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RPM International (RPM) Q2 Earnings Meet Estimate, Stock Falls

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RPM International Inc. (RPM - Free Report) reported tepid results in second-quarter fiscal 2023 (ended Nov 30, 2022). Its earnings met the Zacks Consensus Estimate and sales missed the same. On a year-over-year basis, both metrics grew on strong segmental sales.

During the quarter, the company introduced the MAP 2025 operating improvement program and is ahead of targets so far in the fiscal second quarter.

Shares of this specialty chemicals manufacturer fell 6.33% in the pre-market trading session on Jan 5.

Pertaining to the quarterly results, Frank C. Sullivan, RPM’s chairman and CEO, stated, “All four of our segments achieved record second-quarter sales, which included the impact of significant foreign exchange headwinds, and three of our four segments generated record second-quarter adjusted EBIT, despite continued year-over-year cost inflation.”

Inside the Headlines

RPM reported adjusted earnings of $1.10 per share, which met the consensus mark and increased 39.2% from the year-ago quarter’s profit of 79 cents.

RPM International Inc. Price, Consensus and EPS Surprise


RPM International Inc. Price, Consensus and EPS Surprise

RPM International Inc. price-consensus-eps-surprise-chart | RPM International Inc. Quote


Net sales of $1.79 billion missed the consensus mark of $1.81 billion by 0.9% but increased 9.3% from the prior-year level. The uptrend was mainly driven by strong pricing, volume growth in businesses that are benefiting from reshoring and infrastructure spending and material supply improvement through insourcing and qualifying new suppliers. Demand was also strong in the United States and emerging markets. Yet, the European market (which accounts for 13.5% of total sales) was weak due to high inflation and other macroeconomic headwinds.

Organic sales contributed 12.4% and acquisitions added 1% to total sales growth, partially offset by 4.1% in currency headwinds. Adjusted EBIT increased 36.4% year over year to $214.7 million, owing to strong sales and MAP 2025 savings, partially offset by currency headwinds and higher costs in Europe.

Segmental Details

Construction Products Group: In the reported quarter, segment sales increased 3.2% from a year ago to $634.1 million, owing to 6.9% organic growth and a 1.5% contribution from buyouts. The uptrend can be attributed to strengths in restoration systems for commercial roofing, facades and parking structures; admixtures and repair products for concrete and pricing management. Foreign currency translation dented sales by 5.2%. Adjusted EBIT of $80.4 million was down 12% year over year due to an unfavorable mix and reduced fixed cost leverage at plants.

Performance Coatings Group: Segment sales increased 10.8% from a year ago to $335.2 million, owing to a 15.4% rise in organic sales and 0.6% from acquisitions. Foreign currency translation reduced sales by 5.2%. The upside was driven by volume growth across most of its businesses and price increases. Flooring systems, protective coatings and fiberglass-reinforced plastic grating reported double-digit sales growth, backed by a strong demand from manufacturing customers, due in part to reshoring. Energy market demand also contributed to growth. Adjusted EBIT increased 16.6% on a year-over-year basis to $46.2 million.

Consumer Group: Sales in the segment grew 15.3% year over year to $610.4 million, owing to a 17.5% contribution from organic sales and 0.4% from the acquisition. Yet, unfavorable foreign currency translation impacted sales by 2.6%. The upside was driven by selling price increases to catch up with continued cost inflation and strong sales growth in North America. The segment’s adjusted EBIT rose a whopping 180.3% from the prior year’s level to $94.2 million, driven by MAP 2025 operational initiatives and strong sales.

Specialty Products Group: The segment’s sales totaled $212.1 million, which increased 9.5% on a year-over-year basis owing to an 11.5% rise in organic sales. Acquisitions contributed 0.9% to sales, but unfavorable foreign currency translation reduced sales by 2.9%. Solid performance in the food coatings and additives business, growth in the disaster restoration business and strong pricing contributed to the result. Adjusted EBIT for the quarter totaled $30 million, up 43.2% from the prior-year level.

Balance Sheet

As of Nov 30, 2022, RPM International had total liquidity of $880 million. This includes cash and cash equivalents of $232.1 million compared with $192.9 million at the fiscal 2022-end. On Aug 1, RPM increased its revolving credit facility to $1.35 billion from $1.30 billion and extended the term of the facility to Aug1, 2027.

Long-term debt (excluding current maturities) at quarter-end was $2.84 billion compared with $2.16 billion at fiscal 2022-end. Cash provided by operations amounted to $190.9 million for the first half of fiscal 2023, up from $159.4 million in the year-ago period.

Fiscal Q3 Outlook

Sullivan continued, “While long-term visibility remains limited, economic conditions have recently become increasingly challenging as higher interest rates have negatively impacted construction activity, existing home sales, and overall economic activity. Additionally, some customers are temporarily moderating purchases as they normalize inventories in response to a more stable supply chain. As a result, certain RPM businesses have experienced reduced customer demand, a trend that is expected to continue throughout the third quarter. When combined with headwinds from foreign currency translation and inflation, we are forecasting year-over-year adjusted EBIT growth to slow or possibly modestly decline for the first time in five quarters.”

For third-quarter fiscal 2023, RPM expects sales to increase in the low to mid-single-digit range year over year. The company expects sales to decline at CPG in low to mid-single-digit.

PCG sales are anticipated to increase in the high-single-digit to low-double-digit. SPG sales are expected to remain flat. The Consumer Group’s sales are likely to be up in the mid-single-digit.

Consolidated adjusted EBIT is expected to be between $75 million and $85 million from $80.6 million reported in the year-ago period.

Zacks Rank & Key Picks

RPM International currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks that warrant a look in the Zacks Construction sector include Boise Cascade Company (BCC - Free Report) , Altair Engineering Inc. (ALTR - Free Report) and ChampionX Corp. (CHX - Free Report) , each sporting a Zacks Rank #1.

Boise Cascade: Based in Boise, ID, this wood company makes wood products and distributes building materials in the United States as well as Canada. Boise Cascade’s Building Materials Distribution and Wood Products segments are gaining strength from strong end-product demand (particularly for EWP) as well as higher commodity product prices. It has also been increasing commodity offerings that will instill growth in the existing markets, underserved markets and across its entire national footprint.

Importantly, Boise Cascade — which has declined 0.1% in the past year — has seen a 5% upward estimate revision for 2023 earnings over the past 30 days.

Altair: This Troy, Michigan-based company provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence worldwide. Despite significant macroeconomic uncertainty, ALTR has been registering solid growth in billings on a constant-currency basis and witnessing strong demand across all geographies. The company’s focus on delivering services with outstanding technology developments and applications is expected to drive growth.

Altair’s earnings for 2023 are expected to witness 21.5% growth from the year-ago report.

ChampionX: This engineering services company provides chemistry solutions, engineered equipment and technologies to companies that drill for and produce oil and gas. CHX’s Chemical Technologies offering consists of chemistry solutions for flowing oil and gas wells as well as chemistry solutions used in drilling and completion activities. The company has successfully implemented price increases and surcharges to offset cost inflation. Moreover, CHK remains optimistic about the constructive demand tailwinds in its businesses that support a favorable multi-year outlook for the sector.

ChampionX has an expected earnings growth rate of 46.3% for the next year. The Zacks Consensus Estimate for next-year earnings has improved 4.7% over the last 30 days.

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