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RPM International (RPM) Up 6.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for RPM International (RPM - Free Report) . Shares have added about 6.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RPM International due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

RPM International Q3 Earnings & Sales Top Estimates

RPM International Inc. reported better-than-expected results for third-quarter fiscal 2021 (ended Feb 28, 2021). Its top and bottom line not only surpassed the Zacks Consensus Estimate but also improved from the year-ago period. The uptrend was mainly driven by a strategically-balanced business model and MAP to Growth restructuring program.

Inside the Headlines

RPM International reported adjusted earnings of 38 cents per share, which beat the consensus mark of 34 cents by 11.8% and increased an impressive 65.2% from the year-ago 23 cents.

Net sales of $1,269.4 million surpassed the consensus mark of $1,204 million by 5.4% and rose 8.1% from the prior-year level of $1,174.0 million. The upside was led by 4.9% organic sales growth. Acquisitions contributed 2.1% to net sales growth. Strong contributions from Consumer Group and Specialty Products segments were partially offset by softness in the Performance Coatings Group.

Adjusted EBIT in the reported quarter increased 32.2% year over year to $79.9 million.

Segmental Details

Construction Products Group (CPG): During the fiscal third quarter, sales in the segment increased 6.4% from a year ago to $396 million owing to 5.4% organic growth and a 1% impact of favorable foreign currency. Growth in Construction Products Group was largely attributable to the focus on renovation and restoration projects by expanding CPG’s position as a single-source provider of building envelope systems. The segment continued to gain market share during the quarter in unique construction technologies led by its insulated concrete form business, which is seeing increased adoption as a construction method versus traditional stick-built construction Adjusted EBIT was $18.5 million, up 206.4% year over year.

Performance Coatings Group (PCG): Segment sales decreased 11.4% from a year ago to $226.5 million owing to a 12.7% decline in organic sales. Nonetheless, favorable foreign currency translation of 1.3% contributed to sales. The PCG segment experienced an organic sales decline during the quarter due to the continued deferral of flooring and coating projects as a result of restrictions associated with COVID-19, which impacted the ability of contractors to gain access to the facilities of end customers.

Also, customers in the energy sector are facing poor economic conditions, which are causing deferrals in industrial maintenance spending. Nonetheless, MAP to Growth savings and cost-reduction plans partly offset the negatives. Adjusted EBIT decreased 41.6% on a year-over-year basis to $14.1 million.

Consumer Group: Sales of $477.7 million in the segment improved 19.8% from the prior-year period backed by 12.7% organic growth. Acquisitions contributed 6.1% to sales and foreign currency translation positively impacted sales by 1%. The upside was led by higher demand owing to broad distribution and market-leading position as consumers are more homebound because of the pandemic. Additionally, brisk cleaning product sales drove the top line. The segment’s adjusted EBIT totaled $47.8 million, up a notable 48.6% from the prior-year level of $32.1 million. The bottom line benefited from increasing sales volume and MAP to Growth initiatives.

Specialty Products Group: The segment’s sales totaled $169.2 million, which increased 14.7% on a year-over-year basis owing to a 13.4% rise in organic sales. This along with a contribution of 1.3% from favorable foreign currency translation added to the positives. The improvement was primarily backed by growth in restoration equipment business, resulting from extreme weather events in North America.

Moreover, strong demand for disinfectants, furniture and outdoor recreational equipment added to the positives. Adjusted EBIT during the quarter totaled $25.3 million, up 44.2 % year over year.

Balance Sheet

As of Feb 28, 2021, RPM International had cash and cash equivalents of $249.2 million compared with $212.2 million a year ago and $233.4 million at fiscal 2020-end. Long-term debt (excluding current maturities) at the quarter-end was $2.31 billion compared with $2.49 billion in the prior-year period and $2.46 billion at fiscal 2020-end. Cash provided by operations was $651.9 million for the first nine months of fiscal 2021 compared with $381.2 million in the year-ago period.

Q4 Outlook

Several factors like disruption caused by the winter storm Uri, intermittent supplier plant shutdowns owing to the pandemic and significant worldwide demand for packaging may cause inflationary and supply pressure on some of the product categories. This is likely to increase the overall cost for the fourth quarter of fiscal 2021 and more significantly during fiscal 2022. For the fiscal fourth quarter, RPM International anticipates net sales and adjusted EBIT growth in double digits. Excluding the non-operating segment, adjusted EBIT for four operating segments in total is expected to increase more than 20%.

Meanwhile, the company ensures to continue its cost-saving initiatives and operational improvements in the fiscal fourth quarter. It expects to exceed the targeted MAP to Growth program’s planned run rate of $290 million in annualized savings.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.41% due to these changes.

VGM Scores

At this time, RPM International has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise RPM International has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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