RPM International Inc. (RPM Quick QuoteRPM - Free Report) is benefiting from the efficient execution of its MAP 2025 initiatives aimed at expanding the gross margin and fueling adjusted EBIT growth. Furthermore, increased infrastructure demand, especially in international markets, and the company’s focus on its repair and maintenance business improve the growth prospects to a great extent.

Thanks to the positive factors, shares of this manufacturer and marketer of specialty coatings, sealants and building materials have gained 16.5% in the past six months, outperforming the Zacks Paints and Related Products industry’s 13.4% growth.

Although the company’s earnings estimate for fiscal 2024 has remained unchanged in the past 60 days at $5 per share, it showcases a growth rate of 16.3% from $4.30 per share reported in the year-ago quarter. Furthermore, the earnings growth rate of third-quarter fiscal 2024 is 32.4% year over year. The growth prospect is solidified with a VGM Score of A, backed by a Momentum Score of A and a Growth Score of A. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of an outperformance in the near term.

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However, the aforementioned tailwinds are partially offset by a decline in sales in two out of four of RPM’s segments, along with increased expenses. These headwinds are likely to negatively impact this Zacks Rank #3 (Hold) company’s growth prospects to some extent.

Factors Driving Growth

MAP 2025 Initiatives: This operational improvement initiative was unveiled by RPM in August 2022 and aimed to maximize operational efficiencies and generate superior value for its customers, associates and shareholders through 2025.

During the second quarter of fiscal 2024, the company witnessed softness in certain end markets, despite which it could expand its margins in the quarter attributable to the efficient implementation of the MAP 2025 plan. In the quarter, the company primarily witnessed margin expansion in the Construction Products Group (CPG) and the Performance Coatings Group (PCG), wherein both generated higher volumes. Also, a record cash flow of $408.6 million was generated from operating activities during the quarter.

RPM intends to focus on the MAP 2025 initiative through 2024 as it believes there is still scope for improvement.

Strong Infrastructure Demand: RPM has been witnessing increased infrastructure demand from its global markets for some time now. During the second quarter of fiscal 2024, sales volume growth was witnessed in businesses providing engineered solutions targeting infrastructure, reshoring and high-performance building projects. This uptrend was primarily backed by strong sales growth in Latin America, Africa, the Middle East, Europe and Asia/Pacific.

During the quarter, year-over-year sales in Africa, the Middle East and other foreign grew 13%, Latin America increased 21.7%, Europe sales grew 8.9% and Asia/Pacific rose 6.4%. These regions benefited from improved coordination under the Performance Coatings segment’s management, wherein the segment witnessed growth because of infrastructure and capital spending.

Focus on Repair & Maintenance Business: RPM positions itself strong in an uncertain economic scenario by focusing on its repair and maintenance business. In many a case, the sales trend may be soft, thus directly impacting the top line. In such scenarios, this business helps uplift the top line and maintains growth trends of the company.

During the fiscal second quarter of 2024, the strategic balance maintained by RPM through the mix of repair & maintenance, along with its entrepreneurial spirit, aided the sustainable dividend growth. The CPG and PCG segments of the company also benefited from the repair and maintenance business, given the improving trends of the economy.

Factors Hindering Growth

Flat Year-Over-Year Sales Trend: In the second quarter of fiscal 2024, RPM witnessed soft demand from specialty original equipment manufacturer (OEM) end markets, particularly those with exposure to residential housing and reduced consumer purchases in do-it-yourself (DIY) segments at retail outlets. This more than offset the sales volume growth from the increased infrastructure demand during the quarter, resulting in flat sales growth, year over year. This downtrend is witnessed by the lower contributions of the company’s Specialty Products Group and Consumer Group segments.

Along with softness in DIY and specialty OEM markets, sales were negatively impacted by divestitures. The quarter’s sales included a 0.3% organic decline and a 0.2% decline from divestitures net of acquisitions.

High Expense Scenario: RPM’s business has been witnessing higher costs and expenses related to restructuring, divestitures and labor inflation. Also, persistent supply-chain disruptions and acquisitions-related expenses are raising concerns. During the fiscal second quarter of 2024, the company’s selling, general and administrative expenses increased because of investments made for long-term growth initiatives, and increased incentives to sell higher margin products and services. This was accompanied by inflation in compensation, benefits and healthcare expenses.

The company expects to complete most MAP 2025 activities by the end of fiscal 2025, with an estimated $31.8 million (priorly expected $12.1 million) in additional future expenditures related to MAP 2025 implementation, thanks to increases in expected severance and benefit charges of $1 million, and expected facility closure accompanied by other related costs of $15.5 million.

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