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RPM International (RPM) Gains From Buyouts Amid Inflation

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RPM International Inc. (RPM - Free Report) is benefiting from accretive acquisitions and cost-reduction initiatives. During the first two quarters of fiscal 2023, the company completed six small acquisitions. Also, its MAP 2025 (Margin Achievement Plan) is expected to drive growth.

These strategies helped the company to report higher earnings and revenues. Bottom and top lines increased 39.2% and 9.3%, respectively, on a year-over-year basis in the fiscal second quarter. The uptrend was backed 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.

Although this manufacturer and marketer of high-performance coatings, sealants and specialty chemicals has been benefiting from the abovementioned tailwinds, its growth is being restricted by inflationary pressure along with supply chain and foreign exchange risks. These risks partially offset the benefits, as evident from second-quarter fiscal 2023 net sales missing the Zacks Consensus Estimate by 0.9%.

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Shares of RPM have declined 1.9% over the past six months against the Zacks Paints and Related Products industry’s growth of 0.7%. Earnings estimates for fiscal 2023 and 2024 have declined in the past 60 days, depicting analysts’ concerns over the prospects of the company.

Growth Drivers

RPM engages in acquisitions that assist it to grow in its segments. Six acquisitions completed during the first half of fiscal 2023 contributed 1% to the sales of the company during the period. During fiscal 2022, it completed eight acquisitions in three segments, acquiring a chemical manufacturing facility located in Corsicana, TX, within the CPG segment along with a Clearwater, FL-based indoor air quality solutions provider. The company remains focused on prudent strategic growth investments in fiscal 2023 as well. This is expected to improve resiliency, capacity and efficiency.

In fiscal 2018, the company undertook a multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”) to maintain a balance between its segments’ performance as well as to drive growth. This led to improvement in its earnings, adjusted EBIT margin and the net income. Due to the positive outcome, the company unveiled the MAP 2025 (Margin Achievement Plan) operational improvement initiative in August 2022. It expects to accelerate growth, maximize operational efficiencies and generate superior value for its customers, associates and shareholders via MAP 2025. By the end of May 2025, RPM expects to achieve $8.5 billion of annual revenues, 42% gross margin and 16% adjusted EBIT margin.

The company is well on track to reduce costs by closing plants, merging IT system, centralizing more of its back-office functions and rationalizing its manufacturing footprint.


RPM’s business has been witnessing higher costs and expenses related to restructuring, acquisitions, labor, distribution and freight.

Current economic conditions have become difficult as series of interest rate hikes have been negatively impacting construction activities. Temporarily, customers are moderating purchases due to market uncertainties and the company is normalizing inventories in response to a more stable supply chain. Due to these factors, certain RPM businesses are experiencing lower customer demand, which is anticipated to continue in third-quarter fiscal 2023. Along with this, additional headwinds like foreign currency translation and inflation will likely affect the company’s growth. As a result, the company expects year-over-year adjusted EBIT growth to slow or possibly modestly decline in the third quarter of fiscal 2023 for the first time in five quarters.

Weak demand in Europe, where cost pressure was severe and volumes deteriorated due to macroeconomic factors, and new residential construction businesses hurt the bottom line.

Zacks Rank & Key Picks

RPM 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 in the Zacks Construction sector are:

United Rentals, Inc. (URI - Free Report) currently carries a Zacks Rank #2 (Buy). Shares of URI have gained 49.7% in the past six months. The long-term earnings growth rate of the company is 16.3%.

The Zacks Consensus Estimate for URI’s 2023 sales and EPS indicates growth of 20.3% and 28.3%, respectively, from the previous year’s reported levels.

Sterling Infrastructure, Inc. (STRL - Free Report) currently carries a Zacks Rank #2. STRL has a trailing four-quarter earnings surprise of 19.3%, on average. Shares of the company have gained 81.5% in the past six months.

The Zacks Consensus Estimate for STRL’s 2023 sales indicates a 0.8% decline, while that for EPS suggests 10.8% growth.

Skyline Champion Corporation (SKY - Free Report) currently carries a Zacks Rank #2. SKY has a trailing four-quarter earnings surprise of 43.2%, on average. Its shares have rallied 33.1% in the past six months.

The Zacks Consensus Estimate for SKY’s fiscal 2024 sales and EPS indicates a decline of 11.7% and 37.9%, respectively, from the previous year.

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