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RPM International (RPM) Lags on Q1 Earnings, Beats Revenues

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RPM International Inc.’s (RPM - Free Report) shares declined 5.4% yesterday, following first-quarter fiscal 2019 results, wherein earnings missed the Zacks Consensus Estimate whereas revenues beat the same. Strong sales growth continues to be offset by rising raw material costs. In addition, restructuring charges, higher legal and advertising costs in the consumer segment, along with the adverse effect of transactional foreign exchange added to the woes.

The company reported earnings per share of 52 cents in the quarter, missing the consensus mark of 86 cents. The reported figure also decreased 39.5% from the year-ago figure of 86 cents.

Nevertheless, net sales of $1.46 billion in the quarter beat the consensus mark of $1.42 billion. Moreover, the figure increased 8.5% year over year, mainly attributable to strong organic growth of 7.8%.

Gross margin of 40.6% decreased 190 basis points year over year in the fiscal first quarter, owing to higher raw material costs.

RPM International Inc. Price, Consensus and EPS Surprise

 

RPM International Inc. Price, Consensus and EPS Surprise | RPM International Inc. Quote

Segment Sales Details

The company has three reportable segments — Industrial, Specialty and Consumer.

Sales in the Industrial segment (contributing 53.6% to total sales) increased 7.2% to $782 million, given strong performance in North American waterproofing, along with a healthy recovery in businesses serving the oil and gas sector. Organic sales growth contributed 6.7%, while acquisitions added 1.6%. Foreign currency translation negatively impacted sales by 1.1%.

Consumer segment sales improved 13.6% to $485.2 million, owing to 12.4% organic sales growth. Acquisitions contributed 1.7% whereas foreign currency translation negatively impacted sales by 0.5%. New accounts and market share gains, particularly in wood stains and automotive finishes, benefited the consumer segment.

Specialty segment sales increased 2.3% to $192.8 million, with organic sales growth of 2%. Although foreign currency translation impacted sales by 0.1%, acquisitions added 0.4%. The segment benefited from water damage restoration businesses’ response to Hurricane Harvey, which created tougher year-over-year comparisons.

Balance Sheet

As of Aug 31, 2018, the company had cash and cash equivalents of $202.2 million compared with $244.4 million at fiscal 2018-end.  

Long-term debt (excluding current maturities) at the end of fiscal first quarter was $2.27 billion compared with $2.18 billion at fiscal 2018-end.

Fiscal 2019 Views

RPM expects the challenging raw material environment to persist, thereby creating pressure on the company’s gross margin. All of its businesses have been pursuing price increases aggressively, including the consumer segment division.

The company expects Industrial segment sales to increase in the mid-single-digit range. The segment is expected to gain from robust construction activity and a mostly stable international backdrop outside Brazil. Again, RPM’s industrial coatings business will likely benefit from ongoing oil and gas market recovery.

Coming to the Consumer segment, sales are expected to grow in the mid- to upper single-digit range. Improved product line, market share gains, higher advertising campaign for new product placements and the recent purchase of Miracle Sealants are expected to drive growth of the company.

RPM expects sales growth in the Specialty segment to be in the low single-digit range.

Zacks Rank & Key Picks

RPM currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the Zacks Construction sector are Armstrong Flooring, Inc. (AFI - Free Report) , PotlatchDeltic Corporation (PCH - Free Report) and Trex Company, Inc. (TREX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Armstrong Flooring, PotlatchDeltic and Trex’s 2018 earnings are expected to grow 104.8%, 26.7% and 48.7%, respectively.

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