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RPM Reports Year-End, Q4 Results

Tuesday, July 25, 2017

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RPM International Inc. (Medina, Ohio), the parent company of paints and coatings firms including Rust-Oleum, Carboline and Tremco, reported a major dip in net income over the course of the past year, despite record net sales in its fiscal fourth quarter.

According to the company, which released its Q4 and FY17 numbers Monday (July 24), both the quarter and the year as a whole saw an increase in overall sales, to record numbers. For both periods, however, net income and diluted earnings per share declined in the wake of impairment charges and other non-repeating items from earlier in the year.

“Organic growth across our consumer businesses was down 1.0 percent, principally due to lower results at our Kirker nail enamel business, the negative impact of a very rainy start to the spring season for home improvement sales and a difficult comparison to our prior-year quarter in which organic growth across RPM’s core consumer product lines increased 9.9 percent,” Frank C. Sullivan, RPM chairman and chief executive officer, said in a statement.

Fourth Quarter Results

Net sales for RPM in the fourth quarter increased 4.6 percent to $1.49 billion, while the company's net income declined 16.2 percent to $128.1 million from $152.9 million reported in the same quarter of 2016.

RPM International

“Organic growth across our consumer businesses was down 1.0 percent, principally due to lower results at our Kirker nail enamel business, the negative impact of a very rainy start to the spring season for home improvement sales and a difficult comparison to our prior-year quarter in which organic growth across RPM’s core consumer product lines increased 9.9 percent,” Frank C. Sullivan, RPM chairman and chief executive officer, stated.

Diluted earnings per share took a hit, sitting at $0.94, down 16.8 percent from a reported $1.13 in 2016. Consolidated earnings before interest and taxes (EBIT) also declined, sitting at 5.1 percent ($209.1 million), which included a severance charge of $15 million. The company's EBIT for Q4 of 2016 was $220.4 million; RPM notes that without the severance charge, its Q4 2017 EBIT would have been about a 1 percent increase over prior-year numbers.

Fiscal Year 2017

In 2017, consolidated full-year net sales increased 3 percent in comparison with 2016, to $4.96 billion. This reflects both growth in organic sales and growth via acquisitions across all three segments.

Net income, on the other hand, took a considerable hit, down 48.7 percent ($181.8 million) in comparison with the reported $354.7 million in fiscal 2016. Diluted earnings per share of $1.36 were also down 48.3 percent from 2016. The company's consolidated EBIT for RPM was also down 42 percent, to $327.3 million.

RPM's fiscal year 2016 numbers—net sales, income and earnings per share—had all been record-setting numbers, and were tempered in 2017 by a number of one-time financial hits.

RPM's 2017 included a $12.3 million charge for the closure of a Flowcrete Middle East facility, a $15 million severance charge and $188.3 million in goodwill and intangible impairment charges for the company's Kirker nail enamel business. An impairment charge is triggered when a company’s goodwill—an intangible asset representing stability and positive potential—is considered to be overvalued.

If these terms are excluded, along with last year’s Kirker earnout reversal of $14.5 million, RPM’s EBIT declined 1.3 percent for the year $542.9 million, in comparison to last year. After the exclusion of these same items, net income for fiscal 2017 declined 3.5 percent to $333.4 million. EPS also declined 3.9 percent to $2.47.

For fiscal 2017, cash from operations sat at $386.1 million, down 18.7 percent from $474.7 million in 2016.

The company's total debt for the past year was $2.09 billion, which is up from 2016’s $1.64 billion. The Medina, Ohio, company’s net (of cash) debt-to-total capitalization ratio was 54.8 percent, compared to 50 percent at the end of May of last year.

Carboline

RPM International Inc., the parent company of coatings firms including Rust-Oleum, Carboline and Tremco, reported a record increase in net sales for its fourth quarter, which sits at 4.6 percent.

“Our financial position remains strong, allowing continuation of a robust acquisition program and capital spending for plant improvements. During the fourth quarter, we prepaid the December 2017 524(g) trust obligation in the amount of $119.1 million, as well as the fiscal 2018 U.S. Pension Plan contribution in the amount of $52.8 million,” Sullivan said in a statement.

Consumer Segment Performance

Consumer segment sales for 2017, including brands like Rust-Oleum, DAP and Zinsser, increased 2.6 percent to $1.68 billion. Organic sales increased by 0.6 percent, with acquisition growth adding 3.4 percent. Currency translation negatively affected sales numbers by 1.4 percent.

The consumer segment IBT declined 78.1 percent to $58.7 million, and EBIT for the segment also took a huge hit, declining 78 percent to $59.0 million. Excluding the charge of $188.3 million for the Kirker goodwill and intangible impairment in the second quarter, as well as a severance charge of $4.3 million in the fourth quarter and the $14.5 million Kirker earnout reversal last year, consumer segment EBIT decreased 0.8 percent to $251.6 million.

Industrial Segment Performance

For the fiscal fourth quarter of 2017, sales in the industrial segment (which includes brands like Carboline, Tremco and Stonhard) climbed 5 percent to $733.5 million.

Organic sales showed a slight improvement at 2.2 percent, and growth from acquisitions added 4.3 percent. Foreign currency translation had a negative 1.5 percent impact on sales.

On the other hand, the fourth-quarter industrial segment income before income taxes (IBT) declined 14.9 percent to $92.1 million. The industrial segment EBIT, not counting the $7.7 million severance charge, was down 7.9 percent in comparison with the same quarter in 2016.

“The improvement in industrial sales was driven predominately by strong growth in the U.S. by our high-performance polymer flooring and roofing businesses,” Sullivan said in a statement.

“Businesses serving the oil and gas sector were off in the mid-single-digit range, which is actually an improvement over declines during the past two fiscal years. European sales were up in the mid-single-digit range in local currencies. In addition, unfavorable transactional foreign exchange reduced industrial segment EBIT by $5.5 million.”

Specialty Segment Performance

For RPM’s specialty segment (including Day-Glo, Dryvit and Mohawk), sales increased 4.2 percent to $713.6 million. Organic sales increased 2.8 percent, and acquisition growth added 3.1 percent. Foreign currency translation negatively impacted sales, however, by 1.7 percent.

 Rust-Oleum

The company also incurred several items in its third quarter that it did not expect to repeat in 2018, including an impairment charge of $0.03 per share related to its Restore product line, the closure of a European facility at $0.02 per share and higher acquisition-related expenses of $0.03 per share.

IBT for the specialty segment was up 0.3 percent to $107.9 million, in comparison with 2016’s Q4. Segment EBIT was also up 0.6 percent to $107.4 million. If the $2.9 million severance charge is excluded, specialty segment EBIT increased 3.3 percent.

The Year Ahead

“During fiscal 2017, we completed nine acquisitions with annualized sales of approximately $220.0 million, which we expect to add $0.10 per share in incremental EPS in fiscal 2018,” Sullivan said in a statement. He indicated that the company also took steps in 2017 to reduce overall operating expenses, which are anticipated to generate a net $0.10 per share increase in EPS in fiscal 2018.

The company also incurred several items in its third quarter that it did not expect to repeat in 2018, including an impairment charge of $0.03 per share related to its Restore product line, the closure of a European facility at $0.02 per share and higher acquisition-related expenses of $0.03 per share.

“Looking to fiscal 2018, we expect the industrial segment to benefit from steady economic activity in the North American commercial construction industry, combined with improving results in Europe. Therefore, we expect this segment to grow sales in the low-to-mid-single-digit range during fiscal 2018,” Sullivan noted.

Sullivan added that, in that specialty segment, the company expected low single-digit growth powered by fiscal 2017 acquisitions, as well as organic growth spearheaded by its fluorescent pigment and wood treatment businesses. Lost sales in the edible coatings business due to the expiration of a patent will partially offset these positive results.

“In the consumer segment, we are expecting mid-single-digit growth due to meaningful contributions from fiscal 2017 acquisitions, favorable market conditions, along with new product introductions, market penetration and a stabilization of the Kirker business,” Sullivan went on to say.

“Based upon the growth expectations above, we anticipate earnings per share for fiscal 2018 to be in the range of $2.85 to $2.95 per share.”

   

Tagged categories: Acquisitions; Business matters; Carboline; Finance; RPM; Rust-Oleum Corp.; Tremco; Zinsser

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