income for the quarter, versus the prior-year period.

Restore
Rust-Oleum Corp.

Negative trends in the Rust-Oleum Restore product line led to a loss of market share, and resulted in a pre-tax charge of $4.9 million, according to RPM.

Sales increased 3 percent to $1.0 billion, from $988.6 million in the same period in 2016, the company reported.

Net income of $11.9 million in the third quarter decreased 35.8 percent from $18.6 million reported a year ago. Third-quarter earnings per share (EPS) were $0.09, down 35.7 percent.

Income before income taxes (IBT) was $17.0 million, down 22.4 percent from year-ago. Consolidated earnings before interest and taxes (EBIT) were $37.1 million, down 11.9 percent from year-ago figures. The impairment and restructuring charges reduced both IBT and EBIT by $9.1 million in the quarter.

Pre-Tax Charges

According to RPM, “During the current quarter, certain negative trends in the Restore product line led to a loss of market share, resulting in a downward revision to its long-term forecast.”

The company said this represented an impairment triggering event and, after additional testing, resulted in a pre-tax impairment charge of $4.9 million. Further, an unprofitable operation in Europe was shuttered during the quarter, resulting in a pre-tax charge of $4.2 million.

Chairman and CEO Frank C. Sullivan said that the latter charge was in line with the company’s strategy to close underperforming operations.

“We were pleased with our consolidated sales growth during the third quarter, which is typically slow due to cold winter weather that limits outdoor repair, maintenance and construction activities,” he noted.

Acquisition Mode

“On the acquisition front, we completed five transactions during the quarter, which will add approximately $170 million in annualized sales,” he said, adding that “[c]osts associated with completing these acquisitions, as well as the associated impact on cost of sales resulting from the step-up in inventory, further reduced EPS by approximately $0.03 per share.”

RPM
RPM International Inc.

A recent profile of RPM Chairman and CEO Frank C. Sullivan indicated that under his leadership, RPM has completed more than 70 acquisitions in the last 10 years.

RPM said it has completed nine acquisitions this fiscal year so far, including the purchase of Arizona-based Prochem and Missouri-based Arnette Polymers, companies with combined sales of $42 million. The company also recently purchased Prime Resins, of Conyers, Georgia. That manufacturer of specialty chemicals and equipment for infrastructure construction and repair had annual sales of $7 million.

A recent profile of Sullivan indicated that under his leadership, RPM has completed more than 70 transactions in the last 10 years.

RPM reported the following mixed segment results for its third quarter.

Industrial Posts Growth

Industrial segment sales increased 5.8 percent to $521.4 million, from the same period a year ago, RPM reported. That increase came from organic sales, 2.5 percent, and acquisitions, 4.1 percent. Foreign currency translation negatively impacted sales in the segment by 0.8 percent.

IBT was $11.7 million, compared to year-ago IBT of $0.5 million. Industrial segment EBIT for the quarter of $14.6 million, up from $2.0 million seen last year.

"Our businesses serving the U.S. commercial construction market again experienced solid organic growth,” Sullivan commented. “Most businesses in Europe were up in the low- to mid-single-digit range in local currencies and current-year acquisitions contributed nicely to the segment's overall sales growth. We were very pleased with the strong EBIT leverage achieved on solid top-line sales.”

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, Euclid Chemical and RPM Belgium Vandex.

Consumer Earnings Dip

Sales in RPM's consumer segment increased 0.7 percent to $341.4 million from the third-quarter of 2016. Organic sales dipped 3.6 percent, while acquisitions added 5.1 percent in the segment. Foreign currency translation negatively impacted sales by 0.8 percent.

IBT was $29.8 million, down 23.2 percent from year-ago figures. Consumer segment EBIT was $29.9 million, down from $38.8 million a year ago.

"Excluding our Kirker nail enamel business, the consumer segment produced modest sales growth, primarily driven by acquisitions,” stated Sullivan.

DAP
DAP

RPM's DAP business acquired Touch-N-Foam, a division of Clayton Corp., of St. Louis, in January.

“The decline in organic sales was driven by the timing of orders from our retail customers during the quarter. Impacting segment earnings for the quarter was the Restore impairment charge, along with acquisition-related expenses and the impact on cost of sales relating to the step-up in inventory.

“Looking ahead, we are encouraged by housing market activity, retail customer results and the acceptance of recently introduced new products.”

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

Specialty Sees ‘Soft’ Sales

Sales for RPM’s specialty segment were up 1.8 percent to $159.7 million compared to a year ago. Organic sales decreased 0.6 percent and acquisitions added 3.8 percent. Foreign currency translation negatively impacted sales by 1.4 percent.

IBT was $15.0 million, down 31.0 percent from the year-ago level. Specialty segment EBIT declined 30.8 percent to $14.9 million in the quarter.

RPM
RPM International Inc.

RPM's portfolio of coatings companies includes Carboline, Stonhard, and Tremco.

"Sales were soft for nearly all of our specialty segment businesses, which cut across a broad range of industries, and earnings were negatively impacted by the European facility closure amounting to $4.2 million,” Sullivan said.

“In this traditionally slow quarter, the segment didn't generate enough top-line momentum to create positive leverage through its fixed operating cost structure," he noted.

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, Legend Brands, Kop-Coat and TCI.

RPM’s Outlook

In looking ahead, RPM expects that “recent expense-reduction initiatives, along with the $220 million in revenue added via nine acquisitions this fiscal year, have RPM well positioned for solid performance in the fourth quarter and into fiscal 2018,” according to Sullivan.

In the company’s industrial segment, Sullivan expects mid-single-digit sales growth during the fourth quarter of 2017, predicting continued strength in U.S. commercial construction markets and steady progress across Europe.

The company also noted that six industrial acquisitions completed during the fiscal year will also add approximately $80 million in annualized sales.

"Our consumer segment's fourth-quarter sales should increase in the mid-single-digit range,” said Sullivan. “Third-quarter acquisitions in the segment will help balance out underperformance at our Kirker business, which remains challenged.”

Sullivan expects its specialty segment to grow in the low- to mid-single digit range during the fourth quarter.

"As-reported EPS guidance for the full fiscal year of $1.54 to $1.64 remains unchanged,” he said. “In January, we provided full-year as-adjusted EPS guidance of $2.62 to $2.72. As-adjusted EPS guidance is being reduced by $0.05 per share to $2.57 to $2.67 for the combined third quarter charges for the Restore intangible impairment and the European facility closure.”

   

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

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