It has been about a month since the last earnings report for RPM International (RPM - Free Report) . Shares have added about 3.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.
RPM International Q1 Earnings Lag, Revenues Beat Estimates
RPM International reported mixed first-quarter fiscal 2019 results, with earnings missing the Zacks Consensus Estimate and revenues beating 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 continue to raise concern.
The company reported earnings per share of 52 cents in the quarter, missing the consensus mark of 86 cents. The figure declined 39.5% from the year-ago 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.
Segment Sales Details
The company has three reportable segments — Industrial, Specialty and Consumer.
Sales at the Industrial segment (contributing 53.6% to total sales) increased 7.2% to $782 million on strong performance in North American waterproofing along with 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% while 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 resulted in tougher year-over-year comparisons.
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 International expects the challenging raw material environment to persist, thereby creating pressure on 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 the 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.
RPM expects sales growth at the Specialty segment to be in the low single-digit range.
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 -5.98% due to these changes.
At this time, RPM International has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, RPM International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.