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RPM Issues Q1 Report

Thursday, October 4, 2018

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RPM International Inc. (Medina, Ohio), a holding company whose subsidiaries include Carboline, Tremco and Rust-Oleum, achieved a sales increase but a drop in net income in the first quarter of its 2019 fiscal year, the company revealed in an earnings report issued Wednesday (Oct. 3).

According to RPM, the firm’s Q1, which ended Aug. 31, saw $1.46 billion in sales, up from $1.35 billion in the same quarter last year, buoyed in part by a recovery in the oil and gas market. That number represents a record for a first quarter for the company.

RPM portfolio
RPM International Inc.

RPM International's subsidiaries including Carboline, Stonhard, Rust-Oleum and Day-Glo.

Net income, though, was down 40 percent from prior-year figures, a change that accounts for impacts related to the company’s recent restructuring efforts.

"We saw strong top-line sales growth in the first quarter, with organic sales growth up 7.8 percent, while profitability continued to be adversely affected by rising raw material costs,” said Frank C. Sullivan, RPM chairman and chief executive officer. “In addition, bottom-line results reflected the impact of restructuring charges, higher legal and advertising costs in our consumer segment, and the adverse effect of transactional foreign exchange."

In July, RPM announced leadership and structural changes as part of a cooperation agreement with Elliott Management, an activist fund manager. The move is aimed at streamlining operations and increasing shareholder value.

Numbers by Segment

RPM’s Industrial segment, which includes Carboline, Tremco, illbruck, Stonhard Universal Sealants and other companies, saw a 7.2 percent increase in net sales in Q1 2019 versus the same quarter in 2018, including 6.7 percent organic growth and 1.6 percent growth attributed to acquisitions. Income before taxes (IBT) for the segment was $71.5 million, down from $91.5 million the year before.

Carboline Carboquick 200
Carboline

The Industrial segment, including Carboline, saw 7.2 percent growth in net sales year over year.

“The Industrial segment benefited from especially strong performance in North American waterproofing and a healthy recovery in our businesses serving the oil and gas sector,” Sullivan said. “Leverage to the bottom line was masked by unfavorable transactional foreign exchange expense resulting from the strengthening of the dollar versus certain international currencies.”

RPM's Industrial segment accounts for more than half of its business. 

The Consumer segment, including the Rust-Oleum, DAP and Zinsser brands, saw an increase in net sales to $485.2 million, from $427.1 million in the first quarter of 2018. RPM attributes a 12.4 percent increase in net sales for the segment to organic growth, and 1.7 percent to acquisitions. IBT for the segment was down from the prior year, at $51.3 million in Q1 2019, in comparison with $72.4 million in Q1 2018.

“Consumer segment sales were strong due to new accounts and market share gains, particularly in wood stains and automotive finishes,” Sullivan said. “As previously discussed during our fiscal 2018 fourth-quarter conference call, we anticipated that the fiscal 2019 first quarter would be the high-water mark for margin erosion in the consumer segment. We responded with price increases late in the first quarter to help address this. In addition, legal costs accounted for nearly half of the EBIT decline for the quarter, with much of the remainder resulting from stepped up advertising to support recent market share gains.”

Rust-Oleum roof coating
Rust-Oleum

The Consumer segment, which includes Rust-Oleum, saw a sales increase of 12.4 percent compared with Q1 of 2018.

RPM’s Specialty segment, including Day-Glo, Dryvit exterior cladding systems and TCI Powder Coatings, saw a slight growth in net sales, up 2.3 percent from the prior year, at $192.8 million in 2019’s first quarter. IBT for the segment was $27.8 million, down from $33.2 million the prior year.

RPM attributed the relatively scant growth in the segment for Q1 2019 to the fact that 2018’s first quarter included brisk sales for its water restoration businesses in the wake of the devastating Hurricane Harvey. In August 2018, the patent for the company’s NatureSeal produce coating expired, which has accounted for negative comparisons for the past four quarters; moving forward, that will not factor in to year-over-year comparisons.

Outlook: Price Increases, Restructuring Update

With raw-materials costs increasing across the industry, RPM anticipates more price hikes on some of its products in the future.

“Our businesses will continue to aggressively pursue price increases to protect our gross profit margins in the face of continued raw material cost escalation,” Sullivan said. “With asbestos trust payments now behind us, we are implementing strategic initiatives to enhance shareholder value through operational improvements and improved capital allocation.”

RPM plans an investor day on Nov. 28, at which point an update will be issued regarding the status of the company’s restructuring program. 

   

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

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