It has been about a month since the last earnings report for RPM International (RPM - Free Report) . Shares have added about 1% in that time frame, underperforming 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's (RPM - Free Report) Q3 Earnings Beat Estimates
RPM International Inc. reported third-quarter fiscal 2019 results, wherein earnings and revenues topped the respective Zacks Consensus Estimate. The company reported adjusted earnings per share of 14 cents in the quarter, beating the consensus mark of 11 cents by 27.3%. However, the reported figure declined 33.3% from the year-ago period.
Net sales of $1.14 billion surpassed the consensus mark of $1.13 billion by 0.2% and improved 3.4% year over year, despite being the seasonally slowest quarter due to winter weather conditions across many of the countries and markets served by the company. The improvement is attributed to strong organic growth of 4.3% from the prior-year quarter. Acquisitions also contributed 2.1% to sales growth.
However, strong sales growth continues to be offset by rising raw material expenses, and higher freight, labor and energy costs. In addition, challenging international market added to the woes. Foreign exchange headwinds reduced sales by 3% from the year-ago quarter.
Gross margin decreased 60 basis points (bps) year over year in the fiscal third quarter, owing to higher raw material and freight costs.
Adjusted earnings before interest and taxes (EBIT) in the reported quarter came in at $46.9 million, down 17.3% year over year. Adjusted EBIT margin of 4.1% also declined 100 bps year over year.
The company has three reportable segments — Industrial, Specialty and Consumer.
Industrial Segment (contributing 50.9% to net sales): Sales in the segment increased 2.1% from a year ago to $580.9 million, given strong performance across the businesses providing corrosion control coatings, fiberglass grating, commercial sealants, and concrete admixture and repair products. However, foreign exchange and challenging international market partly offset the segment’s positives. Notably, this segment has the largest international exposure.
Organic sales growth was 4.8%, while acquisitions added 1.3% to net sales. Foreign currency translation negatively impacted sales by 4%.
Consumer Segment (33.8%): Sales improved 6% on a year-over-year basis to $385 million during the quarter, owing to 5.3% organic sales growth. Acquisitions contributed 2.7%, whereas foreign currency translation negatively impacted sales by 2%. Favorable trend of market share gains contributed to the segment’s growth.
Specialty Segment (15.3%): Sales increased 2.7% from the prior-year period to $174.7 million on the back of 0.6% organic sales improvement and 3.4% acquisition growth during the said quarter. However, foreign currency translation impacted sales by 1.3%. The segment gained from marine coatings, exterior cladding systems, fluorescent colorants businesses and benefits from the acquisition of Nudura in September 2018.
As of Feb 28, 2019, the company had cash and cash equivalents of $195.2 million compared with $244.4 million at fiscal 2018-end.
Long-term debt (excluding current maturities) at the end of the quarter was $2.07 billion compared with $2.17 billion at fiscal 2018-end.
In the first nine months of fiscal 2019, the company had cash from operations of $145.5 million compared with $140.7 million in the corresponding period of fiscal 2018.
The company expects net sales to grow in the low-single-digit range during the fiscal fourth quarter, which is seasonally the strongest quarter. It also expects to witness double-digit EBIT growth, resulting from price increases and moderating raw material cost.
Resultantly, for the fiscal fourth quarter, its earnings are expected in the range of $1.12-$1.16 per share, higher than the year-ago level of 63 cents and the consensus estimate of $1.12 (considering the mid-point of the guided range).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, RPM International has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, RPM International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.